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View from Washington: Huawei arrest spreads fog and funk

The arrest of the Chinese telecom giant's CFO will be seen very differently in Washington and Beijing

The biggest problem with the shock arrest earlier this week of Huawei’s CFO, Meng Wanzhou, is that nobody is being particularly clear what it is about.

John Bolton, President Donald Trump’s national security advisor, appeared to attribute it to long-standing claims of Chinese intellectual property theft in an interview with US National Public Radio, where he suggested he had prior knowledge. But journalists at Reuters – usually an extremely reliable source – have been told the arrest relates to accusations that Huawei busted US sanctions against Iran.

Diplomatically, Chinese officials say that they want but are not getting clarification. Meanwhile, Trump and Canadian Prime Minister Justin Trudeau have been distancing themselves from the arrest in Vancouver.

Officially, journalists have been told that Trump did not know of the impending arrest which took place at almost the same time he was holding G20 talks with Chinese leader Xi Jinping to set a truce on the trade war. Trudeau’s position is that while he did know what was about to happen, he was powerless to intervene in the judicial process (the arrest followed a formal US request).

The only thing known for sure is that arresting not only the CFO of the world’s largest vendor of comms infrastructure but also the daughter of the company’s founder was always going to be read as a provocative act (notably, when the US formally charged China’s other big telecoms group, ZTE, with breaching Iran sanctions, there was no sudden swoop on its executives).

A clear danger now is that the arrest will be read and/or portrayed in very different ways by China and the US, heightening existing tensions and raising a genuine threat of escalation.

Regardless of Bolton’s comments on IP (a bipartisan Washington concern that is also shared by most Silicon Valley CEOs) and the Iranian charge, the big ‘theme’ is quickly becoming spyware and the potential security threat that Huawei is claimed to represent because of its strong links to Beijing. Huawei has repeatedly denied these charges.

Nevertheless, Australia and New Zealand recently said that they would be dropping Huawei as a state infrastructure provider, and last week MI6 chief Alex Younger raised British security services concerns about Huawei’s presence on incoming 5G mobile networks. Japan is also said to be reviewing Huawei’s status as an approved contractor – and may have handed down a decision by the time you read this.

Whatever the real risks here – and Huawei has just agreed to make adaptions to its 5G hardware sold in the UK that were sought by GCHQ – China sees things very differently.

Although Huawei CEO Ren Zhengfei has urged his company to take a low-key approach to promoting its R&D, it has become a totem for the national Made in China 2025 programme, one intended to lift the country from technology follower to leader. To do that, China is targeting a number of emerging fields where it can leapfrog into ‘world class’ positions – including AI and machine learning, and 5G. Huawei is extremely active in all of those, as shown not just by its 5G kit but also its recent AI-powered P20 smartphone.

To deliver these products, Huawei has been increasing its hardware and software self-sufficiency in both 5G infrastructure and cellphones. It has not achieved a 28 per cent share of the global infrastructure market nor overtaken Apple to become the world’s second largest smartphone maker simply by playing ‘me too’.

Given that, a lot of the Trump administration’s recent moves – including blocking M&A (merger and acquisition) deals by several Chinese companies – are seen through a prism where they are primarily intended to clip the country’s technological wings. This one will be no different.

Most US observers believe that the issue was bound to become much more prominent eventually. It binds together fundamental economic and national security issues on both sides. However, most hoped it would be handled with more finesse.

It is hard to come away from Meng Wanzhou’s arrest seeing anything other than a bizarre clumsiness, even by Team Trump’s standards. This is a great deal more than just a warning shot.

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