On December 1, Huawei's Deputy Chairwoman of the Board and Chief Financial Officer (CFO) Meng Wanzhou was temporarily detained by the Canadian authorities in Vancouver. Canadian media report that the action was taken at the request of the U.S. government, where the latter was seeking to extradite Meng. According to reports, the U.S. law enforcement authorities claimed that Meng "schemed to use the global banking system to evade the U.S. sanctions against Iran". If the United States successfully extradites Meng, she will also face "unspecified allegations" in the Eastern District of New York.
This incident immediately caused uproar both within China and globally and the capital market reacted strongly. As Huawei's supply chain is long and wide, it has a great impact on the market, with the U.S. stock futures fell sharply. On December 6, China's A-shares and Hong Kong stocks all fell, with Huawei's concept stocks plummeting. The impact of this matter goes far beyond the capital market and the industrial sector; it permeates almost immediately at all levels of the Chinese society, forming a "popular wave of public opinion" that cannot be ignored by the decision-making department in China.
The timing of the incident is a sensitive one; this happened right after the G20 meeting between the leaders of China and the United States on December 1, and Meng was detained on this very day. The meeting reached a consensus that the trade war between the two countries will not be accelerated and the two sides will continue to negotiate. In the next 90 days, China will make structural adjustments on a series of issues of concern to the U.S. to reach bilateral agreement in the future. There are reasons to believe that the detention of Meng and its "popular wave of public opinion" in China will have an impact on the Chinese government's next negotiations and policy preparations with the U.S. As for full extent of the consequences of the incident, we will have to wait for the development of the situation.
This is not an isolated incident; public information reveals that the U.S.'s allegations and suppression of Huawei have been going on for many years. With Huawei's growth in telecommunications and semiconductors, the U.S. government has been restricting Huawei's entry into the U.S. market in the name of "national security," and pushing its core allies to reject Huawei's equipment and technology.
In the years 2008 to 2010 alone, Huawei had three mergers and acquisitions, one patent acquisition and two transactions being rejected in the United States. For example, in 2008, Huawei attempted to jointly acquire 3Com with Bain Capital, and was rejected by the Committee on Foreign Investment in the United States (CFIUS). Huawei's attempt to acquire Motorola's wireless assets in 2010 was also rejected by the U.S. government; in 2010, Huawei failed to acquire the broadband network software manufacturer 2Wire. In 2010, Huawei acquired 3Leaf's patented technology for $2 million, but the transaction was revoked by CFIUS and claimed it was a "threat to the U.S. security". In addition, the 4G equipment contract with AT&T and the 4G equipment contract with Sprint in 2010 were intervened by the U.S. National Security Agency and the Department of Commerce respectively.
On April 16, 2018, the United States launched an investigation into whether Huawei violated the trade control on Cuba, Iran, Sudan, and Syria. On April 17, 2018, the U.S. Federal Communications Commission (FCC) banned U.S. carriers using federal subsidies to purchase equipment from companies that could pose a threat to national security. This regulation further reduces Huawei's space in the U.S. market. On April 19, 2018, the U.S.-China Economic and Security Review Commission issued a report claiming that the Chinese government may support certain companies to conduct commercial espionage activities to enhance the competitiveness of Chinese enterprises and promote the interests of the government, and Huawei is on the list.
The reason and logic for the U.S. to restrict Huawei is very clear: Huawei is a Chinese company that may threaten the U.S.'s national security. Up to now, this so-called "security threat" has been extended to three aspects, namely national security, technological competition, and economic interests. The long-term accusation, exclusion and denial of the U.S. government against Huawei have created Huawei-phobia in the American society and industry. If an entity cooperates with Huawei, it might receive warning from the U.S. government. Now, this has developed to the extent of detaining and extradition of a Huawei executive.
What should China do in the face of this situation? In the past decade, Huawei has tried a lot of efforts to set up a company in the United States, hired renowned public relations team, repeatedly explained to the U.S. government, accepted hearings in the U.S. Congress, underwent capital mergers and acquisitions, lobbied through partners, and attempted to increase the public opinion influence, yet none of these has succeeded. Can the Chinese government help? The case of ZTE shows that what the Chinese government can do is limited. More subtly, under the current U.S.-Chinese relationship, the Chinese government's help is likely to trigger other U.S. retaliation.
Being in the situation where keeping silence, lobbying, self-justification and delaying are not feasible, Anbound's researchers suggest that Huawei should consider suing the U.S. government in the United States. Our view is that the key to Huawei's dilemma depends on whether it dares to sue the U.S. government in the United States. If Huawei dares to launch this lawsuit, then the situation in the future may be much better; but if it does not do so, and just expecting the Chinese government to save the day, or delaying, self-explaining and using public opinion to explain things, the situation might change for worse for Huawei; Huawei might have wasted all its efforts to expand the international market for decades
Many might think that there is basically no chance of winning a lawsuit against the powerful U.S. government in the United States. However, in our view, the United States is a country ruled by law. The legal system is the most important game rule of the country; it protects the interests of American nationals and guarantees that this market operates according to rules. This is also why the U.S. market is attractive to the world. Since other methods are not feasible, it is better to stand up and launch the lawsuit using the American system. Winning or losing the lawsuit is one thing, but it is another matter to do it or not.
In fact, there have been examples of Chinese companies winning in the lawsuits against the U.S. government agencies in the past. An example is that the China Tongling Technology Group won the lawsuit against U.S. Federal International Trade Commission (ITC). In 2004, the American company Leviton sued the Tongling Technology Group on the ground of patent infringement. ITC had made a decision that is not favorable to Tongling Technology Group. However, through the judicial proceedings, the Tongling Technology Group finally won the lawsuit against the U.S. ITC after more than three years of hard work. In 2009, Tongling Technology Group won another lawsuit against ITC.
Another example is that the Chinese Ralls Corp intends to acquire four wind power plant projects near the U.S. Navy military base in Oregon, which was halted by the Obama administration and the Committee on Foreign Investment in the United States (CFIUS) on the ground that it was a threat to the U.S. national security. Since then, Ralls Corp filed a lawsuit alleging that the Obama administration had exceeded its authority. In 2013, Ralls Corp sued the Obama administration and won. The U.S. court ruled that Ralls Corp has property rights protected by constitutional procedures in related projects, and that Obama's presidential decree prohibiting Ralls Corp's projects in Oregon violated procedural justice, and deprived Ralls Corp of the property rights protected by the constitution.
These examples mean that Chinese companies are not completely incapable of suing the U.S. government. In the United States, where the three powers are separated, taking legal actions to sue the U.S. government, regardless if the lawsuit wins or not, has a positive effect on Chinese companies. The U.S. government has infinitely magnified the "national security threat" issue and refused Huawei entry to the United States; it has recommended that market institutions not use Huawei's products. In fact, it has involved non-marketization discrimination and significantly intervened in the market under the name of "national security", resulting in unfair competition. Therefore, the behavior of the U.S. government is not impeccable.
What we want to emphasize is that taking legal measures to deal with the U.S. government is not to solve the problem of Meng Wanzhou, or at least not just solving this problem. If it is only to solve the problem of Meng Wanzhou, it cannot really reverse the passive situation. If Huawei sues the U.S. government by taking the legal actions, it will prove that Huawei is innocent, that is, it has not done anything against law of the United States. After this incident, Huawei must go through in its own growth process. It is a transformation that Huawei must pass through to become a truly international company. For companies, taking legal actions on an international basis is an international language in itself. If Huawei cannot be proven doing wrongs, it would prove its innocence. On the other hand, if Huawei does not dare to go to the court with the U.S. government, it may indicate that it does have problems as accused by others.
Final analysis conclusion:
The Meng Wanzhou incident is only a trigger. Huawei faces various accusations and restrictions from the U.S. government and should consider resorting to the law to solve the problem. This is an exchange in the international language that the world can understand, and it is also a right thing to do to protect its rights and interests using the rule of law in the United States.
