China – United States: Waaah – wei!

Date first published: 30/1/2018

Key sectors: technology; various

Key risks: great-power rivalry; trade war; sanctions

On 28 January the US Department of Justice (DoJ) announced criminal charges against Huawei and its CFO Sabrina Meng Wanzhou for conspiring to violate sanctions on Iran. The DoJ views Meng’s case as separate from the trade spat. For the Chinese, the Huawei issue is more serious than US tariffs as it threatens the President Xi Jinping’s ‘Made in China 2025’ strategy for hi-tech dominance. Indeed, Huawei has come to symbolize US fears over China’s tech capabilities and the wider US-China great-power rivalry.

Many of the 23 charges against Huawei can be traced back to a Hong Kong-based company called Skycom, which attempted to sell embargoed Hewlett-Packard computer equipment to Iran. In January 2013 it emerged that Skycom and Huawei had much closer ties than previously known. As such, US prosecutors maintain that Meng repeatedly lied to banking authorities about the relationship, telling financial institutions operating in the US that Skycom was a separate company when in fact it was a Huawei subsidiary. Another charge accuses Huawei of stealing robot technology from US carrier T-Mobile.

Meng was arrested in Canada on 1 December at the request of the US. The US Department of Justice has until 30 January to file a formal extradition request. Canada now finds itself right in the middle of a great-power battleground. In detaining Meng, Ottawa is following its long-standing policy of close cooperation with Washington on security and law enforcement matters. However, this has put Canada’s strong economic relationship with China at risk, with Beijing threatening consumer boycotts on Canadian products. Ottawa’s choice has also come with heavy consequences for Canadian citizens. In a move widely seen as retaliation for Meng’s arrest, Chinese authorities detained two Canadian nationals, including a former diplomat, on security charges. On 14 January another Canadian received the death penalty for drug smuggling despite initially having been sentenced to 15-years in prison.

However, the impossible position in which Canada finds itself did not come out of nowhere. The fact that Meng was involved in violating sanctions on Iran is almost secondary to the US’ long-standing concerns over Huawei as a company. These start with the fact that Huawei is headed by former PLA officer Ren Zhengfei. Although Ren – who is also Meng’s father – didn’t even hold military rank, the PLA link has led to suspicions surrounding the amount of control the Chinese state has over the telecommunications giant. As such, Huawei – or ‘Wawei’ as some US officials pronounce (or write) it – represents everything the West fears about China’s tech and cyber capabilities. The focus of concern centres around the company’s 5G technology, which could be used to assist the Chinese government in cyber operations. US fearmongering has spread beyond the ‘Five Eyes’ nations (the US, Canada, Australia, New Zealand and the UK) to Japan, Taiwan, and several EU member states.

Charges against Huawei and Meng couldn’t come at a worse time given that senior-level US-China trade negotiations are due to begin on 30 January. With only 30 days to go before the trade war truce is up, the Huawei cloud has overshadowed any hope for progress. On the other hand, the charges could give the US more leverage; Meng’s extradition to the US could be used as a bargaining chip. This suggests that the DoJ’s timing is, on the contrary, perfect.