Huawei chief financial officer Meng Wanzhou leaves her Vancouver home to attend a British Columbia Supreme Court hearing on March 22, 2021. Photo: AFP / Don MacKinnon

The Globe and Mail reported at the end of last week that the US Department of Justice (DOJ) has resumed talks with Huawei Technologies Co and Huawei chief financial officer Meng Wanzhou on a possible deferred prosecution agreement (DPA) that could result in her release from house arrest in Vancouver, where she is fighting extradition to the US on bank-fraud charges relating to alleged violations of US sanctions against Iran.

In Canada, the news raised hopes that this might open the door for China to release Canadians Michael Kovrig, a former diplomat, and Michael Spavor, a businessman, who were arrested in China only nine days after Meng’s arrest in Canada. 

Since China denies that the “two Michaels,” as they are known, were held in retaliation for Meng’s arrest, such a swap likely would need to be handled in a manner that could provide all sides with plausible deniability as to any linkage between the cases.

A weakened US hand?

However, for US President Joe Biden’s administration, the stakes may be much higher as it seeks China’s help with a range of crises. China, sensing a potential weakening of the US hand following the rout of the US-supported Afghan government by Taliban forces, has in each case taken a firm stance, demanding that the US first de-escalate its relentless pressure campaign against China across multiple fronts.  

Near the top of China’s list has been Meng’s release and the scrapping of sanctions against Huawei. While it is not necessarily the case that the resumption of talks on a possible DPA for Meng was a direct result of such diplomatic pushback by China, the potential deal would fit within the overall framework of the broader trends in the bilateral relationship.

According to reports, while the Afghan exit crisis was still unfolding, US Secretary of State Anthony Blinken spoke with Chinese Foreign Minister Wang Yi by phone on August 16 to ask for help to manage tensions in the region. 

Wang indicated that China was willing to work with the US to help “promote the soft landing of the Afghan issue and avoid a new civil war or humanitarian disaster … and not let it become a breeding ground and shelter for terrorism once again.”

However, Wang added an important caveat and warning: “The US cannot, on the one hand, deliberately curb and suppress China to damage China’s legitimate rights and interests, and on the other hand, count on China to offer support and coordination.”

When former US secretary of state John Kerry, now US climate czar, met with senior Chinese officials this month in Tianjin to discuss coordination on actions to address climate change, the same message was communicated: The US cannot expect cooperation from China while also attacking it on all sides. 

The Chinese side acknowledged that the two countries have shared interests when it comes to climate issues, which presents a less contentious topic for dialogue in what has otherwise been a highly confrontational relationship, but again underscored that the broader context cannot be ignored.  

Foreign Minister Wang presented the Chinese position in diplomatic but unmistakable terms. “The US side wants the climate-change cooperation to be an ‘oasis’ of China-US relations,” he told Kerry. “However, if the oasis is all surrounded by deserts, then sooner or later, the oasis will be desertified.”

This was followed by a call directly between Biden and Chinese President Xi Jinping, in which the two leaders tentatively agreed that there was scope for cooperation on climate change and restraining North Korea’s apparently renewed nuclear ambitions, among other initiatives.  

But once again, Xi pushed back against the United States’ continuing broad-based attacks on China’s interests, which he said had created “serious difficulties” for the bilateral relationship, although some commentators noted that Xi stopped short of expressly imposing preconditions to cooperation. 

Exchange of lists of grievances

The current tensions in the bilateral relationship have been brewing for several years, with a nadir reached in 2020 in the wake of the Covid-19 pandemic. Many in China placed the primary blame on the anti-China hawks in the administration of then-president Donald Trump, but while the new Biden administration has presented a more diplomatic veneer, it has still maintained many of the same policies which China finds objectionable.  

US diplomats have privately noted that the incoming Biden team made it abundantly clear over the course of the post-election transition that there would be no softening in the US stance, which set the stage for the fiery exchange of insults in the first meeting of the chief diplomats from the two sides in Anchorage, Alaska, in March.  

The contentious tone was reconfirmed in meetings held in Tianjin in late July between US Deputy Secretary of State Wendy Sherman and her Chinese counterparts. The State Department readout of that meeting reads like a laundry list of complaints from the US side. 

Sherman raised US concerns about “human rights, including Beijing’s anti-democratic crackdown in Hong Kong; the ongoing genocide and crimes against humanity in Xinjiang; abuses in Tibet; and the curtailing of media access and freedom of the press. She also spoke about our concerns about Beijing’s conduct in cyberspace; across the Taiwan Strait; and in the East and South China Seas.”

That’s just the short list of US qualms. Other sources of tension include questions of the origins of the virus that causes Covid-19, technology disputes, intellectual-property rights, market access, and trade imbalances, to name a few. 

Not to be outdone, the Chinese side presented two lists of grievances: the “List of US Wrongdoings that Must Stop” and the “List of Key Individual Cases that China Has Concerns With.” The full lists were not made available publicly, but Xinhua provided a summary (emphasis added):

“In the List of US Wrongdoings that Must Stop, China urged the United States to unconditionally revoke the visa restrictions over Communist Party of China (CPC) members and their families, revoke sanctions on Chinese leaders, officials and government agencies, and remove visa restrictions on Chinese students.

“China also urged the United States to stop suppressing Chinese enterprises, stop harassing Chinese students, stop suppressing the Confucius Institutes, revoke the registration of Chinese media outlets as ‘foreign agents’ or ‘foreign missions,’ and revoke the extradition request for Meng Wanzhou.”

This specific reference to the Meng case demonstrates that it ranks at or near the top of the list of grievances on the part of the Chinese government. 

Moreover, the mention of acts “suppressing Chinese enterprises” is unquestionably a reference to the blanket ban on sale of semiconductor chips to Huawei, which is viewed by the Chinese government (and even many outside of China) as an anti-competitive tactic designed to knee-cap Huawei in order to give Western competitors a chance to catch up and overtake the company in the 5G (fifth generation) technology race.  

Lowest-hanging fruit?

Consequently, when the US seeks China’s cooperation on Afghanistan, North Korean nuclear proliferation, climate change or any other geopolitical initiative of potential shared interest, and the Chinese side expressly or tacitly conditions its support on resolution of other issues plaguing the broader bilateral relationship, the Meng and Huawei cases are at the core, not merely on the periphery.  

Viewed against the backdrop of the overall lists of demands and counter-demands raised by the two sides, the Meng and Huawei cases occupy a unique position as being issues of consequence while still being capable of resolution in the near term.  

Claims of human-rights violations and concerns about Hong Kong, Taiwan and the South China Seas on the part of the US are particularly thorny and sensitive and thus not susceptible to quick resolution. 

Conversely, easing restrictions on student visas may be relatively easy to achieve (although the Biden administration has not yet revoked the Trump era rule limiting visas for Chinese students), but may not have the same symbolic value to China as would a resolution of the Meng and Huawei cases.

Moreover, based on evidence adduced by Meng’s legal counsel in the extradition proceedings, the bank fraud charges no longer appear to be as solid as originally portrayed by the DOJ, presumably making this case even more ripe for an early disposition by US prosecutors.  

Another consideration: Unlike Chinese (and Canadian) media, which have provided copious wall-to-wall coverage of the Meng extradition proceedings, US news outlets have paid only scant attention to the case. 

This also makes it easier to do a deal with Meng – her release would be an exchange of something of high value to the Chinese side, which likely costs the US side little in terms of domestic political capital, but with potentially significant positive implications for the broader relationship between the two superpowers.

The question now is whether the Huawei chip ban would also be up for negotiation in parallel. The Globe and Mail report indicated that the discussions with Meng’s legal counsel do not involve having Huawei, which was also indicted together with Meng, accept corporate responsibility for violation of Iran sanctions. 

But if China is seeking to exert its apparent new-found leverage, it may well insist that the criminal charges against Huawei be dropped and, in addition, that the chip ban be rescinded. This would be challenging, but it would not be without precedent.

In the context of the broader dysfunctional US-China relationship, the Meng and Huawei cases appear to present the lowest-hanging high-value fruit. The US now looks to be ready to strike a deal to release Meng. We will wait to see what the US side is willing to do in respect of Huawei.

In an environment of intensifying polarization, this may be the best hope to ratchet down the tensions. 

Robert Lewis

Robert Lewis is a lawyer based in Beijing. He was admitted to practice in California in 1985. He has worked in prominent US, UK and Chinese law firms in China for nearly 30 years. He is currently senior international consultant with Chance Bridge Partners, as well as co-founder and senior expert of docQbot. He is also the author of the book The Rules of the Game of Global M&A: Why So Many Chinese Outbound Deals Fail. He is fluent in spoken Mandarin and written Chinese.