Beijing is demanding the immediate release of the CFO and deputy chairwoman of Chinese tech giant Huawei, Meng Wanzhou, who has been arrested in Canada for unknown reasons and now faces extradition to the United States.
Meng Wanzhou, the daughter of the founder of Huawei, was arrested by Canadian authorities in Vancouver on 1 December and requested that the arrest not be made public at the time.
While the reason for the arrest—at the request of American authorities--has not been revealed, media speculate that it may have some connection to the ongoing investigation into Huawei over potential violations of sanctions against Iran.
The arrest comes amid a concerted effort in the West—from North America to Australia and New Zealand—to block the company from efforts to expand into the 5G market by placing bans on Huawei equipment.
The bail hearing for Wanzhou will be held on Friday, according to the Canadian Justice Department.
The Global and Mail cited an unnamed Canadian law-enforcement source as saying that the arrest was connection to Iran sanctions violations. Related: Cautious Optimism As South Africa Snaps Out Of Recession
In a Thursday statement, Huawei said: “The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng. The company believes the Canadian and U.S. legal system will ultimately reach a just conclusion. Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, U.S. and EU.”
And if Huawei has been caught violating sanctions against Iran, it won’t be a precedent. China’s other tech giant, ZTE Corp., was found to have violated U.S. sanctions against Iran and North Korea in April and was summarily banned from receiving U.S. exports, forcing ZTE to shut down major operations. Beijing intervened when the company was on the edge of bankruptcy as a result. In June, the ban was removed on ZTE, but not before it was forced to pay out $1.4 billion in fines.
A similar fate for Huawei would be devastating.
Hence the market response to news of the Huawei arrest Wednesday and Thursday.
The Dow had shed over 445 points by 10:30 EST Thursday morning:
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The S&P 500 was down 1.58 percent at the same time, and the Nasdaq Composite was down 1.34 percent.
European stocks slumped to a two-year low, with the tech sector losing 3 percent, after news of the arrest and fears it would lead to more tensions between the U.S. and China following the apparent ceasefire deal at the G20 last week.
ZTE Corp lost another 9 percent in Hong Kong, according to Reuters.
In the U.S., banks and tech companies took a big hit. Among the heaviest losses were Oracle, which shed 4.3 percent and Citigroup, which lost 4.8 percent.
“We are closely watching the developments in Asia after reports that Canada has arrested the Huawei CFO facing U.S. extradition for allegedly violating Iran sanctions. This headline is quite significant as the U.S. government is attempting to persuade allies to stop using Huawei equipment due to security fears, and this headline could weigh negatively on tech stocks,” Stephen Innes, head of trading at Oanda in Singapore, told the Washington Post.
By Michael Kern for Safehaven.com
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