Arrest of Huawei CFO pours cold water on optimism

By Mei Xinyu Source:Global Times Published: 2018/12/6 23:10:52

Illustration: Luo Xuan/GT

Without any solid evidence, the Canadian and US governments trampled on international law by basically "kidnapping" Chinese citizen Meng Wanzhou, the chief financial officer of Huawei.

The US government is reportedly seeking the extradition of Meng from Canada, citing an warranted charge of "violating sanctions on Iran," which is based on US domestic law. This law has no jurisdiction over Chinese citizens and institutions. The news sent shockwaves through the international community and global markets.

It is urgent to seek the release of Meng through diplomatic channels. In the meantime, China's top priority is to stabilize financial markets - the stock market, foreign exchange market and commodity market - because financial markets may quickly overreact to a major event. A few days ago, Chinese and global financial markets rallied amid optimism following a meeting between the top leaders of the two countries. Yet, news of the arrest on Thursday immediately hit the stock and foreign exchange markets.

Moreover, due to the close economic and trade ties between China and other Northeast Asian and Southeast Asian countries, the incident may have an impact on these economies as well as their financial markets, and also the international commodity markets.

Thus, financial authorities and exchanges should pay close attention to movements in the stock and foreign exchange markets, and prepare for coordinated action with overseas financial authorities to maintain market stability.

The China-US trade row could become a protracted war, pointing to a long-term impact on other countries and regions, particularly those in East Asia. Given the shadows looming over the global economy and a possible US economic slowdown, financial market authorities and exchanges in Northeast and Southeast Asia should discuss the establishment of a coordinated action mechanism to ward off economic and political risks.

Some other points deserve note.

It is hard to believe that the US would end its broad trade war in the short term. China should still prepare for some extreme scenarios, like the combined impact of US tariffs on all Chinese exports and a US economic slowdown. The US government is very likely to further resort to trade protectionism measures once it faces an economic slowdown or financial crisis. Moreover, US President Donald Trump's political enemies will use the trade war to find fault with Trump himself.

There are those who claim that the Trump administration didn't plan the Meng arrest - instead, it was a deliberate move by the Democrat-controlled New York judiciary authorities to create an obstacle for China-US relations. If that's true, then the incident just serves to underline the major flaws in the US political system.

For a considerable period of time, negotiating while at "war" will be the normal state of China-US relations, and we need to get used to this new reality.

The incident shows that the US and some other countries that follow the US didn't abide by the bottom line of international law at all. From now on, we should reduce or cancel important people's visits to the US, Canada and some other countries like the UK, Australia and New Zealand. The warning applies to not only Chinese citizens, but also citizens of any other country.

Given the extreme risks of the political struggle in the US, Chinese scientists and technological experts in the West, particularly in the UKUSA countries (the US, UK, Canada, Australia and New Zealand) are advised to make some risk prevention arrangements for their own sake and the sake of their children

China needs to be prepared for further pressure from the US on its oil and gas trade with Iran, as well as for its impact on international oil and gas market prices. If Iranian production slumps due to the sanctions, combined with planned production cuts by Saudi Arabia and Russia, global energy prices may rise significantly.

Since the China-US trade war appears to be developing into a protracted one, some companies may consider moving their supply chains out of China. But they should calm down. Trump has launched trade wars with almost all major economies in the world this year, and even started a trade battle with Rwanda, a small African country, over used clothes. How could Vietnam, India and other countries be spared from trade wars with the US?

Despite its negative impact, the China-US trade war may also mean opportunities. High-technology industries such as semiconductor production are expected to enjoy development opportunities as a means of making alternatives to imported products. The export-oriented vehicle industry may see new business opportunities. In the foreseeable future, many global exhibitions are likely to shun the US and the UKUSA countries due to the Meng incident, and so exhibition, tourism and other related industries in China and other countries may benefit.

Finally, the Meng incident and other US policy changes may also mean opportunities for China to attract multinational investment for research and development centers.

The author is a research fellow with the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.


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