The shocking arrests of the daughter of the founder of China's largest private company and of the most-famous foreign executive in Japan have shaken Asia Inc. The mightiest have fallen.
That's spooking already spooked investors in my part of the world. I'm staring at a sea of red across Asian markets on Monday, with China also posting much worse than expected export and import figures for November. Separately, Japan put out third-quarter figures that showed an economic contraction of 2.5%, the worst number in four years.
Asia's largest two economies are misfiring. But the inhabitants of Hong Kong and Tokyo are far more gripped by the corporate scandals, and that's having a worse impact on investor sentiment. Economists are looking at trade data. But everyone here knows about the arrests.
In Monday trade, Japan, Australia and India all sold off around 2%, and China, Hong Kong, South Korea and Singapore all lost at least 1.1%. Expect the selling to continue.
The arrest of the Chief Financial Officer of Huawei Technologies, Sabrina Meng Wanzhou, is far more than a case of alleged sanctions circumvention. Her place atop the pantheon of China's private sector means she is a politically connected symbol of New Corporate China.
The timing comes just as President Donald Trump and President Xi Jinping agreed a trade truce. But that at least is a coincidence. U.S. authorities caught wind of her travel plans some time back, then figured out they could get the Canadians to nab her in Vancouver as she changed planes between Hong Kong and Mexico.
It was likely the only shot they had to get her. Meng had undoubtedly got wind of the sanctions investigation in March, after U.S. authorities questioned other Huawei executives. Having been a frequent visitor to the United States, Meng completely stopped U.S. travel, even though her teenage son is studying in Boston.
She's accused of fraud in concealing how Huawei was sending U.S.-linked parts to Iran, in convention of sanctions. You may recall similar charges against Chinese telecom ZTE Corp in April, a storm that quickly blew over. This one is different.
With around $94 billion in annual revenue, Huawei is the largest non-listed company in China. It's approaching the size of China Mobile, the country's main mobile-phone provider and largest telecom, at $108 billion in sales.
But Huawei is much more than that. It's China's strongest brand, according to RepTrak, having successfully overcome the original bias against the quality of Chinese smartphones. And as a tech company, it's exactly the kind of company that China wants to see itself producing -- companies that are inventing, rather than copying. It was the single-largest corporate filer of patents globally in 2017, a title it has held for many years.
Huawei is also a key component of China's military-industrial complex. Future wars will be fought as much over the airwaves and Internet as on the ground. Huawei is the No. 1 maker of cell-phone towers globally, as well as the No. 2 smartphone maker in the world. If you wanted to shut comms down, it's the first place you'd start.
Jailing Meng, however temporarily, sends a signal. And it wasn't easy. Court documents show Meng has seven passports: four from China and three from Hong Kong. Since only one is allowed at a time in either place, immigration officials are scrambling to find out if they were all still valid, and if so, how. She reportedly changed names several times, then circumvented the rules.
Former Nissan Motor chairman Carlos Ghosn was charged on Monday with conspiring to hide about half of his $88 million in compensation over a five-year period from 2010. He had been held without charge since his arrest on Nov. 19.
He was also re-arrested on Monday essentially for the same charge, but a different time period, the three years through March 2018. That allows Japanese police to keep him in custody and for questioning for another 22 days -- through the end of the year.
Ghosn has been the figurehead of New Corporate Japan. He achieved god-like status in the auto industry after pulling the French car company Renault back to the world of the living from near-death. He then performed the exact same resuscitation act at Nissan Motor, dragging it from the brink of bankruptcy. He then performed mouth-to-mouth on flatlining Mitsubishi Motors, which has been caught cheating on car tests then lying to customers about it on more than one occasion.
Three car companies saved from extinction. One Fortune title of Asia Businessman of the Year. And a profile high enough in Japan that he became the hero in his very own manga comic.
I've been suspicious of Ghosn's downfall since the start. As the most-famous foreigner in Japanese business, he's been a target of resentment among Japan's old guard since his heels first touched down at Narita in 1999.
The charges against him are also peculiar -- not that he hid his compensation from the company, but that he underreported pay to the stock exchange. Although there's a separate allegation that he misused company assets, misfiling to the Tokyo Stock Exchange while the company approved his pay seems more of a misdemeanor than a felony fraud. The charges do carry a maximum penalty of 10 years in jail, or a fine of up to ¥10 million ($89,000), or both.
The arrest of Meng and Ghosn appears set to rumble on far longer than the brief rain shower that followed the ZTE sanctions. Expect the denizens of these markets to be watching, worried about the results and their portfolios, until it's clear exactly how long these two once-shining examples of Asia's executive ranks will remain behind bars.
