By David P. Ball

VANCOUVER, May 27 (AFP) — Chinese Huawei executive Meng Wanzhou suffered a legal setback Wednesday when a Canadian judge ruled that proceedings to extradite her to the United States will go ahead.

The decision on so-called double criminality, a key test for extradition, found that bank fraud accusations against Meng would stand up in Canada. 

The interim ruling denying Meng's attempt to gain her freedom means she will continue to live in a Vancouver mansion under strict bail conditions while her case plays out.

It also effectively dashes hopes for a quick mending of Canada-China relations, which soured following her arrest on a US warrant in 2018 during a stopover in Vancouver.

"The double criminality requirement for extradition is capable of being met in this case," British Columbia Supreme Court Justice Heather Holmes said in her 23-page ruling.

"Ms. Meng's application is therefore dismissed," she added. 

Prosecutors accused Meng of committing fraud by lying to a bank, in this case an American one. That is a crime in both Canada and the United States.

Outside the courthouse, protestors held placards reading "Extradite Meng Wanzhou," "No Huawei in Canada" and "Canada don't let China bully us."

Inside, Meng sat solemnly as the judge explained her decision, in contrast to a thumbs up the "Huawei Princess" had given while posing for pictures with family and friends on the steps of the courthouse days earlier.

Beijing has signaled that her repatriation was a precondition for improved bilateral ties and its release of two Canadians detained on espionage suspicions.

The arrests of former Canadian diplomat Michael Kovrig and businessman Michael Spavor nine days after Meng was taken into custody have been widely decried as retribution.

While the eldest daughter of Huawei founder Ren Zhengfei has been out on bail, the two Canadians remain in China's opaque penal system.

China has also blocked billions of dollars' worth of Canadian agricultural exports.

Zhao Lijian, a spokesman for China's foreign ministry, on Tuesday called Meng's detention "a serious political incident."

He also renewed demands "for the Canadian side to correct its mistakes and release Ms. Meng immediately and ensure that she returns to China safely, to avoid causing more damage to Canada and China relations."

Prime Minister Justin Trudeau has insisted on leaving it to the courts to decide Meng's fate.

He lamented last week that communist-led China "doesn't seem to understand" the meaning of an independent judiciary.

During four days of hearings in January the court heard that Meng lied to the HSBC bank about Huawei's relationship with its own Iran-based affiliate Skycom in order to secure nearly US$1 billion in loans and credit, putting the bank at risk of violating US sanctions.

Lawyers for Canada's attorney general on behalf of the US Justice Department pointed to a 2013 presentation in Hong Kong in which she told HSBC executives that Huawei no longer owned Skycom and that she had resigned from its board.

The Crown called this a deception, asserting that Huawei controlled the operations of Skycom in Iran and held its purse strings.

"Fraud is at the heart of this case," Crown counsel Robert Frater told the court.

"Lying to a bank to obtain financial services is fraud," he said. 

Defense lawyer Eric Gottardi accused the US of abusing its treaty with Canada by asking it to arrest Meng as part of a campaign against China's largest international company.

The court, however, dismissed defense arguments that the case hinged on the US sanctions against Iran that Canada had repudiated. 

"The essence of the alleged wrongful conduct in this case is the making of intentionally false statements in the banker client relationship that put HSBC at risk," Holmes wrote.

"The US sanctions are part of the state of affairs necessary to explain how HSBC was at risk, but they are not themselves an intrinsic part of the conduct."

Holmes noted that her ruling in no way makes a determination on whether there is sufficient evidence to justify extradition.

That question will be decided at a later stage in the proceedings. 

The case is now expected to continue to a second phase in June when the defense will challenge the lawfulness of her arrest, followed by more hearings in September.

Any appeals could further drag it out for years.