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Meng’s Plight

Huawei at Mobile World Congress 2015 Barcelona

In December 2018, Meng Wanzhou, CFO of Huawei, was arrested at Vancouver International Airport while en route to Mexico. Meng, who is accused of deceiving American banks into doing business with Iranian companies and violating American sanctions, faces extradition charges to the US. Canada’s arrest of Meng has infuriated Chinese officials, who have retaliated by detaining several Canadians and sentencing a Canadian drug smuggler to death. After posting seven and a half million dollars in bail, Meng is currently under house arrest in her luxurious Vancouver home. Given the various stakeholders in her case—China, the US, and Canada—Meng’s case is quite divisive. The split sentiments from her case reveal deep uncertainty about China’s economic future, both at home and abroad, and offer a unique view of China’s delicate trade relationships with the Western world.

Amidst the disputed tensions among the three countries, Meng’s arrest has created a rift in Chinese-Canadian relations in Vancouver, a city known for its significant Chinese population and foreign-owned mansions. Despite being on 24-hour surveillance, Meng has had relatively free access to travel and currently lives in her six-bedroom house worth six million Canadian dollars, while her other $16 million CAN mansion stands empty in the wealthy neighborhood of Shaughnessy. Though some Chinese immigrants view Meng as a source of national pride and a victim of US bullying, other residents are less sympathetic, as they resent the foreign ownership of luxurious mansions. Scholars such as Andy Yan, a professor at Simon Fraser University, have observed that Meng is tapping into the resentment people feel towards Vancouver’s wealth inequality: “[Vancouverites have] this idea that foreigners are buying freedom here and turning Vancouver into a hedge city where you park your money but you don’t stay.” Indeed, Karen Weichel, Meng’s neighbor in Dunbar, gestured to Meng’s luxury home and remarked, “If you have to be in prison, this doesn’t seem like a bad one to be in.”

However, among some Chinese immigrants, Meng’s situation serves as a painful reminder of Canada’s racist past, particularly of the historic institutional oppression of Chinese people. Between 1885 and 1923, the Canadian government imposed a “head tax” on Chinese immigrants; In 1923, Chinese immigration was banned altogether with rare exceptions, a ban that lasted more than two decades. As Wenran Jiang, a senior fellow at the University of British Columbia, noted, the targeting of Meng “has become a powerful symbol of Chinese people once again being subjugated.”

In China, the public is also outraged by the arrest of Meng. The Chinese government’s state-run tabloid Global Times suggested Meng’s arrest has explicit financial agendas: “Some Western countries are resorting to political means to resist Huawei’s attempts to enter into their markets.” Certainly, President Trump’s claim that he would intervene in Meng’s case if such an action could secure a trade deal with Beijing demonstrates such ulterior motives, as well as a willingness to politicize a legal matter over which he has no jurisdiction. Global Times also wrote that “arresting Meng Wanzhou is bringing terrorism to state and business competition,” further stoking nationalistic resentment. 

These complex emotions convey important implications for the dynamic Chinese economy and the uncertainty of its future. Huawei is the largest telecom-equipment manufacturer in the world, and it recently surpassed Apple as the second largest manufacturer of smartphones after Samsung. As an increasingly powerful economic player, Huawei announced in July 2018 that it would increase its annual expenditure on research and development to as much as $20 billion, setting a precedent as the only company to produce much-anticipated 5G network elements at “scale and cost.” Racing against other countries in “the fourth industrial revolution,” China is investing billions into the “Made in China 2025” plan, which strives to propel China to lead in global industries such as robotics, electric cars, and computer chips. 

In recent years, China’s advances in technology have appeared to threaten the US, as evidenced by President Trump’s strong, adversarial stance and his imposition of billions of dollars in tariffs on Chinese goods. In particular, the Trump administration has made extensive efforts to curtail Huawei’s presence in the US and its allies, citing intelligence concerns. As China currently pushes its domestic products into the global market, the US is cracking down and limiting China’s attempts at an increased global presence. In some ways, Meng’s case seems to be an unfortunate casualty of the trade and technology war as China continues to be understood as an adversary of the US.

Amidst the disputed tensions among the three countries, Meng’s arrest has created a rift in ChineseCanadian relations in Vancouver—a city known for its significant Chinese population and foreign-owned mansions.

Meanwhile, President Xi has continued to emphasize self-sufficiency in China’s tech sector. Though it originally joined the global economy by assuming the role of the world’s “shop floor,” China is no longer satisfied with its role as the cheap-labor-supplier for foreign industries. While manufacturing generates wealth, it is unsustainable as a method of continuously employing China’s large labor force due to the threat of automation. As such, manufacturing no longer promises the high rates of economic growth that China had experienced in the past decades.

Since assuming office in 2013, President Xi has tightened his grip on the economy. The share of new bank loans for state-owned firms has risen from 30 to 70 percent from 2013 to now, the private sector and its output have stagnated, and capital flows have become tightly regulated. Despite these efforts, Xi’s “Made in China 2025” plan to dominate high-tech industries has yet to produce results. This could be due to the fact that Xi made predictions based on China’s historically impressive growth trajectory rather than the present situation. Since 1980, the economy has grown at a 10 percent compound annual rate, and some 800 million people have lifted themselves out of poverty. Under Xi’s rule, the state has injected artificial liquidity into the economy every time it stagnates in an attempt to continue this trend. In January 2019, Chinese banks loaned out $477 billion, setting a historical record. However, since resources and capital are being squandered by inefficient projects, growth has recently slowed, debt has surged, and interest payments have amounted to nearly three-quarters of new loans.

In fact, beneath the romanticized self-sufficiency rhetoric of the “Made in China 2025” campaign, China’s economic model poses serious concerns. Many countries in Europe and Asia agree that China’s state-driven capitalism hinders its reputation in global markets as it “funnels cheap capital towards state firms, bullies private companies, and breaches the rights of foreign ones.” China’s heavy state-directed investment has yielded few returns this quarter, indicating that growth may fall to six percent, the lowest in nearly three decades. Until Xi relinquishes his grip on the state economy, China will not be able to encourage true efficiency or fair competition.

More importantly, Xi’s model proves unsustainable in building a future with the West. As trade tensions rise, China can no longer rely on the rest of the world for economic growth; nor on expanding a few domestic firms such as Huawei, which has encountered great backlash in Western markets. Although some have conceived the trade war to be a mere clash between two strong personalities, China’s current path is leading it toward long-term economic instability. By curtailing state control, President Xi could make China more attractive and trustworthy to foreign nations and permanently invigorate the economy rather than temporarily spur it through state-injected booms. 

Although attitudes toward Huawei remain ambivalent, one thing is certain: The Chinese economic model must be scrutinized. Amidst trade war politics, Meng’s arrest is symbolic of the global pushback against one of China’s most influential corporations. Huawei’s burgeoning international presence marks a distinct move away from China’s original equipment manufacturing role in global markets. For Huawei, the quest to international acceptance will encounter strong US pushback, and for China’s economy, the road ahead will certainly be bumpy. 

Photo: Huawei