OTTAWA —
The Liberal government has directed a state-owned Chinese telecommunications firm to divest its stake in a Canadian subsidiary over national security concerns, prompting a court challenge of the order.

China Mobile International Canada is asking the Federal Court to set aside the recent decision, saying the government has no grounds to believe the company would compromise security or engage in espionage on behalf of Beijing.

CMI Canada says the Trudeau government was motivated, at least in part, by “the current political socioeconomic climate and the general biases against Chinese state-owned companies.”

The case unfolds amid high tensions between Ottawa and Beijing over China’s prolonged detention of Canadian citizens Michael Kovrig and Michael Spavor for alleged spying.

China’s actions against Spavor and Kovrig are widely seen in the West as retaliation for the late 2018 arrest by Canadian authorities of Meng Wanzhou, an executive with Chinese firm Huawei Technologies, so she can be extradited to the U.S. to face fraud charges.

CMI Canada’s application filed this week in Federal Court reveals details of an investment screening case that has quietly unfolded outside the public eye over the last year.

The company, established in 2015, provides mobile communication services, including prepaid call plans, but does not itself own or operate any telecommunications network facilities. Instead, it has partnered with Telus Communications Inc. for provision of wireless services through the Telus network.

CMI Canada says it inadvertently neglected to inform the federal government of its presence as a new Canadian business until October of last year. A series of requests for information from federal officials soon followed.

The Investment Canada Act and the National Security Review of Investments Regulations allow the federal government to scrutinize an investment in Canada by a foreign enterprise.

In January, the government informed CMI Canada of a review on security grounds, saying the investment could result in the Canadian business being leveraged by the Chinese state “for non-commercial purposes, such as the compromise of critical…