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What does it take for a large private company to betray its founding purpose, customers, and employees? These are the questions posed by Huawei, the world’s largest telecommunications equipment maker. U.S. intelligence officials see it as a stooge for the Chinese military, a national security threat that could be sanctioned and kicked out of international phone networks. The company sees itself as an entrepreneurial, research-driven technology company, founded on an admiration for global business standards, employee-owned, and committed to serving the needs of its customers. I’m dedicated.
Determining which of these completely incompatible versions is the real Huawei, and therefore whether its equipment can be used to spy on or threaten national communications networks, is , is impossible for an amateur. Communication equipment is important but still invisible. While no conclusive evidence has ever been uncovered that past generations of Huawei equipment contained spying backdoors, it is impossible to prove that they do not exist or will never exist. Yes, this is part of the company’s problem.
But what we can say with some confidence is that Huawei’s version looks authentic to the company’s more than 200,000 employees. If it is a disguise, the disguise is elaborate and deep-rooted. This highlights two costs of current efforts to “decouple” supply chains from China. First, by forcing innovative companies like Huawei to replicate technology lost due to sanctions, $23 billion in annual research budgets will be redirected to developments that benefit the entire world. Second, by cutting ties with China’s entrepreneurial private sector, the United States could force such companies into the hands of the communist Chinese state, a partner it has worked hard to avoid. It is said that
Although Huawei’s founder, Ren Zhengfei, famously served in the People’s Liberation Army, the company’s history and structure are quite different from domestic champions such as CRRC, the state-run high-speed rail builder. According to the company, Huawei started making cheap and cheerful telephone exchanges for rural China exchanges in the 1980s. Almost no one had a telephone at the time, and the main challenges were unreliable power supplies and rats eating the cables. Huawei failed in China’s mobile phone market in the 1990s, losing out to Western suppliers such as Nokia and on the brink of bankruptcy several times.
I don’t think any of these companies are supported by the government. Nor is Huawei finally on track. The company, which had no prospects in China, sold 3G phone networks around the world in the 2000s and was successful because the product was high value and solved a problem for phone carriers. In 2003, after the dot-com bust, Huawei was almost sold to Motorola for $7.5 billion, but the US side ultimately backed out.
Recently, the company has actually become important to various levels of the party-state. When Chief Financial Officer Meng Wanzhou was arrested in Canada, the Chinese government was willing to undermine her diplomatic relations to get her back. In response to her sanctions, the state has helped Huawei boost its semiconductor sector with billions of dollars in subsidies. The question is whether Huawei owed anything in return.
Huawei’s unusual employee ownership structure has been the subject of controversy because employees indirectly own shadow units issued by the companies that actually control the stock. However, legality is not so relevant. The key is that employees believe they own the stock and that both parties act as if they own the stock. Every few years, Huawei employees go through a complicated process to elect their representatives, who then elect the company’s board of directors. This system is considerably more democratic than the system recognized in Chinese politics. Mr. Ren, the founder, has some veto power and undoubtedly exercises effective control, but limited influence over management is common in employee-owned companies around the world.
If Huawei really claims to be a private company, consider what it means to spy on and interfere with its customers. Huawei tells its employees that they are the owners. The competitive market dictates that we focus on the needs of our customers, thereby achieving notable success. It tells everyone that cybersecurity is a top priority and that accusations by foreign intelligence agencies are false.
States could force Huawei to engage in espionage, or patriots within the company might feel obligated to do so. However, doing so comes with considerable risks. If it were to come to light, it would betray every promise made to customers and every value the company claims to believe in.
Does that mean it’s safe to buy Huawei? not much. Just as banks cannot have higher credit ratings than the governments that implicitly support them in times of crisis, businesses cannot have more trust than the governments they must respond to. And the Chinese Communist Party is definitely not trustworthy.
But rather than seeing Huawei as a villain, we should see it as a victim caught up in an uncontrollable political conflict. China and the West may be doomed to split into separate technological domains. Unfortunately, the losers will be private companies on both sides of the divide who are doing their best to make the world a better place. Follow national security advice regarding network security. But don’t demonize Huawei just because it’s made in China.
robin.harding@ft.com