China prepares to retailate against arrest of Huawei CFO Meng Wanzhou

China Press Warns To "Prepare For Escalation Of Conflict With Canada"

Zero Hedge,

14 December, 2018

Days after revealing that businessman Michael Spavor - who became the second Canadian citizen detained in China since Beijing warned it would retaliate against Canada for the arrest of Huawei CFO Meng Wanzhou in Vancouver earlier this month - had been arrested for "threatening national security", the Communist Party made clear that this is only the beginning, and that Canada should expect "further escalation" as Beijing has no intentions of backing down - and every intention of sending a message to US allies that they should stay out of the still-simmering dispute between the world's two largest economies.

 

Via an editorial in the Global Times, an English-language Chinese media company considered to be a mouthpiece for the Communist Party, China accused Canada and other US allies of forming "a collective encirclement and suppression of Chinese high-tech enterprise Huawei" - likely a reference to the US's campaign to convince its allies to avoid Huawei equipment, citing its vulnerability to Chinese spies, as well as Canada's cooperation in Meng's detention - the editorial "suggested" that China should leverage its economic heft to deter US allies from taking actions contrary to China's interest.

By calling on its allies, the US has gradually formed a collective encirclement and suppression of Chinese high-tech enterprise Huawei. It is a wicked precedent.

Almost all US allies maintain active economic and trade ties with China, of which China is the biggest trading partner of many of them. China needs to urge these countries to keep neutral in the conflict between Washington and Beijing.

It is possible for China to achieve this goal to a considerable extent because China does not threaten the strategic security of the US and its allies and it is more conducive for them to pursue national interests by maintaining good ties with China than to follow the hard line of the US.

And if these countries continue to work against China to appease the US, China should not hesitate to retaliate.

However, this does not mean that Beijing will capitulate to them at every step. For those countries that seek to ingratiate themselves to the US without regard to China's interests, China should firmly fight back, causing a heaving price for them.

Though China should carefully pick and choose when to accommodate these intrusions and when to react, the editorial resolutely stated that Canada had "crossed a line" by detaining Meng.

Canada crossed the line by helping the US detain an executive of Huawei and China needs to clearly express that it doesn't accept it. If Canada were to ultimately extradite Meng Wanzhou to the US, it would certainly be at the cost of a backslide in China-Canada ties.

In addition, it would be a test for China's national will and wisdom to decide when to accommodate certain countries for decisions made while being caught between China and the US, and when to resolutely counter their damage to China's interests.

The editorial goes on to suggest that perhaps if China had taken a harder line against Australia when it became the first country to accept the US's advice and ban Huawei's equipment, other countries (like, maybe, Canada) would have thought twice about interfering.

Australia was the first to follow Washington in blocking Huawei devices. As Wu Xinbo, a scholar of Fudan University, pointed out in an interview with the Global Times, "If China firmly fought back on Australia's decisions, other countries might think twice before considering calling off Huawei's products."

China certainly will not overact, because such a move will isolate China and construct the outcome the US prefers. Beijing needs to meticulously select counter-targets to really make them learn a lesson.

When weighing retaliation against the US, China must focus on participants in the "Five Eyes" intelligence alliance - particularly Canada, Australia and New Zealand. As we've previously reported, infiltrating the "Five Eyes" cabal has long been a focus for Chinese intelligence services.

And as it seeks to do this, China must be prepared for conflicts to escalate.

In this complicated game, China should focus on the Five Eyes intelligence alliance, especially Australia, New Zealand and Canada, who actively follow the US against China. The first two nations are far from the European continent and have a subtle distance with most Western countries. China is the largest trading partner of both Australia and New Zealand and the second largest of Canada, thus the country has enough means to counter them.

In the struggle with Canada, China needs to prepare for the possibility of conflict escalation.Beijing must take the contest seriously and maximize the support of international public opinion, leaving Western media no smear to slander its counterattacks as "degradation of China's opening-up."

China's new round of opening-up is in its ascendancy and in the wake of complicating external games for the country. No matter how difficult the situation is, sincere opening-up is not contradictory to a reasonable defense of China's interests.

Canadian officials have yet to learn much about the circumstances in which its two citizens have been detained, and China has given no indication that it will release them, despite Meng being granted bail last week.

 

And judging by the tone of this editorial, China doesn't plan to relent.

New Zealand is totally involved in this,

'Five Eyes' Spy Chiefs Agreed To Contain Huawei's Global Reach At Meeting In July: Report

At a meeting in Canada in July 2018, espionage chiefs from Australia, Canada, New Zealand, the U.K. and the U.S.—all signatories to a treaty on signals intelligence, and often referred to as the “Five Eyes”—agreed to do their best to contain the global growth of Chinese telecom Huawei, the Wall Street Journal reported on Friday, citing a prior report from the Australian Financial Review.

According to the Journal’s report, while the various member countries of the Five Eyes view Huwaei with varying amounts of alarm—the UK is a major buyer of its telecommunications gear—they nonetheless all agreed that the tech giant posed a security risk on the grounds that it could be spying on behalf of the Chinese government:

Discussions touched on concerns about China’s cyber espionage capabilities and growing military expansion, people familiar with the meeting said. One focus was how to protect telecommunications networks from outside interference, according to one person familiar with the discussion.

Five Eyes members have long had differing levels of concern over Huawei and other Chinese equipment makers. They have also differed sharply in their tolerance for Huawei, in particular, as a supplier to their national telecommunication carriers. The U.S. has all but banned Huawei gear, while U.K. carriers have been big customers. Reflecting that divide, a person familiar with the meeting said participants agreed that an outright ban in many countries was impractical.

... After the meeting in Canada, first reported by The Australian Financial Review, some of the typically reticent intelligence officials who were there made unusual public comments about what they saw as a growing threat posed by Huawei.

 

Intelligence officials from the countries involved have, in the past few weeks and months, publicly raised concerns about Huawei without going into much detail about the specifics. Australian Signals Directorate Director-General Mike Burgess warned that the country’s entire transport and utility grids were at risk if 5G networks were open to attack, the Journal wrote, while British Secret Intelligence Service chief Alex Younger said the UK needs to think carefully about whether it trusts Huawei with 5G expansion. Canadian Security Intelligence Service head David Vigneault also raised concerns in general about “increased state-sponsored espionage in fields such as 5G,” but did not go into specifics, the paper added.

U.S. intelligence officials have been raising the alarm about Huawei since well before the meeting, and have asked allies to follow their lead and shut out the company from roles in building out 5G networks. The Journal wrote that German officials in particular were sceptical, citing a lack of evidence to back the warnings:

The U.S. has been pressuring German authorities for months to drop Huawei, according to people familiar with the matter, but the Germans have asked for more specific evidence to demonstrate the security threat.

German authorities and telecom executives have yet to turn up any evidence of security problems with Chinese equipment vendors, according to a person familiar with the matter.

However, the paper also added that Deutsche Telekom AG, Germany’s largest telecom, was reviewing its procurement strategy given global concerns about the “security of network elements from Chinese manufacturers.”

The Associated Press reported on Sunday that the response from Five Eyes countries and their allies has significantly slowed Huawei’s global expansion, despite the company’s denials that anything shady is going on:

Australia and New Zealand have barred Huawei Technologies Ltd. as a supplier for fifth-generation networks. They joined the United States and Taiwan, which limit use of technology from the biggest global supplier of network switching gear. Last week, Japan’s cybersecurity agency said Huawei and other vendors deemed risky will be off-limits for government purchases.

There is some scepticism as to whether Huawei truly is an espionage threat or whether the suspicions are a pretext to try and blunt the growth of Chinese competition to Western firms.

“There never has been any actual proof,” Andrew Kitson, head of technology industry research for Fitch Solutions, told the AP. “They’ve only got to make a few insinuations for other governments to sit up and think, hang on, even if there is no proof, it is too much of a risk.”

The company is the world leader in mobile network gear, particularly in Asia, Africa, and Europe, comprising 28 per cent of the $US32 ($45) billion market in global sales in 2017. Per the AP, there are concerns that excluding Huawei could raise prices and slow innovation, as countries that bar the company from government-funded network expansions may be forced to largely rely on just two major competitors: Ericsson (27 per cent) and Nokia (23 per cent). Other companies in the market include Chinese manufacturer ZTE and South Korea’s Samsung Electronics Corp, the AP noted, but ZTE has faced much the same pushback as Huawei.

Huawei has also been in the headlines recently due to Meng Wanzhou, its chief financial officer and the daughter of its founder Ren Zhengfei. Canadian authorities recently detained Meng at the behest of U.S. authorities seeking her extradition on accusations she portrayed a de facto Huawei subsidiary, the Hong Kong-based Skycom, as an independent company in order to trick Western financial institutions into processing transactions related to attempted sales of embargoed HP telecommunications gear to Iran.

As the U.S. and China are also locked in a trade war that is now in the middle of a shaky truce, the detention is escalating tensions between the two countries at a less than ideal time. China has warned of “grave consequences” if Meng is not released, while there were rumours some White House officials planned on using her as a sort of bargaining chipduring negotiations.

“This is something that’s definitely concerning Huawei at this stage, because there is a political angle to it and a business angle,” Nikhil Bhatra, a senior researcher for International Data Corporation, told the AP.