The United States has ramped up its fight with China over technology by revealing charges against top telecoms company Huawei.
The US Department of Justice alleges Huawei stole trade secrets from US-based companies and conspired to dodge US sanctions on Iran. Charges were also unsealed against the company’s chief financial officer, Meng Wanzhou, who is under arrest in Canada and faces possible extradition to the United States.
What happens to Huawei and Meng will have huge implications for the world’s top two economies, which are locked in an expanding clash over trade and technology. The dispute will shape ties between Beijing and Washington for years to come and could make or break China’s aim to become a global technology power.
Analysts say Huawei could suffer the same fate as its smaller rival ZTE (ZTCOF), which was crippled for months last year by a US ban on buying vital tech components from American companies.
“The charges … are likely to result in the imposition of US export controls that threaten Huawei’s survival,” Dan Wang, a tech analyst at research firm Gavekal, said in a note to clients Tuesday. “Any relief for the Chinese national champion will likely come at a steep price, and the issue seems set to take a central role in the ongoing US-China trade talks.”
Huawei: China’s global tech icon
Huawei, one of China’s top tech companies, makes billions of dollars selling smartphones and telecommunications equipment around the world. Based in Shenzhen, it’s a prominent example of the country’s rapid economic and technological rise in recent decades.
It sells more phones than Apple and is leading the rollout of superfast 5G wireless networks around the world.
As Huawei expanded overseas, the United States identified it as a security threat as early as 2012, alleging that the Chinese government could use the company’s products for spying. Huawei, which denies the accusations, has found itself at the heart of the growing rivalry between the United States and China to decide who will become the world’s leading technology superpower.
Chinese Foreign Ministry spokesman Geng Shuang lashed out at the US charges against Huawei on Tuesday, accusing the United States of trying to “kill” Chinese businesses.
In recent years, China has announced plans to pump hundreds of billions of dollars into building up key domestic tech industries such as microchips, artificial intelligence and electric cars. That helped trigger the trade war, with the US government attacking what it says are unfair Chinese policies aimed at boosting Chinese businesses at the expense of American ones, especially in the tech sector.
The trade war
The US government has dialed up the pressure on Huawei while waging the trade war against China.
Tariffs on hundreds of billions of goods traded between the two countries have hurt businesses around the world, roiled financial markets and contributed to fears about a global economic slowdown.
US President Donald Trump and Chinese leader Xi Jinping agreed a truce last month, and their governments are trying to negotiate a more lasting deal to end the hostilities. A new round of talks is due to start Wednesday in Washington.
Trump’s top trade negotiator has insisted that the pursuit of Meng by US authorities is a legal matter that is completely separate from the trade talks. But Trump undermined that stance by controversially suggesting he could intervene in the case if it would help reach a trade deal with Beijing.
The new US charges against Huawei will make it even harder for the trade negotiators to insist that the case is unrelated to their talks, according to Gavekal’s Wang, especially if Huawei is hit with a ban on buying American parts.
“Investors should now be focused on such export controls as a core tool of the US in its standoff with China,” he said.
Meng Wanzhou arrest
The tensions between the United States and Huawei took a dramatic turn last month when Canada detained its CFO at the request of the US government. Washington wants Meng extradited to face charges of helping Huawei dodge US sanctions on Iran.
The Chinese government reacted furiously, saying the US charges are political and calling for the immediate release of Meng, who denies any wrongdoing.
Her case has already done serious damage to relations between China and Canada. Chinese state-run media has run a steady drumbeat of editorials denouncing the Canadian government for its role in the case.
Following Meng’s arrest, Chinese authorities began detaining Canadians living in China. One Canadian man, who had been sentenced to 15 years in jail for drug trafficking, was re-sentenced to death after a one-day trial this month.
Canadian Prime Minister Justin Trudeau fired his ambassador to China at the weekend after the diplomat made controversial comments about Meng’s case.
Meng’s lawyer Reid Weingarten said in a statement his client should not be a “pawn or a hostage” to the complicated relationship between the US and China.
“Ms. Meng is an ethical and honorable businesswoman who has never spent a second of her life plotting to violate any US law, including the Iranian sanctions,” he said.
Huawei under pressure
The United States has been pushing its allies to prevent the use of technology from Huawei and ZTE in the core of superfast 5G wireless networks that are being built around the world.
Australia and New Zealand have already restricted the use of Huawei equipment, and other governments — including Japan and Germany — have stepped up their scrutiny of it. Last week, top global mobile operator Vodafone (VOD) said it was halting the installation of Huawei equipment in its core networks in Europe in light of the political uncertainty surrounding the company.
Huawei has criticized the moves to shut it out of networks as “irresponsible decisions” based on ideological and geopolitical considerations rather than valid technological reasons.
The pressure on Huawei appears set to hurt its business in Europe and other developed markets. But that alone is unlikely to threaten the company’s survival, as its cheap and reliable equipment remains in demand in many countries, and sales of its smartphones are soaring.
Telecom operators warn restrictions on Huawei technology could have wide ramifications. Vodafone’s CEO said last week that a complete ban on all Huawei network equipment “would be a huge issue for us and the whole European telecommunications sector” and significantly delay the rollout of 5G networks.
Steven Jiang and Daniel Shane contributed to this report.