The Huawei Executive’s Arrest Is Igniting Fear. The U.S. Should Take Notice.

Posted December 10, 2018 12:51 p.m. EST

Days after Canadian authorities arrested one of China’s leading technology executives at the behest of Washington, Cisco warned some employees that China might return the favor.

In an email with the subject line “Travel Restriction to China,” the Silicon Valley networking giant cautioned employees against nonessential travel to China “due to recent events.” Cisco has since said the email was sent in error and that there are no China travel restrictions on its employees.

Still, the fear is real.

The arrest this month of Meng Wanzhou of Huawei, the Chinese telecom giant, appears to have put a certain kind of elite — tech-savvy, comfortable in both countries — square in the middle of the economic conflict between the United States and China. For many Chinese tech entrepreneurs, the United States suddenly doesn’t seem like the same place that welcomed them to study, work and raise money. That could be a big problem for both countries.

Already, some tech types are reconsidering their travel plans, if not their connections, to the other country. Many see a bit of themselves in Meng. As Huawei’s chief financial officer and daughter of the company founder, she is a member of a tech elite that has long thought of itself as too valuable to be threatened. (U.S. authorities say she was part of a plan to avoid U.S. sanctions against Iran. Huawei says it is unaware of any wrongdoing on her part.)

Over spicy hot pot last week after the announcement of Meng’s arrest, an American-educated Chinese tech entrepreneur told me he wouldn’t travel to the United States unless necessary. Another Chinese tech figure, one who is backed by American money, discussed whether he should give up his beloved iPhone for a Huawei smartphone.

That culture of fear and alienation has been building for a while, as the U.S. government grows increasingly skeptical of China’s technology ambitions and its business ties in places like Silicon Valley.

The founder of an artificial intelligence startup said that when he visited the Bay Area in October, he was questioned extensively at immigration. One investor, a former Silicon Valley engineer who moved back to China a few years ago to set up a venture capital fund focused on AI, left his laptop at home and deleted messages from the social media platform WeChat from his phone in case U.S. security personnel decided to take a peek. They didn’t. The last time I saw so many liberal-minded Chinese elites so disappointed by the U.S. government was after the bombing of the Chinese Embassy in Belgrade, Serbia, in 1999, which killed three Chinese nationals. The United States said it was a mistake and President Bill Clinton apologized.

“Out of national security consideration, we can start thinking about the possibility of ousting Apple from China,” Fang Xingdong, founder of ChinaLabs, a technology think tank in Beijing, wrote on WeChat.

On Chinese social media, jingoistic rhetoric is running high. “A guilty conscience needs no accuser!” “Boycott Cisco!” “Let’s detain Tim Cook of Apple!”

For China, this level of distrust could have some dire consequences. China and the United States remain tightly interconnected despite the clash over trade between Washington and Beijing. The Chinese economy is slowing down. Any pause in business relations between the two countries could make it worse.

The United States, on the other hand, risks losing important potential allies in its tug of war with China’s authoritarian government. China’s tech elite are comfortable with the American system and open to many Western values. It would not be in Washington’s interest to push them closer to the Communist Party.

Many in the Chinese tech scene were already growing increasingly alienated from the party. President Xi Jinping’s order to enhance party building in the private sector has eroded the independence of private enterprises. The party has grown tougher in enforcing rules requiring companies to set up local party cells and to make executives answer to party secretaries.

“The party building in the past few years was a big present to the U.S. and Europe,” said Chen Zhiwu, an economist at Hong Kong University.

China’s pro-market elites have been trying to use the pressure of a slowing economy and the trade war to push Xi to give power back to entrepreneurs, which would be in line with some of Washington’s goals.

Now, they aren’t sure that the Trump administration views them any differently from the Chinese government. Chinese executives have run into trouble before. Last week a jury in New York convicted Patrick Ho, a former Hong Kong official working for a troubled Chinese oil company, in a bribery case. Earlier this year, U.S. officials came close to outright killing the Chinese tech company ZTE for also violating sanctions against Iran, depriving it for a while of American-made technology that it needed to do business.

This time is different. Huawei is among the most respected private enterprises in China. The world’s biggest telecom equipment maker and No. 2 smartphone maker, Huawei is frequently exalted in China’s business world for elbowing out its bigger Western rivals and developing cutting-edge technologies.

There are all kinds of tales about how hard Huawei engineers and salespeople work. Many entrepreneurs told me that they respect Ren Zhengfei, Huawei’s founder and Meng’s father, more than high-profile Chinese internet tycoons like Jack Ma of Alibaba and Pony Ma of Tencent because Huawei is the only Chinese corporation with a truly global footprint.

The United States accuses Meng of being directly involved in efforts to circumvent its sanctions against Iran. Authorities there may have compelling evidence. For people not familiar with China and China’s business world, it may be puzzling that some businesspeople would take Meng’s arrest so badly.

Still, many people in China who have grown up under an authoritarian regime see only a blunt exercise of state power. Because many Chinese view Meng’s arrest as a tool to escalate the trade war, they see her as a victim of geopolitics rather than a potential lawbreaker.

They also worry they could be seen as tainted simply because they are from China. Think of it as China’s “original sin” — it is hard to be a truly independent private business in China because the government controls most of the resources. The Chinese government uses bank loans, business licenses and regulations to make sure companies toe the party line. It is increasingly a major venture capitalist.

If the United States isn’t careful, it could alienate a group of people who may be instrumental if China is going to loosen up and give its people more freedom. Many admire the American political, judiciary and economic systems. If the United States puts more pressure on them, they may be forced to choose sides — and the Chinese government may seem like the only choice to make.

“The whole world is taking sides,” Ren Yi, a senior investment banker in Beijing, wrote on the social media site Weibo. Huawei “suddenly finds itself on the front line of civilizational confrontation.”