China on Thursday demanded that Canada release an executive of Chinese tech giant Huawei who was arrested in a case that compounds tensions with the US and threatens to complicate trade talks. Meng Wanzhou, chief financial officer of Huawei Technologies Ltd., faces possible extradition to the United States, according to Canadian authorities.

The Globe and Mail newspaper, citing law enforcement sources, said she is suspected of trying to evade US trade curbs on Iran.

Huawei, the biggest global supplier of network gear used by phone and internet companies, has been the target of deepening US security concerns. Under Trump and his predecessor, Barack Obama, Washington has pressured European countries and other allies to limit use of its technology.

The US sees Huawei and smaller Chinese tech suppliers as possible fronts for spying and as commercial competitors. The Trump administration says they benefit from improper subsidies and market barriers.

The timing of the arrest is awkward following the announcement of a US-Chinese cease-fire in a trade war that has its roots in Beijing's technology policy. Meng was detained in Vancouver on Saturday, the day Presidents Donald Trump and Xi Jinping met in Argentina and announced their deal.

Stock markets tumbled on the news, fearing renewed US-Chinese tensions that threaten global economic growth. Hong Kong's Hang Seng lost 2.5 percent and the DAX in Germany sank 1.8 percent.

A Chinese government statement said Meng broke no US or Canadian laws and demanded Canada "immediately correct the mistake" and release her.

Beijing asked Washington and Ottawa to explain the reason for Meng's arrest, said a Foreign Ministry spokesman, Geng Shuang. He said arresting her without that violated her human rights.

But the Ministry of Commerce signaled that Beijing wants to avoid disrupting progress toward settling a dispute with Washington over technology policy that has led them to raise tariffs on billions of dollars of each other's goods.

China is confident they can reach a trade deal during the 90 days that Trump agreed to suspend US tariff hikes, said a ministry spokesman, Gao Feng.

Trump's tariff hikes on Chinese imports stemmed from complaints Beijing steals or pressures foreign companies to hand over technology. But US officials also worry more broadly that Chinese plans for state-led creation of Chinese champions in robotics, artificial intelligence and other fields might erode US industrial leadership.

"The United States is stepping up containment of China in all respects," said Zhu Feng, an international relations expert at Nanjing University. He said targeting Huawei, one of its most successful companies, "will trigger anti-US sentiment." "The incident could turn out to be a breaking point," Zhu said.

Last month, New Zealand blocked a mobile phone company from using Huawei equipment, saying it posed a "significant network security risk." The company was banned in August from working on Australia's fifth-generation network.

On Wednesday, British phone carrier BT said it was removing Huawei equipment from the core of its mobile phone networks. It said Huawei still is a supplier of other equipment and a "valued innovation partner." The Wall Street Journal reported this year US authorities are investigating whether Huawei violated sanctions on Iran. The Chinese government appealed to Washington to avoid any steps that might damage business confidence.

Huawei's biggest Chinese rival, ZTE Corp., was nearly driven out of business this year when Washington barred it from buying US technology over exports to North Korea and Iran. Trump restored access after ZTE agreed to pay a $1 billion fine, replace its executive team and embed a US-chosen compliance team in the company.

Huawei is regarded as far stronger commercially than ZTE. Based in Shenzhen, near Hong Kong, Huawei has the biggest research and development budget of any Chinese company and a vast portfolio of patents, making it less dependent on American suppliers.

Its growing smartphone brand is among the top three global suppliers behind Samsung Electronics and Apple Inc. by number of handsets sold. Meng was changing flights in Canada when she was detained "on behalf of the United States of America" to face unspecified charges in New York, according to a Huawei statement.

"The company has been provided very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng," the statement said.

A US Justice Department spokesman declined to comment.

Huawei said it complies with all laws and rules where it operates, including export controls and sanctions of the UN, the US and European Union.

Meng's arrest also threatened to inflame disagreements over Iran and Trump's decision to break with other governments and re-impose sanctions over the country's nuclear development.

Geng, the foreign ministry spokesman, said China objects to unilateral sanctions outside the United Nations. China has said it will continue to do business with Iran despite the possible threat of US penalties.

Meng is a prominent member of China's business world as deputy chairman of Huawei's board and the daughter of its founder Ren Zhengfei, a former Chinese military engineer.

First Published:Dec 7, 2018 5:40 AM IST