Arrest of Huawei CFO Has Economic, Political Implications

NEWS ANALYSIS: The detention of Meng Wanzhou won't impact many U.S. consumers but could have ripple effects around the globe, analysts said.

Huawei

The arrest of Meng Wanzhou, Huawei’s deputy chairman and chief financial officer, by Canadian authorities at the request of U.S. officials is only the latest example of the United States’ national security concerns regarding the massive Chinese maker of smartphones and telecommunication networking gear and comes amid heightened political and economic tensions between the two superpowers.

The charges against Meng have not been made public, although U.S. officials reportedly have been concerned about Huawei violating sanctions against Iran.

The arrest comes as other Western governments warn their companies and consumers of the potential security risks of using Huawei products in their businesses and homes. Most recently, New Zealand’s intelligence agency, the Government Communication Security Bureau, rejected the request of that country’s telecom industry to use Huawei equipment for its 5G networks, citing national security concerns. In addition, officials with UK telco BT said the company not only would not use Huawei technology for its 5G network, but that it also would remove the Huawei equipment it already has from its 4G network within two years.

Australia previously barred Huawei from 5G networks

Australian officials during the summer barred Huawei from providing equipment for that country’s 5G networks.

The concern from lawmakers from the United States and other countries about Huawei and ZTE, another Chinese networking infrastructure maker, is that the companies post national security risks due to their close ties with the Chinese government. The worry is that their products could come with backdoors or other technologies that could give Chinese officials access to government or personal data.

The arrest of Meng—who also is the daughter of Huawei founder Ren Zhengfei—is a significant move by the United States, given the size and global reach of the company and the ongoing trade tensions with China. Meng was arrested Dec. 1 in Vancouver, but the arrest wasn’t made public until Dec. 5. A bail hearing is scheduled for Dec. 7. She faces extradition to the United States to face charges.

Huawei officials said in a statement that they had little information about the charges and were not aware of wrongdoing by Meng, adding that “the company believes the Canadian and U.S. legal systems will ultimately reach a just conclusion.” Chinese officials said Meng’s human rights were being violated and demanded she be released.

Ripple effects are few in U.S.

Few people in the United States would feel ripple effects from Meng’s arrest, according to Zeus Kerravala, principal analyst with ZK Research.

“The news of the CFO getting arrested won’t have any real impact in the U.S., because Huawei doesn’t have any presence in the U.S. anyway,” Kerravala told eWEEK, adding that it could result in people outside of the United States rethinking whether to buy Huawei products. “In other countries, it could have an effect. … If there was any consideration on allowing them to sell anything here, this puts a spike through that.”

Huawei is among the largest vendors of telecom equipment in the world, with a strong presence in both Europe and Asia. However, U.S. lawmakers in 2012 said that both Huawei and ZTE were national security risks and have subsequently banned government entities from using Huawei gear in their infrastructures. The U.S. government also warned U.S.-based telcos not to buy the companies’ equipment. Huawei officials eventually said they were dropping efforts to move into the U.S. market, deciding instead to focus on other parts of the world.

U.S. officials recently began warning allies not to use the Chinese company’s equipment.

As the company expanded into mobile phones in recent years, pushing Android phones at low costs, officials again tried to bring products into the U.S. market. Again, they were met by resistance. In January, AT&T walked away from a deal with Huawei to sell the Chinese vendor’s Mate 10 to U.S. consumers. U.S. lawmakers had urged AT&T to cut ties with Huawei as well as oppose efforts by service provider China Mobile to move into the U.S. market. Verizon followed suit later in January by dropping plans to sell Huawei smartphones in the United States.

U.S. intel recommended against Huawei phones

In addition, U.S. intelligence officials recommended against American citizens using Huawei phones, and Best Buy soon after announced it would stop selling them.

In 2015, Huawei officials also had boasted that the company would become among the world’s top three largest storage providers.

Rob Enderle, principal analyst with The Enderle Group, sees the arrest of Meng and other efforts to stymie Huawei as a larger conflict between the two countries that have political and economic ramifications as well as national security implications, particularly under the Trump administration, which has leveraged tariffs on hundreds of billions of Chinese goods. In fact, Meng’s arrest came on the same day that President Trump was meeting with Chinese President Xi Jinping in Argentina during the G20 Summit.

“They’ve spent billions [trying to make inroads into the United States], and they actually execute very well, passing Apple as the number 2 cell phone maker despite being held back by the administration,” Enderle told eWEEK. “To the outside it almost looks like Apple has the Trump administration jumping to their tune to weaken Huawei, which doesn’t play well in China and will likely justify a nasty response from China (going after someone’s kids is never a wise move regardless of their age).”

Unintended consequences happen

Regarding the impact on U.S. businesses and consumers, Enderle said that “by itself it does little damage, but actions like this between governments typically have huge unintended consequences like the massive [stock] market drop.”

U.S. stock markets have seen significant volatility in recent days as investors worry about trade relations between the United States and China.

Enderle also noted that U.S. companies already using Huawei gear are unlikely to pull it out of their infrastructures despite administration concerns.

“Pulling out already deployed technology is difficult and Huawei provided a very powerful value proposition, often being far cheaper than competitors with the same performance,” Enderle said. “While their ability to sell into the U.S. was crippled, companies are typically unwilling to pull a product already deployed for problems (selling despite sanctions) that don’t really apply to them. Allegations that Huawei was spying for the Chines government remain unproved.”

In April, the U.S. Commerce Department penalized ZTE for violating sanctions against Iran and North Korea. However, in July, the Trump administration, saying it was concerned about the loss of jobs in China, a month later said it was lifting the ban on U.S. companies selling equipment to ZTE in exchange for paying a $1 billion fine and making other concessions.