The chances of trade peace between the U.S. and China took a blow Thursday as it emerged Huawei chief financial officer Meng Wanzhou had been held in Canada and faces extradition to the United States over alleged Iran sanctions breaches by the firm.
Huawei, the biggest global supplier of network gear used by phone and internet companies, has been the target of deepening U.S. security concerns.
Other pressures are weighing on the financial markets.
The United States sees Huawei and smaller Chinese tech suppliers as possible fronts for Chinese spying and as commercial competitors. On Wednesday, China's embassy in Canada said it resolutely opposed the arrest and called for her immediate release.
A Chinese foreign ministry spokesman Geng Shuang reiterated Beijing wanted the U.S. and Canada "to clarify the grounds for the detention, to release the detainee and earnestly safeguard the legitimate rights and interests of the person involved", Bloomberg reported.
Wang Heng, a China business law professor at the University of New South Wales in Australia, said the USA could use Meng's case to exert pressure on China during the trade negotiations.
"Public opinion in China will likely become more negative in respect to the trade war, and potentially against U.S. companies", Deutsche Bank analyst Zhiwei Zhang said on Thursday. He said targeting Huawei, one of its most successful companies, "will trigger anti-US sentiment".
U.S. Senator Ben Sasse praised the move and said that it was "for breaking U.S. sanctions against Iran". The company was banned in August from working on Australia's fifth-generation network.
Security concerns recently led BT to bar Huawei equipment from the heart of the 5G network it is rolling out in the UK.
Several other past and present Skycom directors appear to have connections to Huawei.
A rout on Wall Street deepened Thursday after news of the arrest of a top executive at Chinese telecommunications giant Huawei stoked fears it could hinder progress in U.S. Washington has previously raised concerns about the Chinese conglomerate because of its links to Beijing's government. The U.S. has been looking into Huawei's alleged shipping of products to Iran since 2016, as these actions violate the country's export and sanctions laws.
It is not clear whether President Donald Trump knew about the arrest in advance.
The probation violation cited by the judge involves the same conduct the U.S. Department of Commerce penalized in April by imposing a ban on U.S. companies selling goods to ZTE.
The news sent shudders through Hong Kong and Shanghai markets, where tech firms were hammered. Meng was detained in Vancouver but is facing potential extradition to the US, which had earlier opened an investigation into whether Huawei sold equipment to Iran despite sanctions on exporting there.
The U.S. Justice Department on Wednesday declined to comment.
Huawei has said it complies with all applicable export control and sanctions laws and U.S. and other regulations.
The CFO, Wanzhou Meng, was arrested for allegedly breaching Iran sanctions.
A foreign ministry spokeswoman, Hua Chunying, said then that China hoped the USA would refrain from taking actions that could further undermine investor confidence in the United States business environment and harm its domestic economy. But he also said China has a "very long history" of not living up to its trade promises.