See you in court

The definition of ‘beleaguered’?

The storm clouds have been gathering above Huawei for months and there was news of two fresh lightning bolts from federal prosecutors in the United States this week, with indictments for financial fraud and more charges for stealing trade secrets.

The Department of Justice confirmed that it is demanding the extradition of Huawei’s chief financial officer, Meng Wanzhou, on allegations that she concealed her firm’s relationship with Skycom, a company with operations in Iran (see page 10). But the central character in the trade secrets case is Tappy, a robotic arm that tests smartphones.

Prosecutors have emails showing that Huawei staff working alongside T-Mobile, which developed the robot, came under pressure from head office to get more information about how Tappy went about his work. Because T-Mobile didn’t want to share, another Huawei employee was tasked with sneaking the robot out of the office overnight and examining it. T-Mobile rumbled what was going on and sued, winning its case for breach of contract and misappropriation of trade secrets, despite Huawei’s claim that “rogue actors” were responsible.

The Chinese giant protests that the civil suit has been settled. However, the new federal action has rescusitated the case, citing this time a company programme that allegedly rewarded employees for bringing back confidential information.

Reportedly its US subsidiary recognised the dangers, putting out an internal email acknowledging that this might have applied in some jurisdictions but that “here in the USA, we do not condone [or] engage in such activities, and such behaviour is expressly prohibited by company policies”.

Federal prosecutors must think otherwise, believing that they can tie the efforts to reverse-engineer the robot into a case that stealing trade secrets is more central to Huawei’s culture.

News of the indictments aroused predictable ire in China. The use of state power to smear or discredit a legitimate business is “not only unfair but also immoral”, Chinese Foreign Minister Wang Yi said last week.

In another case in which the Americans alleged sanctions busting, ZTE, another major manufacturer of telecoms equipment, was crippled by a seven-year ban on dealing with American suppliers (see WiC406). Donald Trump then intervened to call an end to the embargo in what he portrayed as a personal favour to Xi Jinping, but not before ZTE had agreed to pay $1.4 billion in fines.

More recently Fujian Jinhua has run into trouble, following allegations that it plotted to pilfer technology from Micron, an American semiconductor firm, via Taiwanese chipmaker UMC (see WiC431).

Jinhua was founded three years ago with $5.6 billion of funding from China’s government as part of a plan to get closer to self-sufficiency in chipmaking. But business there has seized up after the Americans froze its supply chain. Employees seconded from Taiwanese partner UMC have also been departing in droves in the wake of the ban.

The pressing question is whether Washington will be willing to hamper Huawei in a similar way. Even if it can, WiC has its doubts that Huawei will sue for peace in the same style as ZTE. Bowing to Washington once again would be even more humiliating for one of China’s most international brands and the backdrop to the case makes it much less likely that Beijing will stand back as well, with the simmering tensions from the trade row, the complications of Meng’s arrest (she’s the daughter of the company’s founder), plus the newly determined efforts by Western governments to block Huawei from winning contracts for 5G networks in their home markets (see WiC438).

Sure enough, the reaction from Beijing on Tuesday was robust. “For some time, the US has used state power to discredit and crack down on specific Chinese companies in an attempt to kill their legitimate and legal operations,” the foreign ministry fumed, decrying the “political motivation and manipulation” behind the charges. And, of course, all of this is happening just as the two governments are holding a new round of trade talks, making it even trickier to reach a compromise before March, when the Trump administration is promising to implement a new round of tariffs on Chinese goods.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.