By Canadian Press

China-US row over tech giant Huawei overshadows trade talks

Jan 31, 2019 | 7:45 AM

BEIJING — U.S. criminal charges against Chinese electronics giant Huawei have sparked a fresh round of trans-Pacific recriminations, with Beijing demanding Tuesday that Washington back off what it called an “unreasonable crackdown” on the maker of smartphones and telecom gear.

China’s foreign ministry said it would defend the “lawful rights and interests of Chinese companies” but gave no details. Huawei is the No. 2 smartphone maker and an essential player in global communications networks.

A day earlier, U.S. prosecutors criminally charged Huawei and several of its officials for allegedly stealing technology secrets and violating Iran sanctions. That followed the detention in Canada of the Huawei founder’s daughter — a top company official who was named in one of the U.S. indictments, and who is now awaiting possible extradition to the U.S. Huawei has denied wrongdoing.

All that has further complicated U.S.-China relations amid attempts to defuse a trade war instigated by President Donald Trump and clashes over alleged Chinese theft of trade secrets and other intellectual property from U.S. firms. A new round of trade talks are planned for Wednesday in Washington.

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The nearly two dozen charges unsealed Monday by the Justice Department accuse Huawei of trying to spirit a robot arm and other technology out of a T-Mobile smartphone testing lab. They also allege that Huawei, two subsidiaries and a top executive misled banks about the company’s business and violating U.S. sanctions.

The allegations mark a new phase in the dispute between the two countries over global technological dominance. The U.S. has reportedly waged a campaign to discourage other nations from using Huawei telecommunications equipment for next-generation “5G” wireless networks, based on concerns that the Huawei gear might compromise national security.

U.S. intelligence chiefs who briefed Congress on worldwide threats Tuesday sounded the alarm about China’s efforts to gain an edge over the United States.

“China’s pursuit of intellectual property, sensitive research and development plans … remain a significant threat to the United States government and the private sector,” Director of National Intelligence Daniel Coats told the Senate Intelligence Committee.

“While we were sleeping in the last decade and a half, China had a remarkable rise in capabilities that are stunning,” Coats said. “A lot of that was achieved — a significant amount was achieved by stealing information from our companies.”

On Tuesday, Australia’s TPG Telecom said it abandoned plans to build what would have been the country’s fourth mobile network because of a government ban on Huawei over security concerns. Last week Vodafone, one of the world’s biggest mobile phone companies, said it would stop using Huawei gear in its core networks.

U.S. officials have long harboured suspicions that Huawei could be used by Beijing to eavesdrop on sensitive communications and questioned whether the privately-owned company has ties to China’s ruling communist party because its founder is a former military engineer.

Monday’s U.S. charges did not allege that Huawei worked at the Chinese government’s direction.

A 10-count indictment in Seattle centres on a T-Mobile phone-testing robot dubbed “Tappy.” The robot, developed in 2006, helped spot problems in phones before they hit the market by mimicking how people actually use them.

Prosecutors say Huawei began a scheme to steal Tappy technology for its own phone-testing robot after T-Mobile rejected its request to license the machine for broader use.

The indictment detailed efforts by Huawei engineers to sneak into the highly-restricted Tappy lab. One engineer succeeded in taking unauthorized photos of the robot. Another managed to sneak it out of the lab to take measurements and photos to send back to China. He returned it after being questioned by T-Mobile, prosecutors said.

Huawei allegedly offered bonuses in 2013 to employees who stole information from other companies around the world, according to theSeattleindictment, citing emails obtained by the FBI. The bonuses were based on the value of information, which was sent to Huawei using an encrypted email address.

In the second indictment, Brooklyn prosecutors charge Huawei with using a Hong Kong front company, Skycom, to trade with Iran in violation of U.S. sanctions. They allege Huawei’s chief financial officer, Meng Wanzhou, lied to banks about those dealings.

Meng, the daughter of Huawei founder Ren Zhengfei, was arrested Dec. 1 in Vancouver, a development that set off a political firestorm between China and Canada.

China detained two Canadians shortly after Meng’s arrest in an apparent attempt to pressure Canada to free her. A Chinese court also sentenced a third Canadian to death in a sudden retrial of a drug case, overturning an earlier 15-year prison term.

Huawei overtook Sweden’s LM Ericsson in 2017 to become the No. 1 global seller of network gear. The company says it supplies 45 of the top 50 global phone companies and has signed contracts with 30 carriers to test its next-generation technology. Its smartphone brand, launched in 2010, surpassed Apple Inc. in two quarters of 2018 to become the world’s No. 2 seller behind Samsung Electronics Ltd.

White House spokeswoman Sarah Sanders denied that the criminal charges were part of a carrot-and-stick approach to the trade talks. “Those two things are not linked,” she said. “They are a totally separate process.”

Trump and his Chinese counterpart, Xi Jinping, agreed Dec. 1 to put off further sanctions against each other’s exports while they negotiated a new trade pact. If they don’t reach an agreement by March 1, U.S. tariffs on $200 billion of Chinese products are set to rise from 10 per cent to 25 per cent. That prospect has rattled financial markets for months.

The Trump administration has accused Beijing of deploying predatory trade tactics, ranging from requiring U.S. and other foreign companies to hand over technology in return for access to the vast Chinese market to outright cyber-theft.

The number of economic espionage investigations the FBI is handling has doubled over the last three to four years, “and almost all of them lead back to China,” said FBI Director Christopher Wray.

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Chan reported from London. AP researcher Yu Bing in Beijing and AP writers Christopher Bodeen in Beijing, Michael Balsamo, Eric Tucker and Christopher Rugaber in Washington, Rob Gillies in Toronto and Tali Arbel in New York contributed.

Kelvin Chan And Joe McDonald, The Associated Press