Meng Wanzhou, a top executive at Huawei Technologies in China and daughter of the founder and CEO, shook the global business community on Thursday and raised fears that a truce in the US-China trade war could reach a quick end.
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Meng's arrest came at the request of US officials and is linked to an investigation into alleged violations of US trade sanctions, a person familiar with the matter told Reuters. China's Foreign Ministry said neither the United States nor Canada explained the reasons for the arrest.
What is Huawei?
Huawei is the world's largest provider of telecommunications network equipment and the second-largest maker of smartphones, with revenue of about $ 92 billion last year. Unlike other large Chinese technology companies, it does a large part of its overseas business and is the market leader in many countries in Europe, Asia and Africa.
The company was founded in 1987 by former military officer Ren Zhengfei. It remains closed-end and describes itself as an employee, although its ownership structure is unknown. It is based in the South China Technology Center in Shenzhen, and employs about 180,000 people.
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How did the company become so successful?
Huawei was a pioneering supplier of telecommunications equipment at a time when China was spending a lot to upgrade its networks, importing much of its equipment. Huawei started competing internationally in the 1990s and was known to drastically cut price rivals.
Competitors have rated Huawei as a vendor of copy equipment, and companies such as Cisco Systems and Motorola have filed suit for alleged trade secret theft.
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But Huawei has invested heavily in research and development and is now considered a global leader in state-of-the-art telecommunications network technologies and smartphones. In contrast, its major western rivals, Nokia and Ericsson, have faced financial difficulties in recent years.
Huawei today continues to expand into new areas, including chip development, artificial intelligence and cloud computing.
Why have some governments banned Huawei equipment?
US intelligence agencies claim that Huawei is linked to the government of China and that its equipment may contain backdoors for use by government spies. No evidence was produced publicly and the company repeatedly denied the allegations.
But the suspicions persist. The concern now focuses on the deployment of fifth generation mobile networks (5G), where Huawei is at the forefront. A new law in China requiring any domestic company to assist the government when requested also fueled concern.
The US government has taken a number of steps to block the company from the US markets, including banning government purchases of Huawei equipment and denying government aid to any operator using Huawei equipment. Leading carriers Verizon Communications and AT & T have abandoned deals to distribute Huawei smartphones earlier this year.
Most countries, even close US allies such as Canada, Britain and Germany, have not taken any action against Huawei, claiming they have sufficient procedures to test the equipment for safety. But Australia and New Zealand have recently banned Huawei from building 5G networks and there are indications that other countries, including Germany, are revisiting the issue.
Is Meng Wanzhou's arrest related to these security concerns?
US authorities did not disclose the circumstances surrounding Meng's arrest, but a person familiar with the matter told Reuters the arrest was related to breaches of US trade sanctions. Reuters has published an investigation nearly six years ago of the ties between it and Huawei with a company called Skycom that tried to sell Hewlett-Packard's computer equipment to an Iranian mobile phone operator in contravention of those sanctions.
Was not another Chinese company also accused of violations of sanctions against Iran?
Huawei's junior rival ZTE pleaded guilty last year to conspiring to escape the embargoes by selling US equipment to Iran. Earlier this year, the US Commerce Department said ZTE violated the agreement and banned the purchase of any US component – a measure that disrupted many of ZTE's operations.
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A new agreement was reached and the ban was suspended at the request of US President Donald Trump, a perceived concession to Chinese President Xi Jinping that surprised and infuriated other people in the US government.
Are these issues related to the US-China trade war?
Investigations of sanctions preceded the commercial war. But the moment of detention muddies the issues as Presidents Trump and Xi come to a temporary truce of the trade war. Financial markets were negative with news of the arrest, fearing it could hurt the truce. However, there is no evidence that it is a deliberate provocation by the US, rather than just a strange coincidence.
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What can happen to Huawei now?
The ban on purchases of US components, such as temporarily imposed on ZTE, would be devastating, but there is no immediate reason to suggest that this will happen. If the case forces the major European countries to turn against the company, this will have a long-term impact on their growth and influence.
Still, Huawei's status as China's high-tech industry boss at a time when the country is rushing to reach the US in difficult areas such as chip development means that it will certainly remain a powerful force in the next few years .
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