Huawei CFO arrest escalates US-China hi-tech cold war

The arrest of Huawei’s chief financial officer, Meng Wanzhou, is the most significant and potentially fateful development in US-China relations since Donald Trump became President.

It is more important than even the tariff war between the biggest economy in the world, the US, and the second biggest economy in the world, China.

Meng is the daughter of Huawei’s founder, Ren Zhengfei. Huawei is the world’s biggest provider of mobile phone technology. It is the bright shining leader of Beijing’s attempt to dominate hi-tech in the decades to come.

Although at the time of writing the charges against Meng are unclear, they seem to centre on allegations that Huawei broke American sanctions against Iran.

It is impossible to know the details of Meng’s case. She deserves the presumption of innocence like anybody else.

But it would seem unlikely that the US Justice Department would make such a move, and even more unlikely that the Canadian authorities would carry out an arrest at their request, without at least the appearance of solid information.

The Chinese government, and Huawei itself, deny any wrongdoing by Meng or by the company.

Leaving the details of Meng’s case aside, the arrest of such a high-profile Chinese figure, and official US advice to its own hi-tech executives to avoid or delay travel to China, brings us face to face with some stark, developing realities we haven’t been able to see as clearly before.

There is not, as yet, something which could be described as a cold war between Washington and ­Beijing.

There is, however, a developing cold war between the two giants in hi-tech. Washington has led its ­allies to reject on security grounds Chinese participation in emerging 5G networks with their central role in the forthcoming internet of things. Australia and New Zealand have banned Huawei from participation in their 5G networks. Britain’s BT Group has announced it is pulling Huawei out of the core of its networks. Canada is still deciding but its intelligence chief ­recently declared that state-led cyber theft and cyber intrusion were increasing and now a bigger threat than terrorism.

This suggests that ultimately there is going to be a Chinese hi-tech network and a Western hi-tech network and the two will be effectively separate.

It is also clear that far beyond Donald Trump, the whole US system, led by its security agencies but with bipartisan support, has ­decided on security grounds to disentangle itself from Chinese supply chains in hi-tech — in mobile phones, artificial intelligence, quantum computing, probably biotech in due course and other areas.

This is not US paranoia. It is an assessment by virtually all Western agencies that Beijing is continuing the cyber theft of intellectual property and the penetration of digital systems, which would enable not only future espionage but future sabotage.

The Americans have made these accusations public in many reports. The latest iteration is a US Trade Representative report of late November on Beijing’s actions since Washington first imposed its tariffs a few months ago. It shows that Beijing has increased its efforts at cyber theft of US hi-tech intellectual property.

One reason no comprehensive US-China deal is likely any time soon is that this pattern of behaviour has been central to Beijing’s economic growth.

The leaders in Beijing are worried their nation may become imprisoned in the notorious middle-income trap, especially as their economy’s costs rise and their workforce ages and starts to shrink. Their way out of this is through hi-tech. Cyber theft of hi-tech, according to many international reports, has been central to China’s progress in these areas.

No layman is capable of making these judgments but these are the judgments of a host of US and international reports.

Therefore the US decision to counter this much more aggressively than ever before is not only an act of self-­defence, it threatens China’s economic model.

Trump is certainly a hawk on trade, but if anything he is potentially a weak point in this US effort. He loves a deal so much that Beijing may be tempted to try to buy him off with vast financial concessions and unlimited flattery.

If in exchange Trump were to make an early deal which involved pulling back on the hi-tech stuff, Beijing would have scored a remarkable victory.

This is a very fraught situation between two super powers.

And pretty interesting for the rest of us.

As the old saying goes: when the elephants dance, the grass gets trampled.