China's Vice-Premier Liu He at the opening of the World Artificial Intelligence Conference in Shanghai on September 17, 2018. Photo: AFP

Vice-Premier Liu He and his Chinese delegation arrived in Washington on Monday and walked straight into a political storm. With trade war talks scheduled for January 30 to 31, dark clouds are gathering in the shape of the Huawei affair.

Only hours after Beijing’s negotiating team touched down, the United States Justice Department announced sweeping charges against China’s telecom giant, including bank fraud, obstruction of justice and technology theft.

Key allegations revolve around violations of US sanctions on Iran, an accusation which has been leveled against Chief Financial Officer Meng Wanzho, the daughter of billionaire founder Ren Zhengfei.

“[The] charges expose Huawei’s brazen and persistent actions to exploit American companies and financial institutions, and to threaten the free and fair global marketplace,” Christopher Wray, the director of the Federal Bureau of Investigation, said.

Reaction to the news was swift with Huawei issuing the following statement after it was confirmed that Meng could be extradited to the US following her arrest in Canada:

“[We are] disappointed to learn of the charges brought against the company today. The company denies that it, or its subsidiary or affiliate, have committed any of the asserted violations of US law set forth in each of the indictments.

“[We are also] not aware of any wrongdoing by Ms Meng and believe the US courts will ultimately reach the same conclusion.”

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Formal extradition

On Monday evening, the Justice Department in Canada revealed that officials had received a formal extradition request with the Meng hearing penciled in for February 6.

At the same time, Acting US Attorney General Matthew Whitaker stressed that there was nothing in the indictment alleging Chinese government involvement.

“[But] as I told high-level Chinese law enforcement officials in August, we need more law enforcement cooperation with China,” he said at a media conference with other Washington officials, including Commerce Secretary Wilbur Ross and Homeland Security Secretary Kirstjen Nielsen.

“China should be concerned about criminal activities by Chinese companies … and China should take action,” Whitaker added.

For Beijing, the Huawei controversy is just part of a broader plan by Washington to contain China’s rise as a major technological power.

Indeed, the Ministry of Foreign Affairs came out with a robust response after accusing the US of using “state power to discredit and crack down on specific Chinese companies.”

“[This is] an attempt to strangle [Huawei’s] legitimate and legal operations,” Geng Shuang, a spokesman for the ministry, said in a statement. “There are strong political motivations and political manipulations behind the actions.”

Nevertheless, rhetorical hardball is hardly the ideal backdrop for trade discussions, which start on Wednesday between Liu’s high-level delegation and US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer.

Included in the Chinese party are Yi Gang, the governor of the People’s Bank of China, Vice-Finance Minister Liao Min, Vice-Foreign Minister Zheng Zeguang and Vice-Minister of Commerce Wang Shouwen.

Still, US Commerce Secretary Ross insisted that the contentious case against Huawei would not derail moves to thrash out an agreement.

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Internet of Things

“These indictments are law enforcement actions and are wholly separate from our trade negotiations with China,” he said.

Yet at the heart of the dispute are claims of intellectual property violations, forced technology transfers and Beijing’s state-subsidies model.

The White House has also singled out the “Made in China 2025” plan, which encompasses an array of industries, including the Internet of Things and interconnected smart technology linked through artificial intelligence or AI.

All of them will be powered by 5G networks from companies such as Huawei, which is recognized as the country’s flagship group when it comes to digital infrastructure and consumer hardware like smartphones and laptops.

“The current trade war between the United States and China is not about trade,” Yukon Huang, a senior fellow at the Carnegie Endowmentand author of Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong, said.

“This war is about protecting the technological edge that has made the United States the world’s dominant economic power,” the former World Bank director for China added.

With that issue lurking in the background, Liu, Mnuchin and Lighthizer will struggle to square the circle in Washington during the next 48 hours.

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