How the arrest of Huawei extends the problematic history with the United States

The arrest of the Chief Financial Officer of Huawei Technologies Co. Wanzhou Meng in Canada is linked to potential violations of US sanctions on Iran by the Chinese company. It is not an isolated incident, but rather the last chapter of a long history of tension between the Chinese smartphone and the telecommunications giant and the US government and businesses.

1. Who is Meng?

In addition to the CFO, he is vice president of Huawei and daughter of the founder of the company. Meng was detained in Vancouver but is facing a possible extradition to the United States, which had previously opened an investigation to see if Huawei sold equipment to Iran despite the sanctions to export. The company said it was not aware of any wrongdoing by the CFO and that the authorities of both countries "will eventually reach a just conclusion".

2. What will happen for US-China relations?

The arrest is almost certain to exacerbate the tensions between President Donald Trump and President Xi Jinping at a very delicate time. The two met only last weekend to get a truce in their growing trade conflict. Chinese technology has been a special specter for the US president, who justified the imposition of duties on Chinese imports with allegations of intellectual property theft by Chinese companies. Huawei is by far the most global technology company in China, with operations in Africa, Europe and Asia. The news of Meng's arrest provoked an immediate protest from the Chinese embassy in Canada, asking the United States and its neighbor to "correct the errors" and free Meng. The arrest of the CFO could be considered as an attack on one of China's most important corporate champions.

3. What is the United States problem with Huawei?

Founded in 1987 by Ren Zhengfei, former engineer of the People's Army of Popular Liberation, Huawei has always enjoyed favorable treatment by a government that – like the United States – remains cautious in using too many foreign technologies to vital communications. US government officials and industry executives have long suspected that Huawei works primarily for the interests of the Chinese government. In a report published by the United States permanent permanent intelligence committee in 2012, Huawei and ZTE Corp. were labeled as potential threats to US security interests. The report questions Huawei's ties with the Communist Party and – after multiple interviews including a meeting with Ren himself – has concluded that Huawei has not properly explained this report.

4. What does Huawei say?

Huawei has repeatedly denied the insinuation and states that it is owned by Ren and his employees. However, the policies of the Chinese government issued last year as favorable to local suppliers have only intensified the suspicion. It is not clear what support – financial or political – Huawei obtains from Beijing, if it exists. In recent years, the company has begun to release results, has spent more on marketing and has involved foreign media in an attempt to increase transparency.

5. What else did Huawei do to attract US caution?

The first big problem broke out in 2003 when Cisco Systems Inc. sued Huawei, accusing the Chinese company of infringing its patents and illegally copying the source code used in its routers and switches. The following year, Huawei removed the disputed code, manuals and command line interfaces and the case was deleted. Other allegations that Huawei has stolen intellectual property from US companies have emerged. Motorola called him a co-defendant in a lawsuit, while T-Mobile US Inc. said that Huawei has stolen the technology from its US headquarters in Washington state. At the start of this year, Trump blocked the acquisition of Broadcom Ltd. for Qualcomm Inc. as a result of a recommendation from a US agency that controls security risks national. It is said that concerns about the deal stem from Broadcom's ties with Huawei.

6. How big is Huawei?

The Chinese company has spent three decades becoming an electronics retailer in one of the world's leading communications companies, with leading positions in the telecommunications, smartphones, cloud computing and information security industries. With revenues of around 600 billion yuan ($ 87 billion) in 2017, Huawei generates more profits than Home Depot or Boeing. Its rise coincided with the decline of competitors such as Ericsson and Nokia, often under the coverage of Huawei and ZTE, although the global telecommunications launch slowed. Huawei is now not only the leading supplier in the world's largest telecommunications equipment, but also a dominant player across the globe.

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

It has invested billions of dollars in 5G and is now among the largest Chinese patent depositors both internationally and nationally, covering every aspect, from data transmission to network security. Huawei, which may own a tenth of the 5G core patents, is targeting large-scale commercialization of 5G networks by 2020. In addition, in a direct threat to US company Qualcomm Inc., Huawei is now designing its own semiconductors. The mobile processors of the Kirin series of the Chinese company, made through the subsidiary HiSilicon, compete with the Qualcomm Snapdragon chip used 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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