December 6, 2018 / 3:40 AM / 5 days ago

Breakingviews - Huawei settles into eye of geopolitical storm

A man looks at a Huawei mobile phone as he shops at an electronic market in Shanghai January 22, 2013. REUTERS/Carlos Barria

HONG KONG (Reuters Breakingviews) - Huawei has now firmly settled into the eye of a geopolitical storm. Canadian officials arrested Meng Wanzhou, the Chinese telecom equipment maker’s chief financial officer, for allegedly violating U.S. sanctions. The case arises just as more countries put the squeeze on Huawei. Suppliers will be rattled, too. It may be a microcosm of a broader containment effort.

Meng, who is also a daughter of the company’s founder, may now face extradition to the United States; a hearing is set for Friday. She stands accused of failing to comply with economic and trade blocks against Iran, according to media reports, in line with a Reuters report in April that U.S. prosecutors were probing Huawei. The arrest is sure to raise questions about whether the company itself could be cut off from American suppliers, a punishment like one Chinese rival ZTE had been facing before getting a reprieve earlier in the year. Huawei says it is unaware of any wrongdoing by Meng.

Taking her into custody ratchets up the trouble for Huawei. It has faced a flurry of political pushback in recent weeks, as nations decide whose kit to use for their ultra-fast 5G wireless networks. Washington has been pushing allies to turn down the supplier, the Wall Street Journal reported last month. Australia pulled the plug on Huawei and ZTE in August, while New Zealand made a similar move more recently. Britain’s BT said on Wednesday it would ditch Huawei gear from the core of its 3G and 4G mobile operations.

The bigger picture should be getting clearer for investors. Excluding Huawei from U.S. vendors could prove devastating. Even a slow-motion expulsion from Europe would be painful. The Shenzhen-based company has 40 percent of the market there, and the continent accounts for at least a quarter of global telecom capital expenditure, according to Jefferies. Huawei’s plan to generate $100 billion in revenue this year could be getting tougher to achieve.

What’s more, Meng’s arrest is likely to supercharge already tense trade negotiations between the United States and China. Former U.S. Treasury Secretary Henry Paulson, a frequent liaison between the two countries, warned last month of the prospect of an international “economic iron curtain.” It may be coming down first on Huawei.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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