Sharp losses in technology shares pulled down benchmark stock indexes in China and Hong Kong on Tuesday, after a senior executive of Chinese technology giant Huawei was arrested in relation to alleged violations of U.S. sanctions.
The arrest could drive a wedge between China and the United States just days after President Donald Trump and President Xi Jinping agreed to a temporary truce in their trade war to give the two sides more time for negotiations.
Meng Wanzhou, one of the vice chairs on Huawei's board and the daughter of company founder Ren Zhengfei, was arrested in Vancouver and is facing extradition to the United States, a Canadian Justice Department spokesman has said.
The arrest is related to violations of U.S. sanctions, a person familiar with the matter said, though officials have so far stayed mum on her allegations.
The news sent shares of technology companies and hardware suppliers tumbling. Huawei is one of the world's largest makers of handsets and telecommunications network equipment.
In Hong Kong, the Hang Seng's IT hardware index was down as much as 3 percent, and the sub index for tech firms more than 2 percent.
CSI300's sub index for IT stocks was down 2.5 percent. The wider CSI IT index was down over 2 percent, whereas the CSI's All Share Telecom index lost more than 3 percent.
The tech rout and renewed trade worries pulled the Shanghai Composite index down 1.4 percent to 2,612.64 points, while the blue-chip CSI300 index fell 1.8 percent.
Chinese H-shares listed in Hong Kong fell 3 percent, and the Hang Seng Index was down 2.8 percent at 26,081.18.
"The impact (in the market) is quite big because we just had the Trump-Xi meeting, and people were expecting a 90-day honeymoon," said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong, referring to Beijing and Washington's agreement last weekend to refrain from adding tariffs on each other in the next couple of months.
While another Chinese tech company, ZTE, fell foul of the U.S. sanction regime, "no arrest was made back then," Yip added, reflecting the seriousness of the Huawei saga.
Ben Kwong, director of research at KGI Asia in Hong Kong, noted Huawei was not the only reason for scepticism in the market.
"People are just as worried about further adjustments in the U.S. stock market, the inverted yield curve and a slowing economy there," he said.
(With inputs from agencies.)