Arrest of Huawei executive 'could be a prelude to stern action' say analysts

Company's CFO Meng Wanzhou was arrested on suspicion of breaching US trade sanctions against Iran

Meng Wanzhou, Executive Board Director of the Chinese technology giant Huawei, attends a session of the VTB Capital Investment Forum "Russia Calling!" in Moscow, Russia October 2, 2014. Picture taken October 2, 2014. REUTERS/Alexander Bibik
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The arrest of Huawei’s chief financial officer Meng Wanzhou could be a harbinger of more challenges ahead for the Chinese telecommunications equipment company, analysts said on Friday.

Ms Meng, who is the daughter of the Shenzhen technology giant's founder Ren Zhengfei, was arrested in Vancouver last weekend on suspicion of violating US trade sanctions against Iran.

"The investigation of Huawei could be a prelude to further action against the firm and its senior officials,” said Eurasia Group, a political risk consultancy firm.

“It remains unclear if the US department of justice has enough evidence to mount a case similar to the one that led to the denial ban on ZTE, but the action against Meng suggests it may be able to propose similar action."

Eurasia said that the impact of a similar and sudden denial ban of the type placed on ZTE would be much wider, given that Huawei equipment is more widely used.

ZTE, China’s second-largest telecoms equipment maker, agreed to pay $1.4 billion in fines to the US after Washington slapped a ban in April on purchases of essential American components for seven years to punish the company for violations of US sanctions against Iran.

"I think it [the arrest] has certainly come at a bad time and it will undo any goodwill coming out of G20 agreement between Trump and Jinping," Cailin Birch, global commodities analyst at UK-based Economist Intelligence Unit, told The National, adding "it will definitely threaten the ongoing negotiations."

“It’s different from the ZTE case because that was a civil case, but the arrest has been made on criminal charges which means China cannot really bring the arrest issue as part of negotiation process. It’s a different level of severity.”


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Ms Birch said that over the past few months Canada has also become equally concerned over rising competition and investments from China.

“Canada has become increasingly aware of its own security and tech-related investments coming from China. A few of such attempts (investments) have been blocked in the past few months.”

The Chinese Embassy in Canada condemned the detention of Ms Meng denying she had violated Chinese or US laws.

“Message is clear - the US is closing the borders to many Chinese technology companies," said Neil Campling, co-head Global Thematic Group at Mirabaud Securities. "Also, the US and Canada are much more closer and aligned now than they were in recent months.

“However, there is another aspect to it... there is an intelligence sharing agreement called Five Eyes consisting of five countries: US, UK, Canada, Australia and New Zealand. The Five Eyes alliance aims to collect and share intelligence around technology. So it is possible that this action [the arrest] could be related to that Five Eyes agreement,” he said.