Much of the recent press coverage has been positive regarding China’s relationship with the West. However, the market was just treated to a reminder this week of how volatile and fragile that relationship really is.
The news broke on Monday that the CFO of technology giant Huawei, Meng Wanzhou, will sue the Canadian border officials who arrested her. Since then, fresh reports indicate that China has now blocked Canadian Canola imports.
Meng Sues Canadian Border Officials
In the lawsuit filed on Friday, Meng claims that she was only informed of the reasons for her arrest three hours after being searched by Canadian police. She claimed border officials carried out the search “under the false pretense of a routine border check.”
The lawsuit states that these officers “intentionally failed to advise her of the true reasons for her detention, her right to counsel and her right to silence.”
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Meng To Be Extradited To US
Canada detained Meng in December last year on behalf of the US government. The government is seeking to extradite her for reportedly attempting to evade US sanctions on Iran through misleading banks.
Meng filed her lawsuit on the same day that Canada announced it would allow the US extradition request for Meng to proceed. She’s now due to attend court today to establish a date for extradition proceedings to begin.
China Blocks Canadian Canola Exports
In response to Canada allowing the extradition, China announced yesterday that it had blocked Canadian group Richardson International’s registration from supplying canola oil to China.
While they did not give an official reason the move, many have interpreted the timing of this trade barrier as retaliation against Canada’s actions.
Blocking this export to China could have serious repercussions for the Canadian economy. Oilseeds such as canola, fruit, and grain make up around 17% of Canadian exports to China. The potential for further trade barriers also poses significant uncertainty for Canadian exporters.
Grave Risks Highlighted At China NPC
No specifics were mentioned at the annual China National People’s Congress this week. However, during the trade report, Premier Li Keqiang did note the “graver…unpredictable” and “more complex” risks ahead linked to ongoing “trade disputes.”
Indeed, these risks saw the Chinese government lowering its growth forecast for the year ahead to “between 6% and 6.5%.” This is the lowest level since 1990. However, Li insisted that Beijing has handled those risks “appropriately” so far.
“Made in China” Not Mentioned
Notably, there was no mention of the Made in China 2025 program that the Xi leadership announced last year. This program was aimed at achieving dominance in a number of hi-tech industries. Incidentally, it has been a major point of contention for Donald Trump.
In the face of Trump agreeing to postpone planned trade tariff increases recently, omitting reference to this program shows that the Chinese leadership is sincere about negotiating a resolution.
The bearish trend in USDCNH has currently stalled a test of the 6.6743 – 6.6899 structural support. For now, price continues to trade within the broad bearish channel which puts the focus on continued downside. However, the developing falling wedge formation suggests the potential for an upside reversal. Bulls will want to see a break above 6.7382 to gather momentum for a test of the channel top next.