China’s relations with Canada, already in their worst state in decades, took another blow with a Vancouver judge’s decision to continue extradition proceedings against a top Huawei Technologies Co. executive.

A British Columbia judge ruled Wednesday that the case against Meng Wanzhou, chief financial officer of the state-championed telecommunications firm, meets a key test of Canadian law known as double criminality.

China’s reaction could be severe. In the weeks that followed Meng’s arrest in 2018, officials there locked up two Canadians on national security grounds, put two more on death row and halted billions of dollars in agricultural imports.

Canadian Prime Minister Justin Trudeau, who came to power with plans to forge closer ties with the Asian powerhouse, must now walk an even finer line on issues such as the status of Hong Kong and Huawei’s access to Canada’s next-generation wireless networks.

“What we’re seeing is the complete destruction of the grand bargain struck with China that encouraged us to consider China as normal,” said David Mulroney, who served as Canada’s ambassador in Beijing from 2009 to 2012.

Detainees and 5G

Top of mind for Trudeau is the fate of former diplomat Michael Kovrig and entrepreneur Michael Spavor, who have spent more than 500 days in detention in China and are accused of spying.

Foreign Minister Francois-Philippe Champagne said securing their release is his top priority, adding that Wednesday’s ruling was made by an independent judiciary. “We will continue to pursue principled engagement with China to address our bilateral differences,” he said in a statement.

But China does not differentiate between the political and legal system in Canada and has said it doesn’t see the judge’s decisions as independent. A statement Wednesday issued by the Chinese embassy in Ottawa called the case “entirely a grave political incident.”

“Now China will have to make a decision to launch the trial of Mr. Kovrig and Mr. Spavor,” said Guy Saint-Jacques, who succeeded Mulroney as Canada’s ambassador in Beijing. “The problem is that there is no quid pro quo that has been negotiated by the Canadian government with the Chinese government whereby the two Canadians would be put on a plane and returned.”

While diplomatic relations grow colder, Trudeau has been stalling Canada’s decision on whether to ban Huawei from its 5G wireless networks. British Prime Minister Boris Johnson’s attempt to find a middle path between security concerns and the costs associated with a ban offered a potential template for Trudeau. But fresh U.S. sanctions against the tech firm have threatened to scuttle it.

Trade Trouble

Relations between the countries had been souring even before Meng’s arrest. Muslim detention camps in Xinjiang are one sore point; so is China’s curbing of Hong Kong’s autonomy. Hong Kong is home to 300,000 Canadian citizens, the country’s largest diaspora outside the U.S.

After coming to power in 2015, Trudeau toyed with the idea of a free trade agreement with China -- pledging to double two-way trade in a decade. A personal visit in late 2017 aimed at spurring trade talks fell flat over demands for labor, gender and environmental guarantees. In 2018 Trudeau’s government shot down a $1.2 billion bid by a Chinese construction firm for Aecon Group Inc., citing advice from national security agencies.

The Meng situation is doing plenty of harm to Canada’s second-largest trading relationship. Total merchandise shipments from Canada to China dropped from $29 billion in 2018 to about C$25 billion last year as China blocked shipments of canola and pork.

It’s a price the Canadian public seems willing to pay. Polling by the Angus Reid Institute found that support for closer relations with China has plummeted to just 14 per cent. Fifteen years ago, 58 per cent were in favour. “The trend we’re seeing since the Meng arrest is really an absolute cratering of Canadian opinion towards the Beijing regime,” said Shachi Kurl, the institute’s CEO.

There is little prospect of a better relationship while the Meng case hangs over everything. The hearings are set to continue at least to the end of the year before a decision is made on whether to extradite her. Appeals could extend the process that much longer.

Defendants with the financial resources have been known to battle in Canada’s legal system for years. Karlheinz Schreiber, a wealthy German-Canadian arms lobbyist, fought extradition for 10 years before finally being sent to Germany, where he was later convicted of tax evasion.

If the judge ultimately decides there is evidence supporting the allegations of fraud, Meng would be committed for extradition -- at which point the decision on whether to go ahead would be passed to Trudeau’s justice minister.

The fate of the two Canadians in detention in China will have to be “front and center” in that decision, said Scott Hutchison, founding partner at Henein Hutchison LLP, a Toronto law firm. But so will Canada’s international obligations.

“Canada benefits significantly from its extradition treaty with the U.S. and it’s part of a matrix of other international relationships that Canada has,” Hutchison said.