Wednesday, 12 Dec 2018
Business

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

Huawei Technologies Co.'s Chief Financial Officer Wanzhou Meng, arrested in Canada, has been charged with alleged violations of U.S. sanctions on Iran by the Chinese company. 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 a CFO, she is deputy chairwoman of Huawei and a daughter of the company's founder. Meng was detained in Vancouver at the behest of U.S. authorities and is facing potential extradition to the United States, which had earlier opened an investigation into the possibility of counterfeiting. The company said it was not aware of any wrongdoing by the CFO and that it will "just reach conclusion."

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

The tension is almost certain to exacerbate tensions between President Donald Trump and President Xi Jinping at a highly sensitive time. The two only last weekend 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. Huawei is by far China's most global technology company, with operations spanning Africa, Europe and Asia. News of Meng's arrest provoked an immediate protest from the Chinese embassy in Canada, demanding the U.S. and its neighbor "rectify wrongdoings" and free Meng. The CFO's arrest could be regarded as an attack on one of China's foremost corporate champions.

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

Founded in 1987 by Ren Zhengfei, a trained People's Liberation Army engineer, Huawei has always enjoyed favorable treatment of a government that – like the U.S. – remains a vital source of 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 threats to U.S. security interests. The report questioned Huawei 's ties with the Communist Party and – after multiple interviews including a sit – down with Ren – Huawei failed to properly explain that relationship.

4. What does Huawei say?

Huawei has repeatedly denied the insinuation and says it is owned by Ren and its own employees. Yet Chinese government policies have only been intensified. It remains unclear what support – financial or political – Huawei gets from Beijing, if any. In recent years, the company has begun releasing results.

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

The first major issue was 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. The concerns about the deal are from Broadcom's ties to Huawei.

6. How big is Huawei?

The Chinese company is one of the world's most important communications companies, with leading positions in telecoms gear, smartphones, cloud computing and cybersecurity. With sales of about 600 trillion yuan ($ 87 trillion), Huawei generates more revenue than Home Depot or Boeing. Ericsson and Nokia, often undercut by Huawei and ZTE as global telecoms rollouts slowed. Huawei is now not only 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 trillions 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 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 HiSilicon subsidiary, compete with the Qualcomm Snapdragon chip employed by Samsung Electronics Co. and other global smartphone names.

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.

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