US prosecutors have charged Huawei's chief financial officer with fraud, saying she had used at least seven passports in 11 years.

American officials are attempting to prevent Meng Wanzhou from being bailed from a Canadian court after she was charged with conspiracy to defraud multiple financial institutions between 2009 and 2014.

It is alleged the 46-year-old used Hong Kong company Skycom to access the Iranian market in deals that violated US sanctions.

She allegedly assured US banks that Huawei and Skycom were different companies but prosecutors say they were one and the same.

Meng was arrested in Vancouver on 1 December and appeared in one of the city's courts on Friday, where prosecutor John Gibb-Carsley asked the judge to deny her application for bail.

He said that the daughter of Huawei founder Ren Zhengfei had substantial financial resources and was a flight risk.

Mr Gibb-Carsley said she had been aware of the US investigation and had avoided entering the country since March 2017, despite the fact that her son attends school in Boston.

Meng's lawyer, David Martin, said: "The fact a person has worked hard and has extraordinary resources cannot be a factor that would exclude them from bail."

Meng appeared before a packed court room and spoke to her lawyers through a translator.

It is not yet clear whether Meng will be extradited to the US - American prosecutors have 60 days to formally request this.

If an application is successful she faces a maximum jail sentence of 30 years for each charge if convicted.

According to court documents, the US Department of Justice said there were no conditions that would make sure she would return to court.

The US said she had at least seven passports from China and Hong Kong in the last 11 years and that Huawei had tried to move Chinese nationals out of the US if they could be potential witnesses to its Iran operations.

China has called for Meng to be released and world markets are watching closely due to fears that the case could escalate the trade war between the US and China.

Chinese media has blamed her arrest on US efforts to stop its global expansion, while Huawei said it had "very little information" about the case but was "not aware of any wrongdoing".

Huawei was founded to sell phone switches but it is now the world's biggest supplier of network gear for phone and internet companies.

It is also one of the leading sellers of smartphones.</s>VANCOUVER — A senior executive of Chinese tech giant Huawei is facing allegations of fraud by using a subsidiary to violate U.S. trade sanctions against Iran in a case that shook world stock markets this week.

A federal prosecutor told a bail hearing for Meng Wanzhou in Vancouver on Friday that the chief financial officer of Huawei Technologies is wanted in the United States to face criminal proceedings, alleging Huawei used subsidiary Skycom to do business with Iran.

John Gibb-Carsley said Meng is alleged to have said Huawei and Skycom were separate companies in a meeting with an unnamed financial institution, misleading an executive with that institution and putting it at risk.

“Skycom was Huawei. This is the alleged fraud,” said Gibb-Carsley, representing the Attorney General of Canada. “Skycom employees were Huawei employees.”

None of the allegations have been proven in court.

The company has said it is not aware of any wrongdoing by Meng and her lawyer, David Martin, told the B.C. Supreme Court no charge or indictment has been filed against his client, just a warrant.

He said one of the glaring deficiencies in the allegations is that the summary of the case doesn’t differentiate between time periods.

Martin said at the meeting Meng had with a bank that was referred to in a story by Reuters, she explained Huawei owned Skycom for a period of time but it sold the company in 2009. Martin told the court the PowerPoint presentation his client delivered to the bank is supposed to be evidence of fraud, but that claim is “preposterous.”

Huawei sold Skycom before the sanctions became law in the United States under president Barack Obama in 2010, he said.

Martin also argued that the outline provided by Canada does not support the case.

“The allegations contained in this document do not support a prima facie case of fraud against Ms. Meng” or Huawei, he added.

Gibb-Carsley said the Attorney General opposes Meng’s release on bail.

But Martin told the judge Meng is prominent and she would not violate a court order if she were released.

“You can rely on her personal dignity,” he said, adding that to breach a court order “would be to humiliate and embarrass her father, who she loves.”

Huawei is the most prestigious tech company in China and was founded by Meng’s father, Ren Zhengfei.

Martin said two properties in Vancouver worth a total of $14 million could be put up for bail, and electronic monitoring and surveillance-based security could be used, although he said neither would be necessary.

Meng was arrested Saturday while in transit at Vancouver’s airport. The court heard she was en route from Hong Kong to Mexico.

Gibb-Carsley told the hearing that Reuters reported in 2013 that Huawei was operating Skycom, triggering Huawei executives including Meng to allegedly make a series of misrepresentations.

He argued the financial institutions that did business with Huawei were the “victims” of those misrepresentations. It’s alleged that they did not know that they were in effect doing business with Iran and could have faced severe financial consequences, Gibb-Carsley said.

He said there is incentive for Meng to leave Canada, telling the court her father’s net worth is $3.2 billion and she has no meaningful connection to Canada, apart from spending two to three weeks on vacation in Vancouver every summer.

In a statement earlier this week, Huawei said the company complies with all laws and regulations in the countries where it operates, including applicable export control, sanction laws and regulations of the United Nations, the United States and the European Union.

Huawei is the biggest global supplier of network gear used by phone and internet companies, and has been the target of deepening U.S. security concerns. The United States has pressured European countries and other allies to limit the use of its technology.

The U.S. sees Huawei and smaller Chinese tech suppliers as possible fronts for Chinese spying and as commercial competitors. The Trump administration says they benefit from improper subsidies and market barriers.

Meng is a prominent member of Chinese society as deputy chairwoman of the Huawei board. The company is a privately held juggernaut with projected 2018 sales of more than US$102 billion that has already overtaken Apple in smartphone sales.

On TV and social media, commentators likened her arrest to the hypothetical detention in China of a Mark Zuckerberg sibling or a cousin of Steve Jobs.

U.S. and Asian stock markets tumbled after news of Meng’s arrest as it was seen to cause another flare-up in tensions between Washington and Beijing.

Huawei has grown to more than 170,000 employees and does businesses in more than 170 countries since Ren founded the company in 1987.

Meng’s bio on the company website says she joined in 1993 and held various positions across the company, including director of international accounting and CFO of Huawei Hong Kong. She holds a master’s degree from Huazhong University of Science and Technology.

For a period of time she was in charge of Huawei’s successful internationalization efforts.

Meng’s father, now 74, comes from rural roots, according to the Huawei website. His parents were school teachers and he grew up in the remote mountainous town in Guizhou province.

Huawei says Ren was a standout in the Chinese military’s engineering corps, retiring in 1983 when the unit disbanded.

Meng, who also goes by the first name Sabrina, is one of four deputy chairs listed on the Huawei website and one of three women to sit on the Huawei board.</s>VANCOUVER, British Columbia — The reasons that the United States asked the Canadian authorities to arrest a top executive of the Chinese technology company Huawei last week had been shrouded in mystery.

On Friday, the details of the arrest and what led up to it came out in a Canadian courtroom.

At a bail hearing in Vancouver for Meng Wanzhou, the chief financial officer of Huawei and a daughter of the company’s founder, Canadian prosecutors said she was accused of fraud. The heart of the charges related to how Ms. Meng may have personally participated in a scheme to trick American financial institutions into making transactions that violated United States sanctions against Iran, they said.

Ms. Meng had “direct involvement” with Huawei’s representations to banks, said John Gibb-Carsley, an attorney with Canada’s Justice Department.

The hearing shed light on an incident that has rattled the relationship between the United States and China. While changing planes in Vancouver on Dec. 1, Ms. Meng was arrested at the behest of the United States, which has for years looked into potential ties between Huawei and the Chinese government or Communist Party.</s>The Trump administration’s efforts to extradite the chief financial officer of China’s Huawei Technologies Co. over criminal charges mark the start of an even more aggressive phase in the technology rivalry between the U.S. and China and will increase pressure on Washington’s allies to shun the telecommunications company.

Armed with a U.S. extradition request, Canadian authorities arrested Meng Wanzhou on Dec. 1, the same day as President Trump was holding a summit with Chinese counterpart President Xi Jinping. But White House officials said Mr. Trump had no advance knowledge of the arrest, indicating the action was on a separate track from trade talks currently under way between Washington and Beijing.

Ms. Meng’s detention underscores a sense of urgency, at the Justice Department and other U.S. agencies, to address what they see as a growing threat to national security posed by China’s ambitions to gain an edge in the tech sector. For years, Washington has alleged the Chinese government could compel Huawei, which supplies much of the world with critical cellular network equipment, to spy or to disrupt communications.

Huawei has long said it is an employee-owned company and isn’t beholden to any government, and has never used its equipment to spy on or sabotage other countries. The Chinese government, speaking through its embassy in Canada, strenuously objected to the arrest, and demanded Ms. Meng’s immediate release.

U.S. prosecutors made the extradition request based on a sealed indictment for alleged violations of Iran sanctions that had been prepared for some time, people familiar with the matter said. A federally appointed U.S. overseer, formerly charged with evaluating HSBC Holdings PLC’s anti-money-laundering and sanctions controls, relayed information about suspicious Huawei transactions to federal prosecutors in the Eastern District of New York, some of the people said.

Ms. Meng, the daughter of Huawei’s founder, Ren Zhengfei, is now in custody in Vancouver, and a bail hearing has been scheduled for Friday, according to a spokesman for Canada’s justice department.

Some worried a lack of coordination on the various strands of the Trump administration’s China initiatives could be counterproductive, especially if Mr. Trump decides to use the detention of Ms. Meng as leverage to extract concessions in the trade talks. The two sides agreed on a 90-day window from the Dec. 1 summit to settle a trade dispute that has seen the two sides exchange tit-for-tat tariffs on each other’s goods.

“I’m very concerned that that’s just going to ratchet this trade war and make negotiations much more difficult,” said Gary Locke, former U.S. ambassador to China. “This is I think a really hot-button, almost a grenade with respect to the 90-day negotiations.”

China has a long history of reading darker motives into U.S. actions. “The risk is conspiracy theories in Beijing,” said China scholar Michael Pillsbury at Hudson Institute, who consults regularly with the Trump trade team. He compares the events to when China rejected U.S. explanations that the U.S. had made a mistake when it bombed the Chinese Embassy in Belgrade in 1999 during the Kosovo war.

The arrest indicated the Justice Department had significant evidence against Ms. Meng, and that additional charges were likely, said Brian Fleming, a trade and national security lawyer at Miller & Chevalier. “This is just the tip of the iceberg,” he said.

The arrest could also add ammunition to an extraordinary U.S. government campaign to persuade wireless and internet providers in allied countries to stop using telecommunications equipment from Huawei, said national security experts.

U.S. officials say they are intensifying efforts to curb Huawei because wireless carriers world-wide are about to upgrade to 5G, a new wireless technology that will connect many more items—factory parts, self-driving cars and everyday objects like wearable health monitors—to the internet. U.S. officials say they don’t want to give Beijing the potential to interfere with an ever-growing universe of connected devices.

The campaign is bearing some fruit, with Australia in August banning Huawei from its 5G networks, and New Zealand last week blocking one of its major wireless carriers from using Huawei. In Britain, BT Group PLC said Wednesday that it was removing Huawei equipment from its network, two days after a British intelligence chief questioned whether the country should be using the Chinese gear.

Still, not all countries are on board. Major telecommunications carriers say Huawei offers the most products and often customizes them to fit their needs. They also cite lower costs and high quality.

The indictment could give U.S. officials more talking points in discussions with counterparts in Germany, where some officials have signaled a new wariness toward Huawei but haven’t committed to cutting ties yet, according to people familiar with the matter. U.S. officials have so far been unwilling to share all the detailed specifics about why they believe Huawei products present such security risks, but the indictment could offer a new argument to use with skeptics, according to one of the people.

Canadian officials have yet to decide their stance on Huawei, but their cooperation with the extradition was likely to further increase pressure on them, one of the people said. On Tuesday, the day before news of Ms. Meng’s arrest broke, the head of Canada’s spy agency said state-sponsored economic espionage and cyber threats now pose a potentially greater challenge to the country than terrorism, warning that foreign actors are already targeting the domestic technology and telecommunications sectors.

—William Mauldin, Peter Nicholas, Rachel Louise Ensign, Stu Woo and Paul Vieira contributed to this article.

Write to Kate O’Keeffe at kathryn.okeeffe@wsj.com and Bob Davis at bob.davis@wsj.com</s>VANCOUVER: Chinese telecom giant Huawei's chief financial officer faces US fraud charges related to sanctions-breaking business dealings with Iran, a Canadian court heard on Friday (Dec 7), a week after she was detained on an American extradition request.

Meng Wanzhou was arrested in Canada's Pacific coast city of Vancouver on Dec 1 while changing planes during a trip from Hong Kong to Mexico - ratcheting tensions between the United States and China just as the countries' leaders agreed a truce in their trade war.

A Canadian government lawyer asked the court to deny her bail, saying she has been accused of "conspiracy to defraud multiple financial institutions" and if convicted faces more than 30 years in prison.

She is specifically accused of lying to US banks about the use of a covert subsidiary to sell to Iran in breach of sanctions.

The lawyer said that Meng had personally denied to American bankers any direct connections between Huawei and the subsidiary, SkyCom, when in fact "SkyCom is Huawei." SkyCom's alleged sanctions breaches occurred from 2009 to 2014.

He suggested that Meng has also shown a pattern of avoiding the United States over the past year since becoming aware of the investigation into the matter, argued that she has no ties to Canada and has access to vast wealth and political connections - and thus poses a flight risk.

Meng's detention in Canada came on the day of a summit at which US President Donald Trump and his Chinese counterpart Xi Jinping agreed to a truce in the escalating trade dispute opposing the two economic powerhouses.

China says Meng - the daughter of Huawei founder Ren Zhengfei, a former engineer in China's People's Liberation Army - has violated no laws in Canada or the United States and has demanded her release.

Washington and Beijing have exchanged steep tariffs on more than US$300 billion in total two-way trade, locking them in a conflict that has begun to eat into profits.

Trump tweeted Friday that negotiations to defuse the high stakes dispute were "going very well" but the messages since Meng's arrest have been mixed, roiling global stock markets.

Her appearance at the British Columbia Supreme Court in Vancouver is a prelude to an extradition process that could take months.

CNN, quoting an unnamed official, said the United States saw the arrest as providing leverage in US-China trade talks - although White House trade adviser Peter Navarro has denied any link to the dialogue.

On Friday, Beijing nevertheless alleged that Meng, known internally as the "princess" of Huawei and possible heir to the throne, had become a pawn in the dispute.

"The Chinese government should seriously mull over the US tendency to abuse legal procedures to suppress China's high-tech enterprises," said the nationalist tabloid Global Times in an editorial.

"Obviously, Washington is resorting to a despicable rogue's approach as it cannot stop Huawei's 5G advance in the market," it went on.

Meng spent most of the past week at a women's detention facility in a suburb of Vancouver.

If she is released on bail, she would likely have to surrender her passport and submit to electronic monitoring until she is discharged or surrendered for trial to the United States. All security costs would be borne by her.

The extradition process could take months, even years, if appeals are made in the case. The Vancouver Sun reported on Friday that Meng's husband Xiaozong Liu is believed to own at least one luxury home in the city.

Canada is one of more than 100 countries that have an extradition treaty with the United States, requiring it to cooperate with US Department of Justice requests to hand over suspects.

This longstanding treaty requires that the offence for which extradition is being sought is also a crime in Canada.

A Canadian court must decide if there is sufficient evidence to support the extradition, but then it is left to Canada's justice minister to sign the order.

On Thursday, Prime Minister Justin Trudeau defended Canada's arrest of Meng, saying politics played no part in the decision.

"I can assure everyone that we are a country (with) an independent judiciary," Trudeau told a tech conference in Montreal.

READ: Europe should be wary of Huawei, EU tech official says

Huawei's affordable smartphones have made strong inroads in the developing world, but the company has faced repeated setbacks in major Western economies over security concerns.

Earlier this week, Canadian officials said Ottawa was continuing to review Huawei's technology for use in upcoming fifth generation networks.

The company faces being shut out of Australia, New Zealand and US 5G rollouts, and British telecom group BT revealed on Wednesday it was removing Huawei equipment from its core cellular network.

The five nations together form the "Five Eyes" intelligence alliance.</s>White House economic adviser Larry Kudlow told CNBC on Friday that he does not see the recent controversy surrounding China's Huawei Technologies Co Ltd spilling into the trade talks between the United States and China.

REUTERS: White House economic adviser Larry Kudlow told CNBC on Friday that he does not see the recent controversy surrounding China's Huawei Technologies Co Ltd spilling into the trade talks between the United States and China.

Huawei Chief Financial Officer Meng Wanzhou, who is under arrest in Canada, is set to appear in a Vancouver court on Friday for a bail hearing as she awaits possible extradition to the United States.

Kudlow said Huawei had been warned for "quite some time" about violations on Iran sanctions, but added he remains optimistic about the trade talks.</s>Meng Wanzhou, the chief financial officer and deputy chair of the board for the Chinese tech giant Huawei who was arrested in Vancouver on Saturday, is scheduled to have a bail hearing later today.

According to a statement from the Department of Justice, Meng, 46, was arrested in Vancouver and is being sought for extradition by the United States.

Meng, who is also the daughter of Huawei's founder and CEO, Ren Zhengfei, was granted a publication ban, which prevents the department from releasing further details about the arrest.

The Globe and Mail, citing law enforcement sources, reported that Meng is suspected of trying to evade U.S. sanctions on Iran.

Huawei, an increasingly dominant player in the network equipment market, is under scrutiny from the U.S. and other governments over suspected ties to the Chinese government and possible links to spying.

The company says Beijing has no influence over its operations.

News of Meng's arrest pummeled stock markets in anticipation the move would derail planned trade talks between China and the U.S., the world's two largest economies.</s>VANCOUVER, British Columbia (AP) — A Canadian prosecutor urged a Vancouver court to deny bail to a Chinese executive at the heart of a case that is shaking up U.S.-China relations and worrying global financial markets.

Meng Wanzhou, the chief financial officer of telecommunications giant Huawei and daughter of its founder, was detained at the request of the U.S. during a layover at the Vancouver airport last Saturday — the same day that Presidents Donald Trump and Xi Jinping of China agreed over dinner to a 90-day ceasefire in a trade dispute that threatens to disrupt global commerce.

The U.S. alleges that Huawei used a Hong Kong shell company to sell equipment in Iran in violation of U.S. sanctions. It also says that Meng and Huawei misled American banks about its business dealings in Iran.

The surprise arrest, already denounced by Beijing, raises doubts about whether the trade truce will hold and whether the world's two biggest economies can resolve the complicated issues that divide them.

"I think it will have a distinctively negative effect on the U.S.-China talks," said Philip Levy, senior fellow at the Chicago Council on Global Affairs and an economic adviser in President George W. Bush's White House. "There's the humiliating way this happened right before the dinner, with Xi unaware. Very hard to save face on this one. And we may see (Chinese retaliation), which will embitter relations."

Canadian prosecutor John Gibb-Carsley said in a court hearing Friday that a warrant had been issued for Meng's arrest in New York Aug. 22. He said Meng, arrested en route to Mexico from Hong Kong, was aware of the investigation and had been avoiding the United States for months, even though her teenage son goes to school in Boston.

Gibb-Carsley alleged that Huawei had done business in Iran through a Hong Kong company called Skycom. Meng, he said, had misled U.S. banks into thinking that Huawei and Skycom were separate when, in fact, "Skycom was Huawei." Meng has contended that Huawei sold Skycom in 2009.

In urging the court to reject Meng's bail request, Gibb-Carsley said the Huawei executive had vast resources and a strong incentive to bolt: She's facing fraud charges in the United States that could put her in prison for 30 years.

Meng's lawyer, David Martin, argued that it would be unfair to deny her bail just because she "has worked hard and has extraordinary resources."

He told the court that her personal integrity and respect for her father, Huawei founder Ren Zhengfei, would prevent her violating a court order. Meng, who owns two homes in Vancouver, was willing to wear an ankle bracelet and put the houses up as collateral, he said.

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.

"What's getting lost in the initial frenzy here is that Huawei has been in the crosshairs of U.S. regulators for some time," said Gregory Jaeger, special counsel at the Stroock law firm and a former Justice Department trial attorney. "This is the culmination of what is likely to be a fairly lengthy investigation."

Meng's arrest came as a jarring surprise after the Trump-Xi trade cease-fire in Argentina. Exact details of the agreement are elusive. But the White House said Trump suspended for 90 days an import tax hike on $200 billion in Chinese goods that was set to take effect Jan. 1; in return, the White House said, the Chinese agreed to buy a "very substantial amount of agricultural, energy, industrial" and other products from the United States.

The delay was meant to buy time for the two countries to resolve a trade conflict that has been raging for months.

The U.S. charges that China is using predatory tactics in its drive to overtake America's dominance in technology and global economic leadership. These allegedly include 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.

The United States has imposed tariffs on $250 billion in Chinese goods to pressure Beijing to change its ways. Trump has threatened to expand the tariffs to include just about everything China ships to the United States. Beijing has lashed back with tariffs on about $110 billion in American exports.

Fears the Huawei case might spark renewed U.S.-China trade hostilities have rattled global financial markets. On Friday, the Dow Jones industrial average plunged nearly 560 points.

But in a sign the 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-day timeout.

Still, Cornell University economist Eswar Prasad warned that "this incident highlights the huge gap in trust between the two sides, casting a pall over the tough negotiations that still lie ahead. It will clearly take more than one convivial dinner between the leaders of the two countries to start bridging that gap."

Gillies reported from Toronto and Wiseman reported from Washington. Associated Press writers Frank Bajak in Boston, Joe McDonald in Beijing and Yuri Kageyama in Tokyo contributed to this report.</s>
• On Tuesday, Wall Street suffered its worst day since October.
• Watch the major US indexes trade in real time here.

Wall Street wiped out gains for the year Thursday as concerns about a cocktail of factors including trade tensions, Treasury yields, and energy prices weighed on global markets, extending losses following the worst day for US equities in seven weeks.

The Dow Jones Industrial Average shed 1.95%, or more than 487 points. The Nasdaq Composite fell 1.99%, and the S&P 500 was down 2.02%.

Selling pressure on futures was so strong in the first six minutes of trading that the CME Group Inc. was forced to intervene with market pauses to prevent severe price movements, according to Bloomberg.

Wall Street had suffered its worst day since October on Tuesday as expectations for a trade deal between Washington and Beijing unwound and after sections of the yield curve inverted. The stock market was closed Wednesday, a national day of mourning for former President George H.W. Bush who died over the weekend.

Canadian authorities said they arrested Meng Wanzhou, the chief financial officer of the Chinese cellular giant Huawei Technologies, on charges related to alleged Iran sanctions violations. The December 1 arrest cast doubt on trade relations between Washington and Beijing, who agreed over the weekend to pause tariff escalations for negotiations.

Optimism around the trade-war ceasefire has since waned after President Donald Trump called himself "a Tariff Man" in a tweet about Beijing, cementing expectations for further trade escalations between the largest economies if a deal isn’t reached within the next three months.

"The market's in repair mode following one of the worst equity selloffs of the year," Mark McCormick, a strategist at TD Securities, said in an email.

"There are many moving parts to the puzzle and yet Tariff Man's tweet looms large. It also wreaks of a classic 'buy the rumor, sell the fact' trade where the market priced in a bulk of the good news weeks ago."

Treasury yields continued to slide Thursday, with the 10-year down 6.3 basis points to 2.86% and the 2-year 8.6 basis points lower at 2.725%. Spreads between some long- and short-term bonds inverted this week, an occurrence seen as a potential recession signal, for the first time since the financial crisis. The dollar slipped 0.4% against the Japanese yen.

Oil prices slipped further into a bear market after OPEC reportedly reached an agreement to slash coordinated output levels but was waiting for Russia to agree. West Texas Intermediate dropped 3.3% to around $51 per barrel, and Brent fell to just below $60.

Adding to concerns, the lens maker Largan Precision said its November revenue declined by more than a quarter from the same period a year earlier. Shares of Apple suppliers — including Lumentum (-2.8%), Micron (-2.9%) and Texas Instruments (-2%) — tumbled after the results.

Wall Street’s biggest firms are suddenly embracing an asset class that has languished since the financial crisis — and it’s a competitive threat to stocks

As the market hurtles toward disaster in 2019, one expert reveals the 'deus ex machina' that could save the day — and breaks down how it could happen

Investors are staring at the bleakest future since the Great Depression — here's why one market bear thinks a crash could wipe 60% from stocks</s>There’s an aspect to China’s rise as an economic power that presents a constant national security threat to the United States: the unlimited reach of the Chinese government.

In China’s communist-run political system, lines of control and influence between Beijing and privately operated enterprises are murky — when those lines exist at all. Some Chinese companies are owned directly by the government, but all owe a level of fealty to the government. A few weeks ago, the Chinese news media disclosed that Jack Ma, a Chinese internet entrepreneur worth $39 billion, is a Communist Party member. The revelation isn’t scandalous because it reflects the reality of the Chinese hybrid system: There’s no place for business owners and executives to hide in an authoritarian state. So they might as well join the party and accrue the benefits.

That’s all background for a spectacular legal confrontation now brewing between China and the U.S. over Huawei, China’s telecom giant. On Dec. 1, Canadian authorities fulfilled a U.S. government request to arrest Huawei’s chief financial officer amid allegations the company violated U.S. trade sanctions against Iran.

The pressure point runs much deeper than whatever U.S.-originated equipment Huawei may have sold to Iran. Huawei is described as the world’s largest supplier of cellular tower electronics and other telecommunications equipment. The firm is on the cutting edge, developing and selling 5G (fifth generation) mobile phone service technology around the world. All fine — global competition is welcome. Except almost everything related to telecommunications technology has potential military usefulness, including for espionage.

Huawei says it’s a privately owned company that doesn’t answer to the government, doesn’t engage in espionage and complies with all applicable law. But who really calls the shots at Huawei? The company’s founder, Ren Zhengfei, is a former Chinese army officer. He left the People’s Liberation Army in the early 1980s, the era in which Premier Deng Xiaoping decided to embrace free-market reforms while retaining one-party rule. Ren’s daughter, Meng Wanzhou, is the Huawei executive who was arrested in Vancouver.

The U.S. government is deeply suspicious of Huawei and its connections to the Chinese government. A 2012 congressional report concluded that Huawei couldn’t prove its independence from government control. The report determined that Huawei and another firm, ZTE, provided “a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components and systems.” Even if company executives refused to help their government commit nefarious acts, the report noted, all it would take is recruiting a few technicians to do the dirty work. Chinese law appears to require cooperation with any request under the guise of state security.

The arrest may complicate the Trump administration’s trade negotiations with China, given that Chinese authorities are angry about the treatment of such a high-profile executive. But this collision of interests will turn out to be a good test of Chinese intentions. Trade is one facet of a complex relationship. Both sides will be better off if President Donald Trump can negotiate a deal with Chinese President Xi Jinping without getting distracted by a criminal case that will proceed on the merits.

As for companies like Huawei, the Chinese government has a choice. It can encourage companies in sensitive industries to open themselves to outside scrutiny and investment. It also can insist that companies like Huawei respect the law — U.S. sanctions against Iran included. Or China can allow companies like Huawei to stay in the shadows, untrusted by the United States and other Western governments. There are plenty of other telecom companies willing to sell sensitive equipment and play by the rules.

Join the discussion on Twitter @Trib_Ed_Board and on Facebook.

Submit a letter to the editor here or email letters@chicagotribune.com.
Huawei CFO Meng Wanzhou attends a bail hearing in Vancouver while she awaits extradition to the United States. She is charged by Canadian and American prosecutors with conspiracy to defraud multiple financial institutions in order to commit evasion of United States sanctions against Iran so as to conduct business with Iran.