Canadian said to be detained in China, Huawei CFO due back in court

By Julie Gordon and Michael Martina

VANCOUVER/BEIJING (Reuters) - A former Canadian diplomat has been detained in China, two sources said on Tuesday, just hours before a top executive at Chinese telecoms giant Huawei Technologies is set to return to a Vancouver courtroom for a bail hearing that has angered Beijing.

It was not immediately clear if the cases were related, but Canadian analysts had already predicted China would retaliate after the arrest of Huawei CFO Meng Wanzhou at the request of U.S. authorities.

The former diplomat is Michael Kovrig. He works for the International Crisis Group, which said it was seeking his prompt and safe release.

Canadian officials said they were not immediately able to confirm that Kovrig was in detention.

China's Foreign Ministry and Ministry of Public Security did not respond immediately to questions faxed about Kovrig's detention.

China has threatened severe consequences unless Canada releases Meng immediately. Canadian Prime Minister Justin Trudeau says the matter is one for the courts to decide.

Tuesday will be the third day of bail hearings in a British Columbia court, where a judge will weigh final issues in determining whether Meng should be freed on bail while awaiting extradition proceedings.

Canadian businesses operating in China are starting to feel the chill and the signing of one major deal has been postponed, a well-placed source said.

"The consequences have already begun," said the source, noting that a Canadian firm had been due to ink a major agreement in the next few weeks.

"The local partner, a Chinese private sector actor, has told the Canadian partner that now is not a good time to sign," said the source, who asked to remain anonymous given the sensitivity of the matter.

Meng, 46, faces U.S. accusations that she misled multinational banks about Huawei's control of a company operating in Iran, putting the banks at risk of violating U.S. sanctions and incurring severe penalties, court documents said.

BEIJING WARNS ON 'BULLYING'

Speaking at a Beijing forum on Tuesday, the Chinese government's top diplomat, State Councillor Wang Yi, said the government kept constant watch on the safety of citizens abroad, though did not directly mention Meng's case.

"For any bullying that wantonly violates the legitimate rights and interests of Chinese citizens, China will never sit idly by," state television quoted him as saying.

The judge on Monday rolled the proceedings over to Tuesday because he wanted to hear more about who would take responsibility for Meng's actions if she were released.

Meng's lawyer David Martin had offered her husband as surety, but the judge and the public prosecutor questioned whether he could perform this duty as he is not a resident of British Columbia.

The arrest has roiled markets over fears it will exacerbate tensions between the United States and China in trade negotiations that both sides have agreed must be concluded by March 1.

In June 2014, Chinese businessman Su Bin was picked up on a U.S. warrant in Canada, where he had been attempting to establish residency. Shortly afterwards a Canadian citizen in China was arrested and charged with spying. Kevin Garratt spent two years in detention before being deported.

Huawei is the world's largest supplier of telecommunications network equipment and second-biggest maker of smartphones, with revenue of about $92 billion last year. Unlike other big Chinese technology firms, it does much of its business overseas.

Huawei and its lawyers have said the company operates in strict compliance with applicable laws.

(Reporting by Julie Gordon in Vancouver; Additional reporting by Ben Blanchard and Michael Martina in Beijing, John Ruwitch in Shanghai and David Ljunggren in Ottawa; Editing by Muralikumar Anantharaman and Nick Zieminski)