James Riley
January 23, 2019

Huawei and the long game

Cyber

Huawei and the long game

Ren Zhengfei: Insights into corporate structures in China and playing a long game

We are living in extraordinary times. The fact that Huawei Technologies’ founder Ren Zhengfei is suddenly hosting two-hour press conferences with international media clearly signals this.

This was not a sit-down with China Central Television (CCTV) and the China Daily. Rather it was the Financial Times, the Associated Press, Bloomberg, Fortune, CNBC and the Wall Street Journal, among others.

With his daughter Meng Wanzhou effectively detained in Canada awaiting extradition to the United States on fraud charges, and against a backdrop of an escalating US trade war and increasingly loud security concerns about Huawei from the Anglosphere, it was always going to be an extraordinary exchange.

There is a lot going on in this long transcript and it is well worth reading, especially for anyone interested in cyber issues, or in the nuance of business culture differences in the global trade context.

And of course this transcript is fascinating to those who have followed the weird passage of Australia’s Assistance and Access Bill – the so-called #AAbill encryption legislation.

The headline stories that resulted from this roundtable were on the cyber issues. Huawei was a private company that put the interests of its customers first, Mr Ren told the reporters emphatically, and would never do anything to harm another nation.

And besides, Huawei nor Mr Ren himself, had ever received any request from any government to provide improper information, he said.

Mr Ren assured reporters that the Chinese Ministry of Foreign Affairs had officially clarified that there is no law in China that requires any company to install backdoors.

This of course led to predictable shouts of “pants on fire” from people in the cyber, intelligence, or telecommunications sectors.

In this world, everything related to China is bad, and everything related to the Anglosphere – let’s call it the Five Eyes – is good. That is the entire conversation, its binary. It’s no wonder Australians are getting cynical. People can smell hypocrisy.

Which of course brings us back to Australia’s encryption legislation. What if it was an Australian CEO of an Australian telecommunications company or a cyber company or any software company and they were asked whether they had been asked by government to “install backdoors” or provide “improper information”? Under the proposed AA legislation, what would this person possibly say?

And how would the person even know the answer? Because in Australia under this legislation any member of a team can be tapped on the shoulder by a designated government agency and be asked for specific assistance.

The person is liable to severe punishment, including long-term imprisonment, if they do not comply or even if they reveal to ANYONE what they have done.

You don’t need to travel to China to find draconian, retrograde laws.

But enough on that. There is a lot going on in this interview that makes it worth a read besides the obviously contentious cyber/trade/political issues.

There are fascinating insights from Mr Ren’s early career, including the circumstances under which he became a member of the Communist Party (and how his family background originally stood in the way: “My father was a ‘capitalist roader’,” he says.)

There are large passages on the ownership of the company, the structure of its management, and its mechanisms for ‘renewal’ across its ranks, including succession planning for the CEO role. There is a vague commitment to allowing a more public access to the company’s opaque shareholder register (a sore point in the west).

Mr Ren provides a treatise of sorts on why Huawei has resisted so vehemently and for so long to make the company public (ie traded on a public exchange): “Capital tends to be greedy. Whenever there is an immediate interest, capital tends to take it away, and that would certainly compromise the long-term pursuit of ideals. We are a private company, so we are able to remain committed to our long term ideals.”

“Our annual R&D investment has reached US$15 billion to US$20 billion (A$21billion to A$28 billion). Over the next five years we are going to invest a total of more than US$100 billion (A$140.5 billion) into R&D. Public companies, however, are unlikely to do this because they focus on making their balance sheets look good.”

The R&D investment numbers are extraordinary, but there are others that jump off the page. The R&D investment puts Huawei in the top five research and development companies in the world, as measured by investment.

But it is also now prolific in securing patents to protect its IP, and in energetic participation in global standards bodies.

“In total, we have been granted 87,805 patents. In the United States, we have registered 11,152 core technology patents. We are actively involved in 360+ standards bodies where we have made more than 54,000 proposals,” Mr Ren said.

“So we are the strongest in terms of telecommunications capabilities. I believe people will make their own comparison in the end between countries that choose Huawei and countries that don't work with Huawei. Of course, there is no way we can control their choice,” he said.

“In terms of 5G, we have signed 30-plus commercial contracts today, and we have already shipped 25,000 5G base stations. We have 2,570 5G patents. I believe that, as long as we develop very compelling products, there will be customers who will buy them.

“If your products are not good, no matter how strong you go for publicity, nobody will buy them. So what matters to Huawei more is working to streamline our internal management, improve our products, and improve our services. I think that's what we should work on to address the challenges of this changing world.”

“There are only several companies in the world working on 5G infrastructure equipment, and not many companies are engaged in microwave technology. Huawei is the only company in the world that can integrate 5G base stations with the most advanced microwave technology. With that capability, our 5G base stations don't even need fibre connections. Instead, they can use superfast microwave to support ultra-wide bandwidth backhauls. This is a compelling solution that makes a lot of economic sense. It works best for sparsely populated rural areas.”

It is a long transcript describing a long game.

In the context of a system of the world that is under pressure, and the bloc fractures that are appearing in the internet, there is plenty of food for thought here.

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