Arrest of Senior Huawei Executive Steps Up U.S.-China Confrontation

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U.S. President Trump shakes hands with China's President Xi Jinping in Beijing in November 2017.

U.S. President Trump shakes hands with China’s President Xi Jinping in Beijing in November 2017.


Photo:

fred dufour/Agence France-Presse/Getty Images

BEIJING—The arrest of a senior executive of networking-gear maker Huawei Technologies Co. intensifies the confrontation in the already divisive China-U.S. negotiations on trade, striking at Chinese President Xi Jinping’s ambitions to make the country a tech superpower.

Huawei has been at the center of the spiraling rivalry between the U.S. and China. This summer, when President Xi ordered China’s antitrust regulator to effectively scuttle

Qualcomm
Inc.’s

acquisition of

NXP Semiconductors

NV, he did it to protect Huawei, according to people briefed on the matter.

Huawei is a global leader in the next-generation mobile-internet networks that will transform communications in the coming years. Mr. Xi, these people said, figured that a tie-up between Qualcomm, of San Diego, and its Dutch peer could create a bigger rival to Huawei in the race to dominate those 5G networks.

Now, with Canada arresting Huawei Chief Financial Officer Meng Wanzhou on a U.S. request for extradition, the company and the countries’ tech race is intruding anew into the trade agenda. Mr. Xi and President Trump over the weekend agreed to a 90-day pause in raising tariffs to make way for negotiations.

“The government will spare no effort to protect Huawei,” said one of the people briefed on the matter. “No question the situation will make it harder to return the bilateral trade and economic relationship to an even keel, at least in the near term.”

At the WSJ CEO Council, National Security Adviser John Bolton discusses the U.S’s relations with China and what to expect in the U.S.-China trade standoff.

Charges against Ms. Meng haven’t been detailed, though she was arrested for alleged violations of U.S. sanctions against Iran. Huawei said it isn’t aware of any wrongdoing by Ms. Meng. China’s Foreign Ministry said it has demanded explanations from the U.S. and Canada.

For now Beijing is publicly trying to keep the trade dialogue with Washington going. A Commerce Ministry spokesman declined to answer questions from reporters Thursday about Ms. Meng and instead focused on the positive. “We’re full of confidence about reaching an agreement in the next 90 days,” the spokesman, Gao Feng, said at a regular media briefing.

But since Saturday’s meeting with Mr. Xi, President Trump and U.S. administration officials have given accounts of Chinese concessions that Beijing has yet to confirm. Among those, the U.S. says, is agreement to discuss what it says are unfair Chinese trade practices. Those issues include theft of trade secrets and government support for tech companies and other national champions, like Huawei.

Chinese social media was filled with comments seeing the arrest of Ms. Meng as another move by the U.S. in its rivalry with China.

“The U.S. government’s measures are quite clear, which are to crack down on China’s leading enterprises, citing ambiguous political reasons, in order to effectively suppress the surge of China’s competitiveness,” Fang Xingdong, who runs technology think tank ChinaLabs, said on messaging app

WeChat
.

Meng Wanzhou, who was arrested in Vancouver on Saturday.

Meng Wanzhou, who was arrested in Vancouver on Saturday.


Photo:

Mfc/Ropi/Zuma Press

The Trump administration has viewed Beijing’s push to offer generous subsidies and other assistance to domestic companies to dominate 5G as a national-security threat.

The U.S. barred Huawei’s equipment from U.S. networks, seeing it as a potential backdoor to espionage, and the Trump administration has been ramping up efforts to get American allies to ditch Huawei products.

It heavily fined Huawei’s smaller Chinese rival,

ZTE
Corp.

, for busting sanctions and prohibited American suppliers from doing business with chip-maker Fujian Jinhua Integrated Circuit Co., which was accused of stealing secrets from an American company.

“We now have a very concerted effort to make it impossible to allow Huawei to do business around the world,” Arthur Kroeber of Hong Kong consultancy Gavekal said at a conference Thursday in Shanghai. “The toolkit of the U.S. goes well beyond tariffs.”

Beyond her role as CFO, Ms. Meng is deputy chairwoman and daughter and heir-apparent to Ren Zhengfei, a former engineer in the People’s Liberation Army who founded Huawei. Mr. Ren has promoted what Huawei calls a “wolf culture” inside the company, and this competitive work environment and extensive R&D spending have helped make it the world’s biggest maker of network equipment.

In recent years Huawei has poured more than $1 billion into research on 5G—networks that will spur seamless connectivity, driverless cars, robot-run factories and doctors operating on patients remotely.

That 5G push is part of a signature initiative of Mr. Xi: Made in China 2025. A roadmap for Chinese businesses to dominate cutting-edge fields and displace foreign companies, Made in China 2025 is also a focal point of Washington’s trade offensive against Beijing.

Ms. Meng’s arrest personalizes the fight with China because she is a member of the business elite and works for a company central to this policy of Mr. Xi.

“This move has the potential to set off major alarms in Beijing,” said Lindsey Ford, director of political-security affairs for the Asia Society Policy Institute.

President Xi and President Trump attend a working dinner with their delegations after the G-20 leaders summit in Buenos Aires on Saturday.

President Xi and President Trump attend a working dinner with their delegations after the G-20 leaders summit in Buenos Aires on Saturday.


Photo:

kevin lamarque/Reuters

Mei Xinyu, an analyst at a think tank under the Commerce Ministry, accused the U.S. of bullying and using its alliances with other countries to impose domestic laws around the world.  The action “once again shows the world the obvious hegemonic nature of the U.S.,” he wrote on a social media account run by the Communist Party’s People’s Daily’s overseas edition.

Mr. Mei called on Chinese authorities to take measures to stabilize the country’s financial markets after Chinese stocks and currency took a beating from the Huawei news Thursday.

Keeping trade negotiations on track is likely to prove difficult, officials and experts said, given that both sides seem to differ on what Messrs. Trump and Xi agreed to.

After their talks in Argentina, the White House said Mr. Xi would reconsider the Qualcomm-NXP deal; Chinese regulators withheld approval of the transaction in July, causing the deal to collapse. Qualcomm said this week it isn’t interested in reviving the purchase.

Even if both sides reach an agreement on trade, both the U.S. and China are likely to continue to decouple their high-tech supply chains, trying to exclude the other on national-security grounds.

“This is the new great game,” said Duncan Clark, chairman of technology consultancy BDA China. “On both sides, these more security-, nationalistic-driven elements are coming to the fore. The securitate are in charge now.”

Write to Lingling Wei at lingling.wei@wsj.com and Eva Dou at eva.dou@wsj.com