How the Huawei Arrest Extends a Troubled History With the  U.S.

(Bloomberg) -- Huawei Technologies Co.’s Chief Financial Officer Wanzhou Meng, arrested in Canada, has been charged with conspiracy to defraud banks in connection with alleged violations of U.S. sanctions on Iran. It’s not an isolated incident but rather the latest chapter in a long history of tension between China’s smartphone and telecommunications giant and the U.S. government and businesses.

1. Who is Meng?

As well as the CFO, she is deputy chairwoman of Huawei and a daughter of the company’s founder. Meng was detained in Vancouver Dec. 1 at the behest of U.S. authorities and is facing potential extradition to the U.S., which is investigating whether the Chinese company sold equipment to Iran despite U.S. sanctions. The company said it wasn’t aware of any wrongdoing by the CFO and that it was law-abiding. Meng, 46, was granted bail Dec. 11, allowing her to stay in one of her luxury homes in Vancouver awaiting possible extradition. She lives mainly in Shenzhen.

2. What will this do to U.S.-China relations?

The arrest is almost certain to exacerbate tensions between President Donald Trump and President Xi Jinping as they try to eke out a truce in their growing trade conflict. Chinese technology has been a particular bugbear for the U.S. president, who has justified imposing tariffs on Chinese imports with allegations of intellectual property theft by Chinese companies. Huawei is by far China’s most global technology company, with operations spanning Africa, Europe and Asia. The CFO’s arrest could be regarded in China as an attack on one of the country’s foremost corporate champions. In Beijing, Vice Foreign Minister Le Yucheng summoned U.S. Ambassador Terry Branstad to protest, calling the U.S. actions "extremely bad."

3. What’s the U.S.’s issue with Huawei?

Founded in 1987 by Ren Zhengfei, a former People’s Liberation Army engineer, Huawei has always enjoyed favorable treatment from a government that — like the U.S. — remains wary of employing too much foreign technology for vital communications. U.S. government officials and industry executives have long harbored suspicions that Huawei works primarily for Chinese government interests. In a report released by the U.S. Permanent Select Committee on Intelligence in 2012, Huawei and ZTE Corp. were tagged as potential security threats. The report questioned Huawei’s ties with the Communist Party and — after multiple interviews including a sit-down with Ren himself — it said that Huawei failed to properly explain that relationship.

4. What does Huawei say?

Huawei has repeatedly denied the insinuation and says it’s owned by Ren and its own employees. Yet Chinese government policies enacted in the past year seen as favoring local providers have only intensified suspicion. It remains unclear what support — financial or political — Huawei gets from Beijing, if any. In recent years, the company has begun releasing results, spent more on marketing and engaged foreign media in an effort to boost transparency.

5. What else has Huawei done to attract U.S. wariness?

The first major issue erupted in 2003, when Cisco Systems Inc. sued Huawei, accusing the Chinese company of infringing on its patents and illegally copying source code used in its routers and switches. The next year, Huawei removed the contested code, manuals and command-line interfaces and the case was dropped. Other accusations that Huawei stole intellectual property from U.S. companies surfaced. Motorola named it as a co-defendant in a lawsuit, while T-Mobile US Inc. alleged that Huawei stole technology from its U.S. headquarters in Washington state. Earlier this year, Trump blocked Broadcom Ltd.’s hostile takeover bid for Qualcomm Inc. following a recommendation by a U.S. agency that vets deals for national security risks. The concerns over the deal were said to stem from Broadcom’s ties to Huawei.

6. How big is Huawei?

The Chinese company has in three decades grown from an electronics re-seller into one of the world’s most important communications companies, with leading positions in telecoms gear, smartphones, cloud computing and cybersecurity. With 2017 sales of about 600 billion yuan ($87 billion), Huawei generates more revenue than Home Depot or Boeing. Its rise coincided with the decline of competitors like Ericsson and Nokia, often undercut by Huawei and ZTE even as global telecoms roll-outs slowed. Huawei is now not just the leading provider in the world’s largest telecommunications equipment, but also a dominant player across the planet.

7. In which fields is Huawei emerging as a global force?

It’s plowed billions of dollars into 5G and is now among China’s top filers of patents both internationally and domestically, covering everything from data transmission to network security. Huawei, which may own a 10th of essential patents on 5G, is angling for full-scale commercialization of 5G networks by 2020. Also, in a direct threat to U.S. company Qualcomm Inc., Huawei is now designing its own semiconductors. The Chinese company’s Kirin series mobile processors, made via subsidiary HiSilicon, compete with the Qualcomm Snapdragon chip employed extensive by Samsung Electronics Co. and other global smartphone names.

The Reference Shelf

• A Huawei web bio of Meng.
• News of CFO’s arrest comes amid a brewing trade war.
• China’s cybersecurity laws vex foreign companies.
• A QuickTake explainer on 5G and another on intellectual property theft.

To contact Bloomberg News staff for this story: Reed Stevenson in Tokyo at rstevenson15@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Reed Stevenson, Grant Clark

©2018 Bloomberg L.P.

With assistance from Bloomberg