July 26, 2019 / 5:45 AM / a month ago

UPDATE 3-Huawei's ties with partners FedEx, Flex fray on U.S.-China tensions

* FedEx suspected of withholding over 100 Huawei shipments -Xinhua

* Huawei said Flex had "seized" 700 mln yuan of its goods

* Flex says working to find solution, remains committed to China

* "Customer in China" reduced demand - Flex earnings call (Recasts top; adds Flex comment)

By Sijia Jiang and Josh Horwitz

HONG KONG/SHANGHAI, July 26 (Reuters) - American delivery firm FedEx Corp likely withheld more than 100 packages of Huawei, a report said, while the Chinese tech giant also blamed U.S.-listed Flex for seizing its goods, as Sino-U.S. tensions further strain business ties.

Chinese authorities investigating FedEx suspect it illegally held back the Huawei packages and that it also violated other laws, state news agency Xinhua reported on Friday.

Beijing started a probe into FedEx last month after Huawei said the U.S. delivery firm had diverted parcels intended for it. It came after Huawei was placed by Washington on a blacklist in mid-May that effectively blocks U.S. firms from doing business with the Shenzhen-based telecoms equipment maker.

"The investigation showed that FedEx was suspected of holding up more than 100 Huawei packages entering China," Xinhua said. "Investigators also discovered clues to other violations of the company."

FedEx had no immediate comment on the report. Huawei declined to comment.

The report comes a day after Huawei said electronics contract manufacturer Flex "seized" its goods in China.

The developments mark the latest fallout from Washington's trade ban on Huawei, which has not only rattled the global technology supply chain tied to Huawei's $105 billion business but also is causing much confusion among companies and organisations well beyond the U.S. borders regarding the limits of restrictions.

FedEx has apologised for multiple incidents of diversion of Huawei packages, which it attributed to "operational errors", but it later sued the U.S. government for what it said was an "impossible task" to "police the contents" of export shipments.

Huawei told Reuters on Thursday that Flex had withheld some 700 million yuan ($101.81 million) worth of its goods in its China factory, confirming a report by Chinese government-backed newspaper Global Times.

Flex kept the Huawei assets in its factory in the southern city of Zhuhai after the U.S. blacklisting and caused losses for Huawei, according to the report.

Huawei told Reuters that it has retrieved some 400 million yuan of goods last month after negotiations and is still trying to take back the rest.

Flex said in an emailed statement to Reuters, "Flex and Huawei have had a long-standing and successful partnership which has recently been impacted by unforeseen challenges resulting from the US/China trade situation. Both parties are actively working to find a mutually agreeable way forward given these facts."

A Flex spokesman declined to say whether it still held any Huawei assets or counts Huawei as a customer, but said China remains "a very important center of production and end-market" where it employs tens of thousands of people.

Flex said on Friday in its quarterly earnings statement that it would accelerate a move to reduce its exposure to certain products in China and India after "recent geopolitical developments and uncertainties", which primarily impacted "one customer in China". It did not name the customer.

"We have seen a reduction in demand for products assembled for that customer," it said. ($1 = 6.8757 Chinese yuan renminbi) (Reporting by Sijia Jiang in Hong Kong and Josh Horwitz; Editing by Brenda Goh and Muralikumar Anantharaman)

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