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Huawei CFO arrested in blow to US-China trade truce

Beijing protests as founder's daughter suspected of violating Iran sanctions

WASHINGTON -- Huawei Technologies' chief financial officer has been arrested in Canada at the request of the U.S. government, for alleged violations of U.S. trade sanctions against Iran, a move that threatens to escalate the trade war between the world's two largest economies.

The detention of a senior executive at China's flagship technology company comes less than a week after Washington and Beijing agreed to a fragile truce at a G-20 meeting on Saturday.

Meng Wanzhou, the daughter of Huawei founder Ren Zhengfei and a deputy chairwoman at the company, is suspected of involvement in the illegal export of products to Iran.

"Wanzhou Meng was arrested in Vancouver on Dec. 1. She is sought for extradition by the U.S., and a bail hearing has been set for Friday," said Ian McLeod, spokesman for Canada's Department of Justice. There were no further details, due to Meng's request for a publication ban, McLeod told the Nikkei Asian Review.

China immediately hit out at the arrest. "The Chinese side firmly opposes and strongly protests [these] actions, which seriously harmed the human rights of the victim," Beijing said in a statement issued from its embassy in Canada. Meng was "not violating any American or Canadian law."

The U.S. and Canada should "immediately correct the wrongdoing and restore the personal freedom of Ms. Meng Wanzhou," it said, adding that China would "take all measures to resolutely protect the legitimate rights and interests of Chinese citizens."

Meng's arrest has sparked fears that the 90-day trade truce struck last weekend to end the tit-for-tat tariff war could collapse before talks get under way. The U.S. alleges that China has been stealing intellectual property, forcing technology transfers and restricting market access.

The arrest "represents a new and major escalation in what has been a series of U.S. efforts to hold Chinese companies accountable for violations of U.S. law," said analysts at Eurasia Group, a political risk consultancy. The incident would "affect the atmosphere around the negotiations -- making them less likely to bring a sustainable settlement," they noted.

It has also raised concerns that Huawei could be the next target of a U.S. campaign to restrict the rise of Chinese technology companies. A U.S. ban earlier this year on exports to telecommunications equipment maker ZTE brought the company to the brink of collapse.

Like Huawei, ZTE had been accused of violating international sanctions against Iran. ZTE reached a settlement with the U.S. in June after paying a fine of $1 billion.

Huawei is the largest supplier of telecom equipment in the world and the biggest smartphone vendor in China. It relies heavily on U.S. companies such as chipmakers Intel and Qualcomm.

"Huawei's supply chain is huge and deeply linked to many top Asian and American companies. If the U.S. clamps down on Huawei as it did with ... ZTE this would definitely cause a major disruption for the tech industry worldwide," said Andrew Lu, a veteran analyst at Sinolink Securities.

Huawei is already the focus of a sustained campaign by U.S. officials, who claim its gear could be used for espionage or sabotage on behalf of Beijing.

The U.S. has pressed its allies to bar telecom networks from using Huawei products. Last week, New Zealand blocked one of its major wireless carriers from using the Chinese company, while in Britain, the national telecom carrier, BT, said it would remove Huawei equipment from its 3G and 4G networks.

The news hammered share prices in Tokyo, Taiwan and Hong Kong, with markets down around 2% at one time. Huawei itself is not listed.

In response to the allegations against Meng, Huawei responded that its was "not aware of any wrongdoing" by her, and said it believes "the Canadian and U.S. legal systems will ultimately reach a just conclusion."

The company stressed that it "complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the U.N., U.S. and EU."

Huawei, founded by a former member of the People's Liberation Army, has tried to distance itself from Beijing by stressing that it is a private company. Ken Hu, deputy chairman, told Nikkei Asian Review in November that the company had little to do with Beijing's "Made in China 2025" policy, which aims to make the country dominant in cutting-edge technologies and has prompted a U.S. backlash against the Chinese tech industry.

Canada's Globe and Mail newspaper first reported the arrest. U.S. media had reported in April that Huawei was being investigated by the U.S. Department of Justice on suspicion of illegally shipping products to Iran.

Meng joined Huawei in 1993 and has held senior positions in the company's accounting divisions, as well as serving as CFO of Huawei Hong Kong.

Nikkei staff writers Cheng Ting-Fang in Taipei and Mitsuru Obe in Tokyo contributed to this report.

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