The main index in Hong Kong fell about 2.5% and Tokyo stocks closed down 1.9% on Thursday after Canada said Huawei's chief financial officer, Meng Wanzhou, had been arrested in Vancouver and is being sought for extradition by the USA government.
China's Ministry of Foreign Affairs both Canada and the U.S.to release Meng. Geng also says Meng's legal rights must be ensured, adding that neither Canadian nor American officials had so far responded to China's concerns.
The Chinese embassy in Canada has also released a strongly worded statement.
A clerk at the B.C. Supreme Court says Meng appeared in court Wednesday and a bail hearing is scheduled for Friday.
The arrest of a senior Huawei telecoms executive in Canada this week brought the Chinese company under worldwide scrutiny, drew the ire of American leaders and sent stocks plummeting over fears that a U.S-China trade deal could be reneged amid newly inflamed tensions.
The Wall Street Journal reported in April that the US Department of Justice had opened an investigation into suspected violations of Iran sanctions by Huawei.
Ye Tan, an independent Chinese economist, said Meng's arrest could be used as a "bargaining chip" in the trade talks.
China's foreign ministry urged Canada and the USA to "clarify" the reason for Meng's detention.
Fears over how a full-blown trade war would affect China's economy and its appetite for imported goods and commodities have rocked investors around the world. "Huawei has direct ties to the Chinese government and Communist Party, has long posed a serious risk to US national security".
Huawei Technologies Ltd., the biggest global supplier of network gear used by phone and Internet companies, has previously been the target of USA security concerns.
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Huawei, now China's largest technology company by employees, with more than 180,000 staff and revenue of US$93 billion in 2017, started off selling digital telephone switches in the 1990s.
A US Justice Department spokesman declined to comment. "Once the arrest has been made, the extradition request filed, it's not an easy thing even for the (U.S.) president to cancel a judicial action".
Prime Minister Justin Trudeau says Ottawa had a few days' prior notice of the arrest of an executive from the Chinese telecommunications giant Huawei following US allegations the company violated sanctions on Iran.
Wang Heng, a Chinese business law professor at the University of New South Wales in Australia, told the Hong Kong-based newspaper that the US could use Meng to put pressure on Beijing if it doesn't meet Trump's deadline to hammer out a resolution in the trade dispute.
"The company has been provided with very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng".
While Meng's arrest comes at a delicate time in U.S. "Huawei complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws and regulations of the UN, US and European Union". Trump and Xi have been battling over tariffs, something that has set the USA financial markets into a tailspin this week, causing the Dow to drop almost 800 points on Tuesday. Markets are already incredibly nervous over slowing economic growth thanks to the inverted United States yield curve.
Traders said the development smashed hopes surrounding the trade war ceasefire announced by President Trump after talks with his Chinese counterpart at the weekend.
"China firmly opposes all forms of cyber attack and cracks down on them in accordance with law", he furthered. "I don't see the basis on which this could be quashed by Canada", he said.
That same month, Washington barred Huawei rival ZTE Corp. from exporting US technology in a separate case over exports to Iran and North Korea.
Huawei is one of the world's largest telecoms companies, and is the world's second-largest smartphone manufacturer behind Samsung. "U.S. President Donald Trump should rein in the hostile activities of some Americans who may imperil Sino-U.S. relations".