Apple at risk of Retaliatory Action by China following Arrest of Huawei Heiress

The chief financial officer of Huawei, Meng Wanzhou, was arrested on December 1st in Canada after allegedly breaking US sanctions on Iran and she faces extradition to the US. Whilst, China and Huawei insist Meng has not broken any laws, but she could also face up to 30 years in jail, if found guilty.

It was alleged that Meng helped the company get around sanctions on Iran by telling financial institutions that one of Huawei’s subsidiaries was a separate company.

At the time of the hearing, Huawei stated that it had “every confidence that the Canadian and US legal systems will reach the right conclusion.”

They also claimed it was “not aware of any wrongdoing by Ms. Meng” and that it “complies with all applicable laws and regulations where it operates.”

This arrest hasn’t been the first of actions against Huawei from the US. Earlier this year, the FBI warned Americans not to buy Huawei smartphones or any other related products. Government agencies were also banned from using equipment supplied by Huawei and ZTE, due to concern that the companies were too close to the Chinese government, and spying devices might already be installed in the products.

Meng Wanzhou’s arrest in Canada by the US, did not sit well with China, but investigations continue into their dealings with Iran, previously being in violation of economic sanctions. Credit: The New York Times

As expected, China has not reacted well to the latest development, with headlines from The Global Times reading: “Washington’s move to stifle Huawei will undermine itself” and “Banning Chinese companies like Huawei will isolate US from digital economy of the future.”

One particular report from The Global Times included a direct threat against American companies that sell smartphones and other devices in China.

“China can restrict US companies from entering the Chinese market by overhauling its standards for market access, acquisition rules and telecom protocols if the country wants.” it reads.

This is where Apple comes in, particularly as the company has relied on China for 20% of its revenues over the past year.

“Some Western countries are resorting to political means to resist Huawei’s attempts to enter into their markets.” The Global Times reported. Then it added , “Failure to provide reciprocal opening-up means their companies won’t get any benefits from China’s digital economy.”

Huawei is Apple’s second lead competitor in the Smartphones market. Credit: BGR

Huawei is a close competitor for Apple, as they are only second to Samsung in terms of yearly revenues of smartphone sales. However, one thing that they currently hold above Apple is the introduction of 5G technology.

Dan Ives, analyst from investment firm Wedbush, described the situation as “the straw that could break the camel’s back”.

“The last thing tech investors wanted to see was this news about the CFO of Huawei. It fuels the flames of further retaliation”.

He also said that Apple must feel as though it has a “bullseye” on its back. The Wedbush firm estimates 350 million iPhones around the world are reaching the point when most people would want an upgrade. Around 70 million of them are in China.

“You’re talking about a quarter of the incremental growth over the next three to four years is going to come from China” Mr Ives added.

So with all this, even without official intervention, Apple could see a significant decline in their Chinese revenues. Over in Vancouver, members of the city’s Chinese community have been holding “Free Meng” signs outside the court. They also told reporters that they feel the US is bullying Huawei, and in a way, China.

Also, according to internal memos from Yahoo News, numerous Chinese companies have promoted their employees to use Huawei products instead of Apple.

Two Chinese people holding a sign outside the Vancouver court house, in protest of Meng’s arrest. Credit: JesseWinter

However, even if we find Ms Meng extradited or jailed, Apple might not suffer too horribly, as they tend to already have a strong relationship with the Chinese government, which is very good news.

In 2017, it was estimated that between manufacture, retail and distribution, Apple was responsible for 4.8 million jobs in China. The company has also opened research centres that provide for the country’s best graduates.

“They have relationships with the Chinese government because they’ve been a massive employer,” Mr Ives said. “By hurting Apple, it would to some extent be almost like burning down your own house”.

Apple has not yet commented on the situation. However, what will happen next with both companies, will all be down to Ms Meng’s fate in court.

However, quite clearly Huawei and ZTE have been involved in some previous illegal activities, after ZTE was already fined for illegally exporting U.S. technology to Iran and North Korea, back in 2017.

Moreover, there could be even further unknown underlying factors for Meng’s arrest apart from the stated reasons. Who knows? But, let’s hope that a beneficial resolve can be found for all the parties involved, and Donald Trump will most likely be monitoring the situation very closely.

 

Story by Emily Clark

Featured Photo Credit: TorontoStar

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