Huawei: The Big Picture - YouTube

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September 9th, 1976.

The day, Mao Zedong died, three decades after founding the People’s Republic of China.

Few countries are so easily divided into two distinct eras.

With his death, the economic walls around the Red Dragon slowly fell, allowing the largest

population on earth access to the world economy.

In 1978, there were, essentially zero private companies.

All were state-owned, with only a tiny 140,000 people, or 0.01% of its population, employed

privately.

Just three years later, thanks to Mao’s successor, Deng Xiaoping, that number was

already 16 times higher.

China in the ‘80s and ‘90s was the golden opportunity to start a company.

Big, inefficient state-owned corporations had left huge gaps in the economy, people

were moving to the city, finally, with money to spend, and the government was eager to

encourage enterprise.

Which is to say, Ren Zhengfei couldn’t have picked a better time than 1987 to start his

company, called Huawei!

A few years later, it won a contract with the People’s Liberation Army, which, although

small in financial terms, was huge for winning favor with the Communist Party, who then protected

the company from competition.

With this help, Huawei became, today, the 2nd largest phone company in the world, just

ahead of Apple, and behind only Samsung.

Up until just a few months ago, it was expected to pass Samsung to become number one, lead

the world in the spread of 5G and gain even more market share than its current 29% of

all telecommunications equipment on earth.

Then, with one, swift signature, Huawei was banned.

Not only does this stop the company from selling equipment in the U.S., but all Huawei products,

everywhere are banned from working with American companies, who supply Huawei with components

like Intel chips, and software like the Google Play Store.

So, is Huawei, as the United States claims, a real threat to national security?

A trojan horse for the Chinese government?

Or is the ban merely political?

The problem with most answers to these questions is that they focus only on the technology,

the politics, or China.

But to really understand Huawei, you have to marry all three.

Who really owns a company?

It’s a pretty reasonable question and should have a pretty simple answer.

You don’t usually need to go around reading Articles of Incorporation, just some common

sense.

A few decent clues are whoever’s office is on the 100th floor, or, maybe, whoever’s

business card is most expensive.

But not always.

Because, of course, the structure of a company is not designed for our legibility, but, rather,

to make more money or limit somebody’s power.

So, you see lots of weird subsidiaries, holding companies without employees based in the Virgin

Islands, deliberately confusing names, and dual-class shares.

Things can get… weird.

Take John, for example, of Papa fame, who, facing public pressure, resigned as the company

chairman.

A few weeks later, John decided actually, he’d like to return to his pizza Papa position.

The board said, “Yeeeah…

Hard pass!” and changed the company’s bylaws to block their own largest shareholder

from taking over the company he founded.

He then sued his own company.

One time, a pharmaceutical company called Rockwell Medical split into two legal corporations,

each claiming to be the real, legitimate Rockwell Medical Incorporated with the same address

and same shareholders, leaving everyone wondering, who’s the real pope?

The point is, it’s actually not that simple of a question.

And, that’s before you add the whole Socialism twist.

If you do ask Huawei who owns the company, they’ll happily take you to a special room

in their Shenzhen headquarters, where a giant blue book, because little and red were taken,

sits behind glass.

Exactly the way you’d expect a multi-billion dollar tech company to keep its records.

In it, Huawei says, is a list of every person who owns shares in the company.

And, as they’ll enthusiastically assure you, none of these people are the Chinese

government.

Case… not closed, obviously.

Here’s what we know:

Huawei Technology LLC is 100% owned by a holding company called Huawei Investment & Holding,

which is itself owned by two parties:

Huawei’s CEO owns about 1%, and the rest, the Union of Huawei Investment & Holding.

It says this is only for legal reasons, and, I’ll remind you, convoluted ownership structures

aren’t at all unusual.

For all practical purposes, Huawei claims, the company is owned by its employees - the

names in the blue book - who own stock in the company.

But, again, it’s not so simple.

What Huawei calls stock is, actually, apologizes in advance to non-business majors, Synthetic

Equity, or, for maximum, put-it-in-the-parking-lot, synergize, circle-back jargon-points, Restricted

Phantom Shares.

OoOooOoo…

Phantom… spooky sounding!

It’s a lot like regular equity - shareholders, in this case, Huawei employees, receive a

share of the company’s profits - a dividend.

They stand to make money, so they’re incentivized to add value to the company.

Except it’s “synthetic” - as in not totally… real.

It can’t be sold or transferred, doesn’t give much say in the operations of the company,

and, if an employee, for any reason, leaves the company, he or she must also sell back

their shares.

As two American researchers summarize “…this virtual stock ownership has nothing to do

with financing or control.

It is purely a profit-sharing incentive scheme.”

When we ask the question “Who owns Huawei?”, what we’re really asking is who, if they

really wanted the company to do something, like, say, spy on foreign countries, has the

power to do so.

The answer, it seems, is the union, who owns the holding company, who owns the company.

So, who controls the union?

This time the answer is much easier: Under Chinese labor law, Unions are subject to their

superior branch - local Unions answer to provincial unions, all the way up through a winding python

of hierarchy, ending at the chairman of the All-China Federation of Trade Unions, who

also sits on the National People's Congress.

Unions in China are, therefore, largely an extension of the Communist Party.

Now, you’d be right to point out that this alone shouldn’t be enough to ban an entire

company from doing business with an entire country.

After all, this logic applies to many Chinese companies, not just Huawei.

It would be ridiculous to ban all of them.

To that, defenders of the ban would say, But Huawei is no ordinary company; it has a long

history of alleged misbehavior.

It’s CFO was, quite prominently, arrested in Canada on the grounds of violating US sanctions

on Iran.

Cisco accused the company of copying their manuals after finding the same typos in Huawei’s,

which its CEO said was just a coincidence.

The CIA also claims it has evidence that Huawei has taken money from Chinese intelligence

services.

And finally, in 2012, China gave the African Union a new $200 million headquarters in Ethiopia.

Then, last year, a French newspaper quoted anonymous technicians in the building who

claimed they caught Huawei equipment copying and sending data to servers in Shanghai - which

China and the African Union officially deny.

On one hand, there’s a lot of smoke here, on the other, there’s also a lot of people

who have a strong interest in you believing there’s a fire.

All of these incidents are alleged, and, neither the UK nor the US has ever presented clear

evidence of a backdoor in Huawei equipment, despite having many years to investigate.

Before the ban, before its phones were cut-off from Google services, before it lost its relationship

with ARM, before it was, indirectly, forced to sell off its undersea cable business, Huawei

was unstoppable.

Experts tend to agree that it’s years ahead of anyone else on 5G technology and that its

equipment is, in general, significantly cheaper.

That’s why, despite pressure from its allies, Britain has continued buying Huawei equipment

- doing so saves, at least, millions of dollars.

It mirrors the predicament many countries around the world face with Chinese investment:

Even knowing the risk of dependence on China, can they resist the economic benefits?

It’s no secret that, while this is going on, the U.S. is in a trade war with China,

and banning Huawei gives it both negotiating leverage and protects American telecommunications

companies from foreign competition, exactly at its strongest.

So, make no mistake: The ban is political.

It’s been strongly hinted as being on the table for trade negotiations.

And it’s quite possible the ban will soon be reversed if a deal is made.

But, it’s just as important to note that just because something is strategically motivated,

doesn’t mean there aren’t, other, perfectly legitimate arguments.

Much of the confusion around this issue is centered around the fact that politicians

can agree on the same policy for vastly different reasons.

The truth is you don’t need to make a judgment call on whether you trust Huawei or its CEO.

You only need to recognize the most basic feature of the Chinese system: everything

is the concern of the state.

From what is shown on TV, to who is allowed to travel, even how long you can play Fornite,

and certainly the movements of its largest corporations, the Communist Party is everywhere,

if not now, and quite possibly, not, in the case of Huawei, eventually.

Having an enemy is, unfortunately, useful for American politicians, especially one as

misunderstood as China,

but so too is it crucial for a country to keep its communications infrastructure, through

which national secrets are shared and information wars, increasingly fought, free from foreign

influence.

This is much bigger than any one company, bigger than who controls 5G, bigger even than

the trade-war.

It’s really about the Chinese system being used against it.

The story of Huawei is very much the story of China - both only realized their full potential

upon opening up to the world’s markets, where Huawei now makes the much of its revenue,

and how China was turned into one of the most powerful nations on earth.

Huawei is what it is today to a significant degree because of its close relationship with

and subsequent protection by the Chinese government.

Now, it’s a victim of that same closeness - the other side of that very profitable coin,

which, ironically, has long blocked many western tech companies - Google, Facebook, Twitter,

YouTube… - from operating in China on, you guessed it… national security grounds.

China would like the benefits of free, open trade abroad, while closely protecting and

controlling business domestically.

But now it’s forced to chose.

In a trade war like this one, each side is trying to use game theory to interpret and

outmaneuver their opponent, who may or may not be lying.

For example, say there are two types of people - knights, who always tell the truth, and

knaves, who always lie.

You say “If I asked if you were a knight, what would you say”? and they respond “No”,

which are they - knight or knave?

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