Huawei’s CFO arrested: US-China tech Cold War?

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Huawei’s CFO arrested: US-China tech Cold War?

Wenqian Zeng

12th December 2018

 

On 1st December 2018 [1], CFO Meng Wanzhou of Huawei – China’s telecommunication giant – was detained in Vancouver, Canada during a flight transfer under US’s request. US authorities have claimed that Meng has helped Huawei avoid US sanctions on Iran by informing financial institutions that a Huawei Subsidiary, Skycom, was a separate company [1]. Meng may face “serious charges of fraud” involving “millions of dollars” and could even receive jail time if found guilty [1].

This accusation has angered the Chinese government as China demands the release of Meng. China has described this arrest as “lawless, reasonless and ruthless” [1]. In response to the arrest, China has relatively calmly responded by summoning both the US ambassador, Terry Branstad, and Canadian ambassador, John McCallum, over the weekend to China to consult the issue.

However, if Meng continues to be withdrawn from personal freedom, the threat of boycotting US products such as Apple urged by a number of Chinese companies and groups may cause some serious recoil. Since large scale destructive protests are not unfamiliar for China with examples towards Japan in 2012 and France in 2008 [2], if Chinese citizens decide to stop purchasing Apple products in an effort to support Huawei, it will likely have detrimental effects on Apple and US brands.

Huawei, viewed by US as a national security threat, is one of the world’s biggest telecommunications equipment and services companies headquartered in Shenzhen, China. Huawei has sold more smartphones than Apple with telecommunications networks worldwide [3]. It is therefore central to China’s ambition to become the world’s most prominent technology provider and reduce reliance on foreign suppliers. However, the US government has pressured US citizens to refrain from buying products from Huawei.

The arrest of the daughter of Huawei’s founder can be seen as an escalated move from the US with several implications. Not only has it angered Beijing authorities, disturbed investors and more importantly, increased tension of the existing trade war and intensified the ambiguity regarding the fragile truce President Trump and President Xi reached less than a week ago [3].

Furthermore, this aggressive move may be the trigger to a technology cold war between China and US as both economies battle for tech supremacy. In an effort to refrain China from surpassing America and becoming the new tech superpower, the Trump administration has imposed high tariffs on Chinese goods and expressed that China should stop trying to steal US technology through cyber-theft and forcing companies to hand over trade secrets [4].

Huawei is central to China’s 5G wireless technology as it is said to be the only company in the world right now that has the ability to construct 5G network at a cost effective scale [3]. However, this provocative move clearly targeting Huawei may halt the process, at least for the moment since approximately 1/3 of Huawei’s suppliers are US companies [3].

This will also inhibit China’s “Made in China 2025” plan, where China aims to be the global technology leader in industries such as robotics, electric cars, computer chips etc [4]. As President Xi tries to increase China’s technology self-sufficiency, it has heightened US’ concerns that have been building up in the last years. Therefore, the arrest is also a painful reminder of China’s vulnerability, its dependence on the US and the similar cases earlier this year. The Commerce Department prohibited US companies to export components to ZTE in April, a smaller Chinese telecommunications equipment company, which crippled ZTE’s operations for months as a result [4]. Similarly, in October, exports were banned to Fujian Jinhua, a Chinese state-owned chipmaker as it imposed risks upon the national security [4].

As both economies try to dominate future technologies through 5G and artificial intelligence which will drive long term economic growth and national security [5], the two countries will still continue its negotiations and hopefully reach a deal in 90 days as it will be mutually beneficial despite the obvious tensions. However, will the agreement be a sustainable one? Nevertheless, it is likely that the US will continue to restrain China’s efforts to expand using various methods and it will be interesting to see how China will respond whether it be retaliating or not.

 

Bibliography:

[1] Horowitz, J., Moya, A. and McLea, S. (2018). Jailed Huawei CFO’s bail decision pushed to Tuesday as tensions persist. [online] CNN. Available at: https://edition.cnn.com/2018/12/10/business/huawei-meng-wanzhou-bail-hearing/index.html [Accessed 12 Dec. 2018].

[2] Westcott, B. and Xiong, Y. (2018). Chinese companies are threatening to punish employees caught using Apple products. [online] CNN. Available at: https://edition.cnn.com/2018/12/11/business/huawei-apple-china-tech-us/index.html [Accessed 12 Dec. 2018].

[3] Mullen, J. (2018). Huawei exec’s arrest opens a new front in the US-China trade war. [online] CNN. Available at: https://edition.cnn.com/2018/12/06/business/huawei-us-china-trade-war/index.html [Accessed 12 Dec. 2018].

[4] Horowitz, J. (2018). Huawei arrest: This is what the start of a tech Cold War looks like. [online] CNN. Available at: https://edition.cnn.com/2018/12/08/tech/huawei-cfo-tech-cold-war/index.html [Accessed 12 Dec. 2018].

[5] Wright, J., Triolo, P. and Hirson, M. (2018). Perspectives: What Huawei case says about America’s growing impatience with China. [online] CNN. Available at: https://edition.cnn.com/2018/12/08/perspectives/huawei-cfo-arrest-us-china-trade/index.html [Accessed 12 Dec. 2018].

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