Espionage, Iran and a Mystery Arrest

It’s no secret that relations between the People’s Republic of China and the United States are beyond strained. Notwithstanding that legendary dinner between Presidents Xi Jinping and Donald Trump at the late November G-20 summit in Argentina, little in the way of rapprochement and accommodation has taken place between the two nations. A 90-day moratorium between the two countries regarding tariffs didn’t reinforce Trump’s “Tariff Man” image and did not seem to provide much else that Trump was demanding. Oh, Trump announced lots of stuff, but China yawned and refused to confirm anything. The U.S. stock markets crashed. 799 points in one day.

We know China’s goals are to replace the United States as the world’s number one superpower. She is starting in her own backyard. We know her navy totally controls the region anywhere near her shores, notwithstanding U.S. efforts to treat the waters there as open and completely international. Her Belt and Road initiative seeks to rebuild the Silk Route, giving China a trade advantage across Asia. We also are aware that the Trump tariff wars are hugely detrimental to both economies and will slam middle and lower earning Americans particularly hard. Sinologists tell us that if Xi does not hold firm against Trump’s big asks, he will jeopardize his own tenure at the helm of China. Uh oh. Nothing good is happening here.

The proposed and actual dollar tariff numbers are particularly high and would have a horrific impact on the global economy if totally implemented. But a couple of token concessions, regarding cars and agricultural goods, could easily put those threats to rest without a significant loss in “face,” although Trump will probably proclaim victory no matter the reciprocity of the concessions.

But the elephant in the room is China’s massive proclivity to steal intellectual property – especially patents – and then offer little in the way of judicial enforcement against the offenders. China’s prosperity is built in no small way on such purloined industrial theft, whether through spies working for American companies, PRC requirements to share technology information on companies that want to work in China, software hacks that funnel information to PRC masters or the down and dirty repatriation (with big bucks) of Chinese-born scientists with major American educations and experience.

Further, as the United States unilaterally withdrew from the U.N.-sponsored six party anti-nuclear accord with Iran, it announced the re-imposition of sanctions against countries, people and businesses choosing to do business in Iran. Several of those nations balked, since they believe that they were still bound to open their trading doors based on their commitment to that accord. It was the United States, not the countries who chose to abide by their agreement with Iran, that was, in their eyes, the wrongdoer. China did not believe that the U.S. position was legally justified.

But an extradition request by the U.S. government was made to Canada. The charges, never clear and not publicly announced, were assessed against Ms. Meng Wanzhou, Chief Financial Officer of PRC-based Huawei (corporate headquarters pictured above), a huge global telecommunications equipment and services provider, recently passing Apple to become the second-biggest smartphone maker after Samsung. She also happens to be the daughter of “[t]he firm's founder Ren Zhengfei, a former People's Liberation Army officer, [who] started Huawei in 1987. It's based in Shenzhen, Guangdong and is owned by 80,000 of its 180,000 employees.” BBC.com, December 7^th. She was arrested in Vancouver prompting an immediate protest from China, claiming a human rights violation and demanding to know the specific charges against Meng.

Journalists outside of the PRC began to speculate as to the basis for the arrest. A few pointed out that Huawei’s global empire embraced doing business in Iran, in contravention of U.S. sanctions, which imposed criminal liability on officers of companies which make such decisions. But tech savvy writers suggested the obvious and more pernicious possibility: that Huawei’s telecommunications equipment and even their smart phones were engineered with “back doors” that enabled access to all kinds of sensitive information that might processed or transmitted by that technology. Was Huawei instrumental in industrial espionage… or worse? Ren Zhengfei’s PRC military connections only amplified the speculation.

“Some Western governments fear Beijing will gain access to fifth-generation (5G) mobile and other communications networks through Huawei and expand its spying ability, although the firm insists there is no government control.

“US lawmakers have repeatedly accused the company of being a threat to US national security… Japan is expected to ban government use of products made by Huawei and ZTE, local media reported on Friday, over cybersecurity concerns. It would follow moves by New Zealand and Australia to block Huawei.” BBC.com, December 7^th. The U.K. is still trying to work with Huawei engineers to eliminate the issues, but their concern is equally obvious.

When challenged directly by the PRC, Canadian Prime Minister Justin Trudeau responded that the arrest did not involve any unique decision-making on the part of the Canadian government. Serious or not? To well-informed experts, the arrest following a U.S. request for extradition was a major escalation in the growing cold war between China and the United States. Writing for the December 7^th BBC.com, BBC Asia business correspondent, Karishma Vaswani opined: “It is hard to overstate the symbolism and significance of this event. Huawei is the crown jewel of Chinese tech and Ms Meng is effectively its princess.

“Even though it's still not clear what the charges against her are, this is not simply a case about the arrest of one woman, or just one company… This arrest could materially damage the relationship between the US and China at possibly one of the most sensitive times between the two countries in their long and torrid history… The gloves are off. Things have taken a dramatic turn for the worse.” Escalating trade tensions into a criminal indictment appears to be a clear slap in China’s face.

Indeed, China officially seems to see this as America’s throwing down the gauntlet: “Whereas the U.S. accuses China of getting hold of high-tech American intellectual property by bullying companies wanting to trade in China or by stealing trade secrets, China is convinced that Washington’s true objective is to contain its rise as a leading global power… ‘The detention of Meng Wanzhou demonstrates to the world yet again America’s unabashedly authoritarian nature,’ wrote Chinese economist Mei Xinyu in a blog post for the People’s Daily, a Communist Party mouthpiece.

“‘America is trying to use its powerful alliance system to turn domestic laws into ‘international laws,’ shamelessly imposing its own aims and standards onto other countries’ systems,’ Mei continued. ‘This should remind all Chinese and other countries’ scientific or technological personnel and corporate figures to watch out for personal safety and freedom before going to the United States.’” Los Angeles Times, December 7^th.

Is this, as some have said, “a shot into the heart” of China’s tech industry? “Now any trade agreement has to overcome what will probably be viewed as a provocation in the eyes of China’s leadership, given Huawei’s importance… ‘Huawei embodies the existential angst of China hard-liners in the U.S. concerned about China’s ostensible grand plan for global domination of new high- tech industries,’ said Eswar Prasad, a professor of trade policy at Cornell University. ‘Meanwhile, such actions by U.S. and other governments crystallize fears among Chinese leaders that the real intention is to hold back China’s economic progress and transformation.’… China demanded the immediate release of Meng, who is among the cream of China’s corporate elite.” LA Times.

Whatever else is said and done, the strained relations between the United States and China, heavily reflected in the stare-down/slap-down trade war escalating between the two nations, does not augur well for future stability and global prosperity. There will be no winners… but lots and lots of losers. The precipitous fall of the U.S. markets after Trump doubled down says it all.

              I’m Peter Dekom, and in a strange way, even if China loses billions of dollars in a trade war, if she simply refuses to kowtow to Trump’s “Art of the Deal” bullying, she will more than make up for that loss in her enhanced global prestige and knowledge that ordinary Americans will pay a dear price for a trade war with no winners.