Posts Tagged ‘intellectual property’

Huawei, Skycom and the Offshore Puzzle That Leads To Mauritius

December 11, 2018

Meng Wanzhou is accused of trying to hide links between the two companies but that ploy will fail

South China Morning Post

Image result for Huawei, Skycom pictures

Skycom Tech, the Hong Kong company at the centre of Huawei Technologies’ alleged violation of US sanctions on Iran, shared the same email domain as the Chinese telecoms equipment giant, public records show.

The contact email address listed for Skycom’s website, Skycom.com.hk, is domain@huawei.com, the same domain as Huawei’s official website, according to records available online at the Hong Kong Domain Name Registration Company.

The digital link between the two firms could prove important in the case against Huawei’s chief financial officer, Sabrina Meng Wanzhou.

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She is being held in Vancouver awaiting extradition to the US where prosecutors believe she deliberately misrepresented Skycom as a completely separate entity in an attempt to sidestep sanctions preventing Huawei doing business in Iran.

The case has rocked already strained relations between China and the US.

Canadian prosecutors alleged in court filings that Huawei used Skycom to circumvent the US sanctions. They claim the latter was in fact “an unofficial subsidiary” of Huawei, even though Meng had denied to US bankers any direct connection between the two companies.

The domain registration records give the name Shen Fen as the contact person for Skycom. The telephone and facsimile numbers listed for the website are located in a Huawei building in Shenzhen, according to the phone number website 114Best.com.

An attempt by the Post to contact Shen Fen found that the phone number was invalid.

Ming Pao, a Chinese newspaper, reported on Monday that Shen was Huawei’s corporate lawyer, and indeed a court ruling from May shows a Huawei employee named Shen Fen represented the company in a trademark dispute case.

The employee worked in Huawei’s intellectual property department, according to Ming Pao, but the Post was unable to reach Shen by phone at the company’s head office in Shenzhen.

Skycom’s website domain was registered in 2013, long after a Huawei subsidiary sold it in 2007 to Canicula Holdings, an offshore company registered in Mauritius, according to the company registration records.

The fact Skycom registered a Huawei domain six years after the two firms supposedly severed their links may add weight to the claims of US prosecutors that the latter used its “unofficial subsidiary” to carry out business in Iran.

Several Huawei spokespeople were approached for comment but did not immediately respond.

Former employees of Skycom have stated that its employees had Huawei email addresses and badges, according to a Bloomberg report citing a Canadian court filing.

Huawei, the world’s largest maker of telecommunications equipment, stands accused of violating the US government’s sanctions against Iran, and Meng could face trial in the US for misleading financial institutions into breaching those sanctions.

Meng, who is also the daughter of Huawei founder Ren Zhengfei, was arrested in Vancouver while she was en route to Mexico from Hong Kong, at the request of the US Justice Department.

The case against Meng came at a high-stakes moment for the relationship between the world’s two largest economies, as they try to reach a resolution to their trade war.

Chinese President Xi Jinping and US President Donald Trump struck an agreement on a 90-day truce on December 1, almost nine months after the Trump administration made the first move to hit China with import tariffs on US$50 billion worth of its goods.

Technology is increasingly seen as the crux of the rivalry between the two nations, as China’s grand strategy to boost its hi-tech sectors, named “Made in China 2025”, has drawn the ire of the Trump administration.

Many are wondering if Huawei might suffer the same fate as ZTE, the Chinese telecommunications equipment company on which the US imposed a ban from April to July, a move which brought the firm to the brink of collapse. The ban prevented ZTE from buying parts and software from the US after it violated the country’s sanctions against North Korea and Iran.

Reuters first reported in 2013 that Huawei and Meng had close ties to Skycom which, according to Canadian prosecutors, tried to sell US equipment to Iran despite the sanctions.

https://www.scmp.com/business/companies/article/2177512/huawei-and-skycom-firm-accused-breaching-us-sanctions-shared-web

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Wall Street Journal:

Huawei CFO Case Hinges on an Offshore Puzzle

https://www.wsj.com/articles/arrest-of-huawei-cfo-hinges-on-an-offshore-puzzle-1544466378

As part of his visit to China, Mauritian Prime Minister Pravind Kumar Jugnauth visited Huawei’s Executive Briefing Center and held talks with Peng Zhongyang, Senior Vice President at Huawei. He said that Huawei is a trusted partner of the country for digital transformation.

More in Whe Wall Street Journal article

https://www.wsj.com/articles/arrest-of-huawei-cfo-hinges-on-an-offshore-puzzle-1544466378

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Huawei Arrests Shows U.S., Canada Mean Business — Trump’s Confronting China Wins Over Skeptical CEOs

December 8, 2018

Some American executives now see administration’s blunt approach as best shot to resolve intellectual-property grievances

Donald Trump and Xi Jinping at a dinner meeting on Dec. 1 Photographer: Pablo Martinez Monsivais/AP

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When President Trump first threatened to levy major tariffs on China, business leaders worried the administration was using the wrong weapon on the right target.

It wasn’t the flood of washing machines coming in and the trickle of Fords going out that raised the ire of America’s CEOs. They wanted something done about counterfeiting, allegations that the Chinese were stealing U.S. intellectual property and investment rules Beijing leans upon that force technology transfers.

Getting China to play by the rules has proven tough over past decades. International bodies—such as the Word Trade Organization—have insufficient power. Export controls and indictments are tools to address theft, but they work only in specific situations and can require cooperation from U.S. companies that may be reluctant to rock the boat.

It’s becoming clear Mr. Trump’s prolonged tit-for-tat trade fight may represent American business’s best shot at addressing those long-standing grievances.

“Calling the abuser an abuser to their face is the first step,” Basheer Junjua, chief executive of San Francisco software development firm Calculi, told me this past week at The Wall Street Journal’s CEO Council in Washington.

U.S.-China tensions have rattled markets. The Dow industrials started the past week strong after positive news on the trade front but plunged as doubts about a favorable outcome re-emerged. The arrest of a senior executive of networking-gear maker Huawei Technologies Co. on Wednesday intensified negotiations on trade.

The dozens of CEOs gathered for the Journal’s meeting in the capital, however, suggest business leaders have shifted their view of Mr. Trump’s confrontational approach. They now say they are encouraged that the administration recognizes complex problems demand sophisticated solutions.

National Security Adviser John Bolton outlined how negotiations could take a turn over a 90-day cease-fire China and the U.S. agreed to this past week. Speaking to the CEO Council, he proposed a rule that says there will be no imports into the U.S. of products or services based on the theft of American innovation.

“That’s not a tariff question,” he said. “That’s a way of defending intellectual property from the United States.”

Mr. Bolton insisted the administration can’t ensure fair trade without getting China to agree to a broad set of reforms.

“Let’s take a show of hands,” Mr. Bolton said to the assembled CEOs. “How many of you believe in free trade?” Several hands went up. “How many of you believe that free trade means allowing the Chinese to kick us around, steal your intellectual property and not respond to it?”

No hands went up.

When critics accuse the administration of not pursuing a free-trade policy by goading the Chinese, he concluded, “I say if there’s going to be free trade, they’re going to have to live by it.”

, the president of the U.S. Chamber of Commerce’s China Center, said the White House has a supportive audience in the business community when it comes to confronting China. When Mr. Trump came to office, there was “a frustration that had been building over a number of years.”

Many companies across many sectors have rushed to China, seeking a new market for goods and a lower cost for manufacturing. As they did, it became increasingly clear what price they had to pay to enter the most populous nation in the world.

“The allure of a billion-plus-people market is an allure for every company,” Mr. Janjua, the Calculi CEO, said. “However, they made the rules say ‘if you want to come work with us you have to put all the technology on the table.’ ”

The trade-off is costly. Earlier this year, the White House published research estimating an annual cost of between $250 billion and $600 billion to the U.S. economy from China’s counterfeit goods, pirated software and theft of trade secrets. By comparison, the National Science Foundation estimates the U.S. spends an average of $445 billion in annual research and development.

Several experts say past administrations attempted to address alleged abuses but lacked resolve. For instance, many companies and regulators figured China would eventually act like the rest of the countries in the WTO.

“People were making a bet which direction China would take, and it looked like China would follow global rules,” said James Andrew Lewis, a vice president at the Center for Strategic and International Studies, a bipartisan research organization in Washington. When it comes to trade, Mr. Lewis says China’s strategy to win at any cost often overshadows the desire to be seen as a good citizen of the world.

“Calling the abuser an abuser to their face is the first step.”

—Basheer Junjua, chief executive of software development firm Calculi, on the need to confront China on intellectual-property grievances

Abigail Grace, a researcher at the Center for New American Security, a bipartisan think tank in Washington, said the Obama administration was initially reluctant to call China out on specific allegations of theft or counterfeiting. That’s because it was trying to get Beijing to cooperate on various multilateral agreements.

“If one pushed China too hard on individual issues, it would jeopardize those broader goals,” Ms. Grace said.

President Obama took a harder line with China during his second term when it became clear Chinese President Xi Jinping wasn’t going to open the Chinese market up as much as initially hoped, she said. Getting the support of American business was tough, Ms. Grace said, because “companies were hesitant to admit this type of rampant IP theft was taking place because of how shareholders might respond.”

Mr. Lewis, a former foreign service officer in the State and Commerce departments, said reforms could be messy, particularly because of the interconnectedness of supply chains or joint ventures.

For example, his organization is preparing to publish a report on whether the next generation of cellular networks, known as 5G, is viable without China’s help.

He said companies like China’s Huawei or ZTE Corp. “can’t make products without U.S. technology.”

Can Western firms could pull off 5G without Chinese partners? “The answer is yes, but it is going to cost a lot more.”

Write to John D. Stoll at john.stoll@wsj.com

Appeared in the December 8, 2018, print edition as ‘Trump’s China Tack Wins Fans.’

https://www.wsj.com/articles/trumps-tough-china-tack-wins-over-skeptical-ceos-1544245201

Huawei CFO Meng Wanzhou: a goldfish in the bowl that is the world’s biggest story

December 8, 2018

How the drama of Meng Wanzhou’s bail hearing played out in a Vancouver courtroom, behind two layers of bulletproof glass

South China Morning Post

When Huawei CFO Sabrina Meng Wanzhou appeared on Wednesday in a Vancouver courtroom, clad in an unbranded green tracksuit, the moment was witnessed by a single reporter from the local Vancouver Sun newspaper who happened to notice her name on the hearings list that morning.

The arrest of a top Huawei executive is 'a shot into the heart' of China's tech ambitions, analysts say
Meng Wanzhou, chief financial officer of Huawei, attends an investment forum in Moscow in October 2014. Meng has been arrested in Canada and detained for potential U.S. sanctions violations. (Maxim Shipenkov / EPA/Shutterstock)
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Image result for Ren Zhengfei, Xi Jinping, pictures

Photo: Xi Jinping and Huawei founder Ren Zhengfei

By the end of the day, Meng’s arrest in Canada at the request of Washington was the biggest story in the world.

Media and members of the public line up outside the British Columbia Supreme Court to attend Meng’s bail hearing in Vancouver on December 7, 2018. Photo: AFP

And when her bail hearing resumed on Friday, Meng entered court to see about 100 reporters, craning to look at her through two layers of bulletproof glass.

Faced with overwhelming media interest, court authorities shifted proceedings to the high-security, high-capacity Courtroom 20, purpose-built 16 years ago for the Air India terror trial.

The glass encasement gave the court and its players the look of goldfish in a bowl.

“We’ve booked these 20 seats,” a lawyer on Meng’s team told an armed sheriff overseeing the public gallery. The lawyer waved her hands over the two front rows closest to Meng and tried to shoo away reporters to make room for Huawei’s team of executives and an overflow of the tech firm’s lawyers.

The sheriff nodded at the reporters who grumbled and made way, but two courtroom artists who had dashed to the best seats in the house were digging in.

“Well, we need to see everything and we were here first,” said one, defiantly unpacking her sketch pad. The lawyer sighed.

A courtroom sketch of Meng’s bail hearing. Photo: Reuters/Jane Wolsak

The sheriff pointed to a seat that appeared to have been reserved by Team Huawei in the front row.

“Are you saving this seat for the husband?” the sheriff asked, loudly. Reporters leaned forward.

The lawyer sighed again and pulled the sheriff into a tight whisper. The seat remained empty for the entire morning.

The phalanx of Meng’s supporters could be roughly divided according to the cut of their suits. There were the Huawei executives, crisp and perfect, including senior vice-president for corporate affairs Scott Bradley. Then the lawyers, local and Chinese, dressed for a day in the office, some joking lightly with reporters.

Members of the media outside the British Columbia Supreme Court on December 7, 2018. Photo: AFP

But the centre of gravity was held by two men in the front row in dowdy grey suits, whispering in Mandarin. One wore an enamel Chinese flag pin on his lapel.

“I have no comment,” he said, before he could even be properly asked to provide one or identify himself, as he walked briskly away during a break in proceedings.

Meng’s voice went unheard during the whole hearing. Her local lawyer, David Martin, greeted her warmly in the morning, clasping both her hands in his. Like a scene from a silent film, they laughed and chatted soundlessly behind the glass, with the audio turned off before the court was in session.

Court sketch of Meng and her translator. Photo: Reuters/Jane Wolsak

There were no subtitles, unfortunately. “Any lip-readers in the house?” joked a reporter.

But Meng’s initial body language belied the stakes, which were soon laid out by John Gibb-Carsley, the lawyer representing Canada’s attorney general. Meng was accused of multiple fraud charges in the US, he said, which related to supposed breaches of sanctions against Iran. She faces up to 30 years’ jail on each count.

Later, Martin told Mr Justice William Ehrcke that Meng posed no flight risk and should be granted bail.

File photo of Huawei founder and CEO Ren Zhengfei. Photo: AFP

To flee would shame her in front of her father, Ren Zhengfei – who is Huawei’s founder – and all of China, said Martin.

“Her father would not recognise her. Her colleagues would hold her in contempt. She would be a pariah,” he said.

Meng leaned forward in her seat and dabbed at her eyes with a tissue.

When the hearing adjourned, she was led away with her head bowed, a goldfish in a bowl that is the biggest story in the world.

https://www.scmp.com/news/world/united-states-canada/article/2177026/huawei-cfo-sabrina-meng-wanzhou-goldfish-bowl-worlds

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Dow Jones Dives, But Huawei Shows Donald Trump Is Winning China Trade War

December 8, 2018

The Dow Jones industrial average took another tumble Friday as Wall Street turned from a just-right jobs report to a courtroom in Canada, where recently arrested Huawei CFO Meng Wanzhou made an appearance. Yet concern that the Huawei CFO arrest could snare U.S.-China trade talks, and lead to an escalation of Trump tariffs and the China trade war, look exactly wrong. In fact, signs increasingly point to President Donald Trump and Chinese President Xi Jinping reaching a U.S.-China trade deal allowing both sides — and all the companies caught in the middle — to exhale, at least for a little while.

By Jed Graham
Investors Business Daily

The Dow Jones slid 2.2%, or 559 600 points on the stock marketTechnology stocks were notably weak, with IBM (IBM), Apple (AAPL), Microsoft (MSFT), Cisco Systems (CSCO) and Intel (INTC) all among the biggest Dow Jones losers, each falling more than 3.5%.

China Huawei Filiale in Beijing (picture-alliance/AP Photo/Ng Han Guan)

Huawei CFO Arrest Part Of Global Reversal

First, consider all of the headlines about Huawei that don’t involve the arrest. Japan will ban purchases of equipment from both Huawei and ZTE, another Chinese gearmaker that ran afoul of U.S. sanctions. The European Union is raising alarm about Huawei security risks. Meanwhile, Huawei has reportedly finally “caved” in and is willing to revamp its practices after the U.K. raised alarm about security vulnerabilities, the Financial Times reports. U.K.-based BT said this week it will bar Huawei from the “core” of its 5G networks and remove it from the core of its 3G and 4G systems. Already, Australia and New Zealand had moved to block Huawei gear from 5G networks. In other words Huawei, which is considered a “national champion” in China and has overtaken Apple as the No. 2 mobile phone supplier, is under fire on four continents.

Beijing Carries On Despite Huawei CFO Arrest

Now consider Beijing’s reaction after the arrest of Huawei’s CFO. While calling Meng’s arrest a human rights violation, China has kept moving forward with the commitments made at Saturday’s Trump-Xi meeting in Buenos Aires. China’s Ministry of Commerce said Beijing will implement agreements on agriculture, energy and cars. While the exact nature of those deals hasn’t been disclosed, the implication is that China tariffs on U.S.-built autos will drop from 40%, perhaps as low as the 15% tariffs on other foreign vehicles.

Beijing Won’t Derail U.S. China Trade Talks

China buying soybeans and natural gas, and lowering auto tariffs while trade talks continue, isn’t a huge win for Trump. But Beijing has sent a signal that it won’t let pride get in the way of a China trade deal, despite what it sees as the unjust treatment of a key technology executive.

Meanwhile, Beijing also has released updated plans for strict protection of intellectual property. Those plans received positive reviews, despite some skepticism as to whether they will be acted upon.

Every signal Beijing has sent suggests it is determined to avoid an escalation of the China trade war. That may have less to do with the effectiveness of Trump tariffs than China’s vulnerability to a technological blacklisting by the U.S. and its allies.

Although Beijing has mapped out its state-funded Made in China 2025 plan to achieve global leadership in advanced technology industries, right now it’s still building those industries. It still needs technology from the U.S. and other advanced economies to stay on course. We don’t know how far Beijing will go to satisfy Trump, but it’s looking more like there will be a China trade deal.

https://www.investors.com/news/economy/dow-jones-falls-huawei-shows-donald-trump-is-winning-china-trade-war/

‘Read this quickly before it’s gone’: how China’s media covered or ignored the arrest of Huawei executive

December 7, 2018

Logo von Huawei (Reuters/H. Hanschke)

Canada’s Globe and Mail newspaper reported on Wednesday that Meng Wanzhou (孟晚舟), the daughter of the founder of Chinese telecoms giant Huawei, Ren Zhengfei (任正非), had been arrested in Canada and faces extradition to the United States on charges of violating US trade sanctions on Iran.

Meng is also the deputy chair of Huawei, which in recent months has faced an international backlash over concerns the company is linked to the Chinese state and poses a security risk.

Meng Wanzhou

Meng Wanzhou. File photo: Huawei.

Little information is available about Meng’s arrest, which reportedly occurred on December 1. Ian McLeod, a spokesman for Canada’s Justice Department, told the Globe and Mail: “As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms Meng.”

So far, Chinese mainstream media have been largely silent on the case. A handful of media have picked up an early news release from the official China News Service that closely follows the press release from the Chinese Embassy in Canada.

That release registered a strong protest, saying that Meng’s arrest had “seriously harmed the human rights of the victim.”

The China Daily, published by the Information Office of the State Council, released an article in Chinese earlier today quoting the official release from Huawei saying that Meng has done nothing wrong and they are confident there will be a fair result.

Huawei Canada

Huawei, Canada. Photo: Wikicommons.

The official Xinhua News Agency did not release a report in English until around 5PM today Beijing time. That report again closely followed the remarks from the Chinese Embassy in Canada and the official Huawei release.

As of 8:30PM Beijing time there was still no Xinhua story in Chinese carried prominently on the service’s website, though far down the list of news was a transcript of the foreign ministry press conference.

Xinhua was focussed instead on Xi Jinping’s trip to Spain, Portugal and Latin America, and on the 40th anniversary of China’s “reform and opening” policy.

No doubt the timing of the Meng Wanzhou story, coming less than two weeks ahead of the formal anniversary on December 18, will also be a point of great sensitivity for the Party leadership.

Xinhua

Xinhua homepage, December 6 2018. Photo: Screenshot.

There were also stories on both the Chinese and English sides of Caixin. Interestingly, though, while the English report is prominent, the Chinese report was pushed lower down at around 4pm Beijing time, emphasising in the headline the fierce response from the Chinese Embassy in Canada — and two hours later that story was not visible at all on the Chinese homepage.

The English-language page at Caixin gave the Meng Wanzhou arrest story central play, and by 5pm Beijing time also paired it with the story of Huawei’s troubles in the UK.

The Chinese homepage of Caixin at around 4pm Beijing time on December 6 showed the Huawei story of the arrest of Meng Wanzhou well below other featured articles.

By 5pm Beijing time on the same day, no stories about Huawei or its CFO, Meng Wanzhou, were visible on the Chinese-language Caixin homepage.

Caixin

The English-language page at Caixin gives the Meng Wanzhou arrest story central play, and by 5PM Beijing time also pairs it with the story of Huawei’s troubles in the UK. Photo: Screenshot.

But lack of information on this breaking story, and relative silence from traditional and state-run media cannot forestall the conversation in China. There has been a flurry of chatter and speculation on Weibo and WeChat, although of course, that conversation is in a state of constant emergence and disappearance.

Here, courtesy of the Weiboscope, are a few of the more recent Weibo posts that have been removed, most dealing directly with the original report from the Globe and Mail:

  • 2018-12-06 13:29:55 | #ImmigrantObserver # MengWanzhou (Sabrina Wanzhou Meng) born 1972, is the daughter of Huawei founder and CEO Ren Zhengfei, and Meng Dongbo (孟东波), the father of her mother, Meng Jun (孟军), served as deputy governor of Sichuan province. She at the very least has Chinese, American and Canadian passports!
  • 2018-12-06 07:31:11 | [Meng Wanzhou, Daughter of Huawei CEO Ren Zhengfei, arrested in Canada] Canada’s Global and Mail newspaper reported that the daughter of Huawei CEO Ren Zhengfei, Huawei’s CFO Meng Wanzhou, has been arrested in Canada and faces extradition to the U.S. American law enforcement authorities have said that Meng Wanzhou is suspected of violating U.S. trade sanctions against Iran. http://t.cn/EyXG9Ao
  • 2018-12-06 07:24:50 | [Foreign Media: Ren Zhengfei’s daughter and Huawei CFO Meng Wanzhou has been arrested in Vancouver] News, Beijing time, December 6. According to Canada’s Globe and Mail, quoting Ian McLeod of Canada’s Justice Department, Canada has arrested Huawei CFO Meng Wanzhou. http://t.cn/EyXbNi9

Marco Rubio

@marcorubio

If @Huawei has been helping violate US sanctions by transferring US technology to they should be barred from operating in the US or from purchasing US technology.

488 people are talking about this

A Weibo search for “Meng Wanzhou” directs readers to two posts from state media, one from CCTV Online and the other from the Global Times. The CCTV post is a short video relaying the response from China’s Foreign Ministry, calling on Canada and the U.S. to immediate release Meng and to “protect the legitimate rights of the person involved.”

The Global Times post similarly focuses on what at present seems right now to be the core message of the leadership: Meng must be immediately released.

The battle by ordinary citizens and other non-official voices to have a say on the Meng case, over and against the official urge to control the development of the issue online, could be glimpsed openly on social media.

In a post made around 8:30pm to Weibo, Zhu Wei (朱伟), an entrepreneur with more than two million followers on the platform, posted the following message:

“This topic is so sensitive. The headline article on my WeChat public account ‘Teacher Zhu Wei’ (朱伟老师), ‘Chinese Embassy in Canada: We Demand the Immediate Return of Meng Wanzhou’s Freedom’ was deleted by the relevant departments. Right now I’m reposting it on Weibo, so read it really quickly before it’s gone.”

Huawei phone

Photo: Kārlis Dambrāns/Flickr.

In a Weibo post, entrepreneur Zhu Wei tells readers to quickly read his post already deleted from the WeChat platform — before it once again disappears.

The article in question by Zhu Wei, offered a rundown of the official statements from the foreign ministry and from Huawei, and then included a paragraph by paragraph translation of the original report from the Globe and Mail.

Another post from the Weibo account of the Putian Media Group (莆田广播电视台) offered readers a video from talk Meng Wanzhou gave in English on September 26 at the World Academic Summit in Singapore.

The post, which bore the hashtag “#MengWanZhouArrested,” noted that Meng’s talk had been about “how to promote industry innovation.” But the video was soon disabled, yielding the message: “We’re sorry, this video cannot be displayed. Please view another video.”

Some commenting on WeChat and other platforms voiced anger over Meng’s arrest, viewing it through the lens of US-China competition, as a provocative act and a sign that the United States and other Western countries want to keep China down, even stripping it of its “right to develop.”

Wechat

File photo: Sinchen.Lin/Flickr.

In a piece shared widely on WeChat, Mei Xinyu (梅新育), a financial writer with more than one million followers on Weibo, wrote:

“Finally, I want to emphasise again the assessment I had a few days ago: through equal and rational dialogue a new cold war between China and the US can be avoided, and this would be a great thing for both countries and for the world.

“But the sky rains when it wants to, and girls marry when the time comes, and if certain people insist on foisting a ‘new cold war’ upon us, China has sufficient courage to meet this challenge, upholding China’s right to development in the midst of this struggle.”

Republished with permission from the China Media Project. 

https://www.hongkongfp.com/2018/12/07/read-quickly-gone-chinas-media-covered-ignored-arrest-huawei-executive/

American Entrepreneurs Who Flocked to China Are Heading Home, Disillusioned

December 7, 2018

Worsening costs, taxation, tech transfer and regulation prompt foreign-owned businesses to throw in the towel

Image result for Xi Jinping, waving, photos

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SHANGHAI—Fifteen years ago in California, a tall technology geek named Steve Mushero started writing a book that predicted the American dream might soon “be found only in China.” Before long, Mr. Mushero moved himself to Shanghai and launched a firm that Amazon.com Inc. and Alibaba Group Holding Ltd. certified as a partner to serve the world’s biggest internet market.

These days, the tech pioneer has hit a wall. He’s heading back to Silicon Valley where he sees deeper demand for his know-how in cloud computing. “The future’s not here,” said the 52-year-old.

For years, American entrepreneurs saw a place in which they would start tech businesses, build restaurant chains and manage factories, making potentially vast sums in an exciting, newly dynamic economy. Many mastered Mandarin, hired and trained thousands in China, bought houses, met their spouses and raised bilingual children.

Now disillusion has set in, fed by soaring costs, creeping taxation, tightening political control and capricious regulation that makes it ever tougher to maneuver the market and fend off new domestic competitors. All these signal to expat business owners their best days were in the past.

The Trump administration is making a hard-nosed challenge to China using trade tariffs, investment controls and prosecution of technology thieves, and many in American business are cheering, if silently, having soured on the market after years of trying.

At a curry luncheon hosted a few times a year by Steven Bourne, a law professor and 13-year resident of Shanghai from Massachusetts, guests these days chew over shrimp samosas and exit plans. On a recent Friday, a Swedish maker of beauty products said he would move his family to Hong Kong, where regulations are clearer and taxes are lower. An American art dealer who suffered when his rich clients got pinched by currency controls was headed to California.

Another, Jack Tung, a 47-year-old who grew up near Philadelphia and had the costumes made for Hollywood movies like “The Painted Veil” and “The Great Wall,” said absorbing a sixfold rise in tailoring rates since 2003 changed China into a high-cost, low-profit, stressful hardship. He lost the feeling “it’s all happening” in Shanghai and will try Thailand.

Expats always ebb and flow, said Mr. Bourne, but for entrepreneurs “it’s harder for them to live here now.”

Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007.
Bob Boyce at the opening party for one of his Blue Frog restaurants in Shanghai in 2007. PHOTO: CHARLIE XIA

Relocations firm Santa Fe Group A/S said it moves more families out of China than into it these days. Enrollment at Shanghai American School—where annual tuition tops $30,000—is nearly 17% off its peak five years ago. The American Chamber of Commerce in China said 75% of its members are feeling less welcome. Its Shanghai chapter lost over 600 members in recent years, while a poll of U.S. businesses by the organization in manufacturing-heavy Guangdong found 70% may delay China investment or shift it overseas.

“How can it be that those who know China best, work there, do business there, make money there, and have advocated for productive relations in the past, are among those now arguing for more confrontation?” former U.S. Treasury Secretary Henry Paulson asked at a November conference in Singapore.

Many mark a turn in the climate for foreign businesses at around 2012. China was reckoning with how boom times had weighed it down with debt and overcapacity plus widespread corruption and appalling pollution. When Xi Jinping became Communist Party leader, he used the power of the state to shore up employment and living standards. Government-owned companies shielded from daily business hassles were in favor.

Authorities stepped up scrutiny of visas and actively enforced pollution controls. A new social security law lifted local wages and made it tough to fire workers, so much that some employers called the policy a modern “iron rice bowl.” Mr. Xi reinforced China’s Great Firewall of internet controls; big domestic tech firms thrived while laws excluded foreign rivals or pressured them to share technology.

About 20 years ago, when China fever was building, Bob Boyce’s hankering for an affordable beer and burger in Shanghai prompted him to “jump into the sea,” as locals then called starting a business. The Montanan’s bar and grill featuring $5.80 burgers proved an immediate hit.

“It was a time in China if you made some effort, people responded well and you could figure things out,” said Mr. Boyce.

Mr. Boyce targeted China’s white collar crowd, which was taking off along with the economy. The Beijing Olympics in 2008 seemed to crystallize China’s ascendancy. Money was pouring in. Foreign direct investment topped $100 billion for the first time in 2008, helped by new spending by Boeing Co. , Goodyear Tire and Rubber Co. and Microsoft Corp.

Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.
Mr. Boyce at the construction site for a Blue Frog restaurant in Chengdu, China, around 2014.PHOTO: BOB BOYCE

Over the years, Mr. Boyce expanded his single burger joint into a 10-city, $70 million chain of restaurants under the names Kabb and Blue Frog. He figures they employed a total of 12,000 over the years, some of whom went on to launch their own restaurants.

Still, he said, “the label of ‘foreigner’ is always on your forehead.”

Health inspectors were initially so unfamiliar with Western kitchens that he said they nitpicked—he was cited for out-of-date dried oregano—then new rules started cropping up. Officials required restaurants to dedicate a separate space of exactly 8 square meters to prepare salad, not a staple of Chinese cooking. After a retired Chinese leader moved in near his original Blue Frog outlet, police checked noise levels nightly and the restaurant closed in 2012.

“China started to become less clear about what the endgame was for foreigners,” said Mr. Boyce. Last year, he decamped to Seattle after selling his chain to a European company.

From Silicon Valley in 2003, Mr. Mushero felt China’s rumblings and started writing his book, “Off-Shoring the Middle Class.” He saw U.S. companies save money by shifting accounting, X-ray evaluations and other technical jobs overseas. China, he thought, was becoming globalization’s “one-stop-shop” for manufacturing, basic tech work and advanced research.

He predicted a broad shift to China of not only factory work, but U.S. white collar jobs, too. “Imagine these people’s surprise to be out of work, having lost their job to a young Chinese girl earning 25% of their salary,” he wrote.

In 2004, he ran into a friend working at International Business Machines Corp. who asked: “Have you thought about living in Shanghai? We’re hiring like mad.”

An Alibaba office at the internet giant’s headquarters in Hangzhou, China.
An Alibaba office at the internet giant’s headquarters in Hangzhou, China. PHOTO: WANG HE/GETTY IMAGES

By September 2005, he was in Shanghai to pursue consulting leads. His first night, Mr. Mushero was on the terrace of a riverside nightclub chatting with his mother by mobile phone when a burst of fireworks lighted the skyline. “Awesome, they’re celebrating my arrival,” Mr. Mushero told her.

A few evenings later, Mr. Mushero attended an American Chamber of Commerce mixer where he met two future business partners: an American techie, James Eron, and a local businesswoman, Gu Yinan, whom he would marry.

The first foreigner hired at a video sharing service called Tudou.com, a China version of YouTube, Mr. Mushero got a fast education about keeping a site functioning on China’s rough-and-tumble internet. One duty involved locating clips of pornography hidden in uploaded cat videos.

He wondered: “What is everybody else doing?”

At a Starbucks in mid-2008, he sketched out “a napkin business plan” for a new company called ChinaNetCloud (Shanghai) Co. with Mr. Eron. China was overtaking the U.S. as the biggest internet market, and the partners would trail-blaze into cloud services by managing the online operations of local businesses. To a Silicon Valley investor named Dave McClure known for early bets on tech trends, ChinaNetCloud was a proxy for “the exploding Chinese internet market,” he said in a 2010 blog, and he pumped in $200,000 for his first China investment.

Companies such as Alibaba and Tencent Holdings Ltd. soon harnessed cloud technology and today deliver on-the-go shopping, gaming, payments and other consumer services. When Alibaba and Amazon Web Services began selling enterprise cloud space in China, each certified ChinaNetCloud to configure and monitor software for their corporate clients.

Tougher regulations and competition deterred foreign players. China’s reputation for technology theft kept many out of the market, which reduced the number of Mr. Mushero’s potential clients. In 2013, the American Chamber of Commerce said only 10% of its members trusted data security enough to consider cloud services in China.

A night view of Shanghai in 2005, when new companies launched by foreigners were soaring.
A night view of Shanghai in 2005, when new companies launched by foreigners were soaring. PHOTO: CANCAN CHU/GETTY IMAGES

Walt Disney Co. tapped ChinaNetCloud to manage the computers hosting some interactive games in 2012, including one based on its hit movie “Frozen.” Mr. Mushero looked forward to more work with the U.S. entertainment giant, but Disney scrubbed the gaming push in mid-2014. Disney declined to comment. Online gaming in China is dominated by big domestic tech companies; it is derided by regulators as chaotic and harmful and hit regularly with new rules.

Soon another customer, British online retailer ASOS PLC, pulled out of China after three years trying to compete in a market dominated by giants Ailbaba and JD.com Inc. ASOS didn’t respond to questions.

Mr. Mushero pushed on, setting his sights on taking ChinaNetCloud public, after Alibaba’s $25 billion initial public offering in 2014 boosted investor enthusiasm for Chinese tech.

ChinaNetCloud lifted staffing to 125 and fancied up its offices in a high-tech zone with a second floor that featured colorful wall-size monitors Mr. Mushero likened to the Starship Enterprise. He hung up the napkin business plan and hired lawyers, figuring the company was worth $60 million.

Mr. Mushero in 2008 at ChinaNetCloud.
Mr. Mushero in 2008 at ChinaNetCloud. PHOTO: STEVE MUSHERO

As a foreign-owned company, ChinaNetCloud couldn’t easily raise money from local investors, and rules blocked listed Chinese companies from buying it before it was profitable. Foreign investors, meanwhile, were uneasy about China’s tightly regulated internet sector. “We were too Chinese for the Americans and too American for the Chinese,” said Mr. Mushero.

When China’s stock markets crashed in mid-2015 so did ChinaNetCloud’s fundraising hopes. The setback left Mr. Mushero and his co-founder, Mr. Eron, personally liable for a $6 million loan from local firms. Mr. Eron quit and returned to the U.S.; he declined to comment.

Lacking funds, ChinaNetCloud later restructured into Shanghai YunChang Network Technology Ltd. to become a fully China-registered company instead of a foreign enterprise. Mr. Mushero’s wife, Ms. Gu, took over as chief executive, while he stuck to technology.

In August 2017, Ms. Gu appeared on the season finale of China’s version of Shark Tank, a TV show where entrepreneurs try to sell famous investors on their business plan. Ms. Gu raced through the story of the company’s early success and more recent money challenges. When a panelist asked about juggling family and work, Ms. Gu broke down in sobs.

“We have been struggling for nine years. Nine years,” she said. The panelist leapt up to hug a trembling Ms. Gu. Soon, all five investors were wiping away their tears as they pledged Ms. Gu the equivalent of $1.5 million. “We’re very touched by your story,” one said.

Still only occasionally profitable and down to about 40 employees, the company in October fled the tech-zone for a cramped office near a railway station. The Shark Tank funding wiped away Mr. Mushero’s debt but slashed the company’s valuation.

On a recent drizzly afternoon, flanked by framed commendations from Amazon and Microsoft for his firm’s achievements in China, Mr. Mushero said that after New Year’s he will head back to California, where he sees burgeoning demand for corporate online services, to market the company’s cloud-management tools. China is big, messy and complicated, he said. “We have been out there in the trenches for many years.”

Write to James T. Areddy at james.areddy@wsj.com

https://www.wsj.com/articles/american-entrepreneurs-who-flocked-to-china-are-heading-home-disillusioned-1544197068

Why Huawei arrest deepens conflict between US and China

December 7, 2018

The arrest of a prominent Chinese telecommunications executive has driven home why it will be so hard for the Trump administration to resolve its deepening conflict with China.

The arrest of Meng Wanzhou, Huawei’s chief financial officer, has heightened skepticism over the trade truce that Presidents Donald Trump and Xi Jinping reached last weekend in Buenos Aires, Argentina. Stock markets tumbled Thursday on fears that the 90-day cease-fire won’t last, but regained their equilibrium in Europe and Asia on Friday.

A bail hearing for Meng, who faces possible extradition to the United States after her arrest in Vancouver, Canada, last weekend, was set for later Friday.

Huawei has been a subject of U.S. national security concerns for years and Meng’s case echoes well beyond tariffs or market access. Washington and Beijing are locked in a clash between the world’s two largest economies for economic and political dominance for decades to come.

“It’s a much broader issue than just a trade dispute,” said Amanda DeBusk, chair of the international trade practice at Dechert LLP. “It pulls in: Who is going to be the world leader essentially.”

Meng was detained on the same day that Trump and Xi met at the Group of 20 summit in Argentina and agreed to a cease-fire in their trade war. The Globe and Mail newspaper, citing law enforcement sources, reported she is suspected of trying to evade U.S. sanctions on Iran.

Huawei is the world’s biggest supplier of network gear used by phone and internet companies and long has been seen as a front for spying by the Chinese military or security services. A U.S. National Security Agency cybersecurity adviser, Rob Joyce, last month accused Beijing of violating a 2015 agreement with the U.S. to halt electronic theft of intellectual property.

Other nations are increasingly being forced to choose between Chinese and U.S. suppliers for next-generation “5G” wireless technology. U.S. critics are lobbying other countries not to buy the equipment from Huawei, arguing that the company may be working stealthily for Beijing’s spymasters.

“There is ample evidence to suggest that no major Chinese company is independent of the Chinese government and Communist Party — and Huawei, which China’s government and military tout as a ‘national champion’ is no exception,” Sens. Mark Warner, D-Va., and Marco Rubio, R-Fla., wrote in October to Canadian Prime Minister Justin Trudeau. They urged him to keep Huawei off Canada’s next-generation network.

Still, a senior Japanese official cast doubt Friday over reports that his country was considering blocking Huawei and its biggest Chinese rival, ZTE Corp., from government procurement contracts. He said there had been no decision. Australia, New Zealand and Britain are among the countries that have moved to limit the Chinese companies’ involvement in their next-generation telecoms networks.

In a sign Meng’s case might not derail the Trump-Xi truce, Beijing protested Meng’s arrest but said talks with the Trump administration would go ahead. Chinese Commerce Ministry spokesman Gao Feng said China is confident it can reach a deal during the 90 days that Trump agreed to suspend a scheduled increase in U.S. import taxes on $200 billion worth of Chinese products.

Some analysts say China has deployed predatory tactics in its drive to overtake America’s dominance in technology and global economic leadership, such as forcing American and other foreign companies to hand over trade secrets in exchange for access to the Chinese market and engaging in cyber-theft.

Washington also regards Beijing’s ambitious long-term development plan, “Made in China 2025,” as a scheme to dominate such fields as robotics and electric vehicles by unfairly subsidizing Chinese companies and discriminating against foreign competitors.

Priscilla Moriuchi, a former East Asia specialist at National Security Agency now with the cybersecurity firm Recorded Future, said both ZTE and Huawei are wedded to China’s military and political leadership.

“The threat from these companies lies in their access to critical internet backbone infrastructure,” she said.

The Trump administration has tightened regulations on high-tech exports to China and made it harder for Chinese firms to invest in U.S. companies or to buy American technology in cutting-edge areas like robotics, artificial intelligence and virtual reality.

Earlier this year, the United States nearly drove Huawei’s biggest Chinese rival, ZTE Corp., out of business for selling equipment to North Korea and Iran in violation of U.S. sanctions. But Trump issued a reprieve, perhaps partly because U.S. tech companies, major suppliers to ZTE, would also have been scorched. ZTE agreed to pay a $1 billion fine, change its board and management and to let American regulators monitor its operations.

The U.S. and Chinese tech industries depend on each other so much for components that “it is very hard to decouple the two without punishing U.S. companies, without shooting ourselves in the foot,” said Adam Segal, cyberspace analyst at the Council on Foreign Relations.

Dean Garfield, president of the U.S. Information Technology Industry Council trade group, said innovation by U.S. companies often depends utterly on product development and testing by Chinese partners and component suppliers.

Still, the pushback against Huawei and ZTE is limiting their reach into the world’s richest markets. Nearly a year ago, AT&T pulled out of a deal to sell Huawei smartphones. Barred from use by U.S. government agencies and contractors, they’re mostly locked out of the American market.

Derek Scissors, a China specialist at the conservative American Enterprise Institute, doubts that China will change its tech policies since it needs innovative technologies to keep its economy growing as its labor force ages and it confronts a huge stockpile of debt.

“We’re not going to deal that away in 90 days,” he said. “I don’t see a way out of this.”

Likewise, Rod Hunter, an international economic official in President George W. Bush’s White House and a partner at law firm Baker McKenzie, said, “I’m skeptical that the Chinese are going to want to say ‘uncle.’” U.S. and Chinese officials are “trying to tackle a problem that is going to take years, maybe a decade, to resolve.”

___

Bajak reported from Boston. AP staff writers Rob Gillies in Toronto, Joe McDonald in Beijing and Yuri Kageyama in Tokyo contributed to this report.

The arrest of a top Huawei executive is ‘a shot into the heart’ of China’s tech ambitions, analysts say

December 7, 2018

The arrest of a top executive at one of the most successful Chinese global companies threatens to upend a delicate detente between the U.S. and China in their months-long trade war.

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Meng Wanzhou, deputy chairwoman and chief financial officer of telecommunications giant Huawei, was arrested Saturday during a transit stop at a Vancouver airport and could face possible extradition to the U.S. and an appearance in federal court in New York.

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By   and  

The Los Angeles Times

The arrest of a top Huawei executive is 'a shot into the heart' of China's tech ambitions, analysts say

 

Meng Wanzhou, chief financial officer of Huawei, attends an investment forum in Moscow in October 2014. Meng has been arrested in Canada and detained for potential U.S. sanctions violations. (Maxim Shipenkov / EPA/Shutterstock)
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A U.S. law enforcement official, who was not authorized to discuss the case by name, said the action against Meng involves violations of U.S. sanctions against Iran. Another U.S. official described the violations as serious. Neither official provided specifics.
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The arrest comes at a sensitive time as Washington and Beijing aim to strike a trade deal before March 1. White House officials told CNN that Meng could be used as leverage in trade talks. It’s unclear whether President Trump knew about the arrest in advance, though national security advisor John Bolton told National Public Radio that he did.
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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.
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“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.”
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China demanded the immediate release of Meng, who is among the cream of China’s corporate elite. She is the daughter of tech billionaire Ren Zhengfei, Huawei’s founder and CEO and a former engineer in the People’s Liberation Army.
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Chinese officials said she had not broken any laws, accused the United States and Canada of violating her rights and demanded an explanation as to why she was arrested.
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Chinese state media accused the U.S. of harassing Huawei to gain advantage in the worldwide competition for control of next-generation 5G cellular networks.
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The arrest “wasn’t a shot across the bow, but a shot into the heart of the ship” because Meng was basically considered an official of the Chinese government, a former U.S. official involved in national security matters said, speaking on condition of anonymity.
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Meng’s arrest, significant because of her elite connections and prominent corporate position, triggered shock in China. The arrest is doubly sensitive because it threatens the rise of one of China’s top cutting-edge brands, now the world’s second-largest smartphone company, surpassing Apple in sales this year.
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The state-owned Global Times reflected Chinese outrage over her arrest in an editorialaccusing Washington of “resorting to a despicable rogue approach” in a bid to hurt the company. The paper also tweeted Thursday that China should be ready for an escalation of the trade war, warning that Meng’s arrest was vivid evidence that Washington would not soften its stance against Beijing.
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“It is clear that Washington is maliciously finding fault with Huawei and trying to put the company in jeopardy with U.S. laws,” the editorial said.
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Washington is demanding sweeping changes to China’s industrial policy, in particular its state support for key high-tech industrial firms, forced transfers of technology by American companies doing business in China, and tolerance or tacit encouragement of intellectual property theft.
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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.
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“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.”
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https://www.latimes.com/world/la-fg-china-huawei-20181206-story.html
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The Education of Huawei

December 7, 2018

The telecom giant pays a price for China’s abuse of global trade norms

Editorial
The Wall Street Journal

Image result for Ren Zhengfei, Xi Jinping, pictures

Photo: Xi Jinping and Huawei founder Ren Zhengfei

Another day, another China drama in world markets. Thursday’s jolt was news that Huawei CFO Meng Wanzhou was arrested in Vancouver at the request of U.S. officials for allegedly violating Iran sanctions. The press corps is focusing on the arrest’s timing amid new trade talks. But the arrest is best understood as an attempt to get Beijing to stop abusing global trade norms.

Huawei is the world’s largest telecom equipment manufacturer and second biggest supplier of handsets. Ms. Meng is the daughter of Huawei founder Ren Zhengfei and has helped to steer its colossal growth. Her arrest occurs amid heightened worries about the Chinese telecom giant’s cyber threat.

The concerns go back at least to 2012 when the House Intelligence Committee warned that Huawei and its smaller competitor ZTE were violating U.S. laws and could be used for spying and theft. Huawei “likely remains dependent on the Chinese government for support” and the Chinese Communist Party maintains a “Party Committee within the company,” said the committee report that also implied Huawei wasn’t complying with Iran sanctions.

The Trump Administration and its intelligence counterparts in the Five Eyes—Australia, Canada, New Zealand and the U.K.—have been briefing allies about Huawei’s cyber risks and encouraging foreign carriers to use other suppliers in their 5G networks, which will enable interconnected home devices, smart grids and self-driving cars.

5G could also make it easier for the Chinese to conduct corporate espionage, disrupt commerce and steal secrets. Damage from security breaches may be harder to identify and contain. In a speech this week, Canadian Security Intelligence Service director David Vigneault cited a “trend of state-sponsored espionage” through 5G networks.

These warnings have spooked U.S. carriers into spurning Huawei equipment. Australia blocked Huawei and ZTE from its 5G networks in August, and New Zealand followed last month. Britain’s largest wireless carrier, BT Group , this week pulled Huawei from its network core, which is used to transfer calls and internet traffic. The head of Britain’s MI6 intelligence service, Alex Younger, says cell towers may be vulnerable.

San Jose-based CNEX Labs in October alleged that Huawei sought to lift its semiconductor technology. The Justice Department in October charged a Chinese Ministry of State Security director with conspiring to steal GE Aviation trade secrets and Fujian Jinhua Integrated Circuit Co. with pilfering IP from America’s Micron Technology .

These sanctions are a better way to punish Chinese abuses than blunderbuss tariffs, which also hurt Americans. Yet President Trump this year let ZTE off easy after it was caught repeatedly violating U.S. sanctions. An export ban that Commerce had proposed could have put ZTE out of business. China repaid Mr. Trump by blocking Qualcomm ’s acquisition of NXP Semiconductors , which posed a competitive threat to Huawei.

News reports say U.S. intelligence suspected in 2016 that Huawei was skirting sanctions, and one question is why the U.S. didn’t act sooner to send Beijing a message. The charges against Ms. Meng haven’t been published, and she and Huawei deny wrongdoing. But the South China Morning Post reported that during an internal talk on compliance in October, Ms. Meng told employees that in cases “the company is totally unable to comply with in actual operations . . . after a reasonable decision-making process, one may accept the risk of temporary non-compliance.” That risk now includes arrest.

Beijing might counter by arresting U.S. CEOs in China, and trade talks could break down. But enforcing laws and negotiating a trade deal aren’t incompatible. The U.S. has to enforce its laws or they’re meaningless, and China has to see there is a price for violating norms in pursuit of economic and security dominance. Play by the rules, and everyone can prosper.

Appeared in the December 7, 2018, print edition.

https://www.wsj.com/articles/the-education-of-huawei-1544142113

Why Huawei arrest deepens conflict between US and China

December 7, 2018

“Who is going to be the world leader essentially.”

The dramatic arrest of a Chinese telecommunications executive has driven home why it will be so hard for the Trump administration to resolve its deepening conflict with China.

Image result for Huawei , Signage, photos

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In the short run, the arrest of Huawei’s chief financial officer heightened skepticism about the trade truce that Presidents Donald Trump and Xi Jinping reached last weekend in Buenos Aires, Argentina. On Thursday, US stock markets tumbled on fears that the 90-day cease-fire won’t last, before regaining most of their losses by the close of trading.

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But the case of an executive for a Chinese company that’s been a subject of US national security concerns carries echoes well beyond tariffs or market access. Washington and Beijing are locked in a clash over which of the world’s two largest economies will command economic and political dominance for decades to come.

In this undated photo released by Huawei, Huawei’s chief financial officer Meng Wanzhou is seen in a portrait photo. (AP)

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“It’s a much broader issue than just a trade dispute,” said Amanda DeBusk, chair of the international trade practice at Dechert LLP. “It pulls in: Who is going to be the world leader essentially.”

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The Huawei executive, Meng Wanzhou, was detained by Canadian authorities in Vancouver as she was changing flights Saturday — the same day that Trump and Xi met at the Group of 20 summit in Argentina and produced a cease-fire in their trade war. The Globe and Mail newspaper, citing law enforcement sources, reported that Meng is suspected of trying to evade US sanctions on Iran. She faces extradition to the United States, and a bail hearing was set for Friday.

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The British bank HSBC is cooperating with US authorities in its investigation, people familiar with the matter said Thursday.

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Huawei, the world’s biggest supplier of network gear used by phone and Internet companies, has long been seen as a front for spying by the Chinese military or security services, whose cyber-spies are widely acknowledged as highly skilled. A US National Security Agency cybersecurity adviser, Rob Joyce, last month accused Beijing of violating a 2015 agreement with the US to halt electronic theft of intellectual property.

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Other nations are increasingly being forced to choose between Chinese and US suppliers for next-generation “5G” wireless technology. Washington has been pushing other countries not to buy the equipment from Huawei, arguing that the company may be working stealthily for Beijing’s spymasters.

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Beijing protested Meng’s arrest but signaled that it doesn’t want to disrupt progress toward settling its trade dispute with the Trump administration. Chinese Commerce Ministry spokesman Gao Feng said China is confident it can reach a deal during the 90 days that Trump agreed to suspend a scheduled increase in US import taxes on $200 billion worth of Chinese products.

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US national security adviser John Bolton told NPR that he knew of the pending arrest in advance. He noted that there has been much concern about the suspicion that Chinese firms like Huawei use stolen US intellectual property.

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In the view of the United States and many outside analysts, China has embarked on an aggressive drive to overtake America’s dominance in technology and global economic leadership. According to analysts, China has deployed predatory tactics, from forcing American and other foreign companies to hand over trade secrets in exchange for access to the Chinese market to engaging in cyber-theft.

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Washington also regards Beijing’s ambitious long-term development plan, “Made in China 2025,” as a scheme to dominate such fields as robotics and electric vehicles by unfairly subsidizing Chinese companies and discriminating against foreign competitors.

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In addition to Trump’s tariffs, the administration is tightening regulations on high-tech exports to China. It’s also making it harder for Chinese firms to invest in US companies or to buy American technology in such cutting-edge areas as robotics, artificial intelligence and virtual reality.

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Earlier this year, the United States nearly drove Huawei’s biggest Chinese rival, ZTE Corp., out of business for selling equipment to North Korea and Iran in violation of US sanctions. But Trump issued a reprieve, possibly in part because US tech companies are major suppliers of the Chinese giant and would also have been scorched. ZTE got off with paying a $1 billion fine, changing its board and management and agreeing to let American regulators monitor its operations.

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The US and Chinese tech industries depend on each other so much for components that “it is very hard to decouple the two without punishing US companies, without shooting ourselves in the foot,” said Adam Segal, cyberspace analyst at the Council on Foreign Relations.

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Dean Garfield, president of the US Information Technology Industry Council trade group, said innovation by US companies often depends utterly on product development and testing by Chinese partners, not to mention component suppliers.

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British Telecom said this week that it would stop using Huawei equipment in its 5G network, the BBC reported, and US lawmakers have lobbied Canada’s prime minister to freeze out the Chinese supplier. New Zealand and Australia already have.  Other, less wealthy nations are concerned less about spying and more about low prices, which play to Huawei’s advantage.

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Both Huawei and ZTE have not only been barred from use by US government agencies and contractors; they have also been mostly locked out of the American market. A 2012 report by the House Intelligence Committee report urged US businesses to avoid their products and called for blocking all mergers or acquisitions involving them.

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And nearly a year ago, AT&T pulled out of a deal to sell Huawei smartphones.

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“There is ample evidence to suggest that no major Chinese company is independent of the Chinese government and Communist Party — and Huawei, which China’s government and military tout as a ‘national champion’ is no exception,” Sens. Mark Warner, D-Virginia, and Marco Rubio, R-Fla., wrote in October to Canadian Prime Minister Justin Trudeau. They urged him to keep Huawei off Canada’s next-generation network.

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Priscilla Moriuchi, a former East Asia specialist at National Security Agency now with the cybersecurity firm Recorded Future, said both ZTE and Huawei are wedded to China’s military and political leadership.

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“The threat from these companies lies in their access to critical Internet backbone infrastructure,” she said.

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“No matter what happens in the short term, (the arrest of Huawei’s CFO) is a symptom of a long-term technology clash,” said Derek Scissors, a China specialist at the conservative American Enterprise Institute. “We’re not going to deal that away in 90 days.”

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Scissors said he doubts that China will change its tech policies. Beijing must develop innovative technologies to keep its economy growing as its labor force ages and it confronts a huge stockpile of debt. Yet its political and economic system — which promotes inefficient state-owned companies at the expense of nimbler private ones — discourages innovation.
“I don’t see a way out of this,” Scissors said.

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Likewise, Rod Hunter, an international economic official in President George W. Bush’s White House and a partner at law firm Baker McKenzie, said, “I’m skeptical that the Chinese are going to want to say ‘uncle.’ ”

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US and Chinese officials are “trying to tackle a problem that is going to take years, maybe a decade, to resolve.”

Associated Press

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