European markets crater following arrest of Huawei CFO

EPA-EFE/PHILIPP GUELLAND

European markets crater following arrest of Huawei CFO


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The arrest Huawei’s Chief Financial Officer Meng Wanzhou in Canada on December 1 has triggered the wrath of the Chinese government that has sent shockwaves to international markets as Beijing’s foreign ministry has demanded a clarification from the Canadian government

Stock markets in Europe have nosedived amid fears of an escalating Sino-American trade war.

Meng’s arrest came after she was indicted by the US after Huawei was accused of violating American sanctions that have been levied on Iran. Washington was tracking Huawei’s HSBC transactions in Iran since April, prior to the White House’s decision to reimpose crippling economic sanctions against Tehran after unilaterally withdrawing from the 2015 Iran Nuclear Deal, which was co-signed by China, the US, UK, France, Germany, and Russia.

The case involving Huawei is not the first time a major Chinese company has been found to be in violation of internationally imposed sanctions. In 2017, the Chinese telecoms supplier ZTE was fined $1.2 billion for violating sanctions on both Iran and North Korea.

The White House is demanding that China comply with US’ newest sanctions against the Islamic Republic. Huawei is believed to have sold telecommunications equipment in Iran. In a statement by a Huawei spokesperson, the company has said that it is in full compliance “with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and EU.”

Meng is the daughter of Ren Zhengfei, the company’s founder. Ren is a high-ranking former officer in the People’s Liberation Army and has close links with the Chinese defence and security establishment, as well as to a powerful wing of China’s Communist Party that is closely aligned with President Xi Jinping.

Huawei is second only to Samsung in telecommunication equipment sales, with Apple a distant third.

US national security agencies suggest Huawei’s devices are being used for espionage activities by Iran and its allies, including Lebanon’s terrorist group Hezbollah. Due to the company’s alleged close links to the Chinese government, the United States has determined that Huawei poses a security threat.

The “Five Eye” security agencies – New Zealand, Australia, Canada, the US, and the UK – jointly share the same concerns and are considering shunning Huawei devices and equipment from the development of their fifth-generation networks as they worry about Huawei’s track record of intellectual property theft.  Those concerns led, earlier this year, to US authorities banning the takeover of US Qualcomm by China’s Broadcom.

The immediate market reaction on Wall Street, Hong Kong’s Hang Seng, and Shangai’s Composite Index have reacted negatively to Meng’s arrest. European equities suffered their worst day since the 2016 Brexit vote. London’s FTSE 100 and Germany’s DAX closed with losses of over 3%.

Fears are growing that the two biggest economies in the world, China and the United States, will engage in a wider trade war as reports from China have emerged that Beijing’s secret police authorities are in the process of questioning several high-profile American executives.

The arrest of key executives is rare, but not unprecedented in China. Xi’s law enforcement officials arrested and convicted the management of a subsidiary of pharmaceutical company GlaxoSmithKline in 2014, including UK national, Mark Reilly, on charges of bribery.

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