• Here’s what Huawei’s founder – Ren Zhengfei – has to say about the recent problems plaguing the company

    Date:17 January 2019 Author: Brendon Petersen Tags:, , ,

    Huawei’s founder – Ren Zhenfei – recently sat down with media to talk about the security allegations raised by the USA (and other countries) and the recent arrests of Huawei executives in Canada and Poland.

     

    • Yuan Yang, Financial Times: I’m with the Financial Times, and I have a question regarding your personal experience. It is reported that you participated in the National Congress of the Communist Party of China back in 1982. How come you attended that conference, and what is the relationship between Huawei and the Communist Party of China today?

    Mr. Ren: When we built the synthetic fiber factory, we ran short of a kind of instrument used to test the advanced equipment. One technician with the Shenyang Automation Research Institute told me that he saw similar instruments when he traveled abroad, and he described to me what they looked like.

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    Through mathematical inference, I was able to produce a design of the instrument in question. But I was not 100% sure if my mathematical inference was correct, so I went to consult a professor with the Northeastern University of China. His name was Li Shijiu. I wanted to confirm whether the inference made sense. The professor affirmed my inference. In the end, I invented that instrument.

    That’s also the time when the “Gang of Four” was smashed and the country was trying to find readily available examples to demonstrate that science and technology were valuable. My little invention was exaggerated into something really big and it was promoted in various media outlets, including newspapers, magazines, movies, etc. And because of such massive publicity, luckily I was chosen to be a member of the National Science Conference.

    If you are aware, that’s a time when you had to be a CPC member even to become the head of a cooking team in the military. I was selected to attend the National Science Conference, but I was not a CPC member. My supervisor felt that was really strange, so with the help of party organizations, I became a CPC member. The reason I was not a member was not because I didn’t do my job well enough. It was because of my family background.

    My father was labeled as a “capitalist roader”. For this, he was actually locked up in a cow barn at one point in time. You know, for an educated person back then, an intellectual, his or her background or history would be much more complicated than that of a cadre among farmers and workers. It was because of such close scrutiny of my father that he was in such a difficult situation for over 10 years before his name was cleared. And because of this family connection, there was no possibility for me at the time to become a CPC member.

    After I joined the party in 1978, China encouraged leaders to have “four qualities”: young, professional, educated, and revolutionary. I happened to meet the requirements, and was recommended to be a member of the 12th National Congress of the Communist Party of China. And in the end, I was selected. Unfortunately, I was too young to truly understand what the big reform was all about in that historical moment. That was really a pity. I was a complete technical geek back then. Today, I still love my country. I support the Communist Party of China. But I will never do anything to harm any other nation.

    • Joe McDonald, Associated Press: As I understand, over the last few weeks or months, it must have been very stressful for you. Thank you for taking the time to talk with us today. I want to ask a question about security. Security incidents occur a lot recently. The security concerns raised by governments such as the US and Australia are not about the capabilities of Huawei’s technologies. These governments appear to be concerned that every company in China, fundamentally Huawei, is under the authority of the Communist Party of China. If the Communist Party requires Huawei to do something, the company has to obey. I’m wondering, what assurances can you give foreign customers that Huawei is able to protect the safety of their networks or protect the confidentiality of information? Under the legal circumstances of China, what can Huawei say to customers about the limits of its abilities to give assurances about that?

    Mr. Ren: The first point I want to make is that over the past 30 years, our products have been used in more than 170 countries and regions, serving more than 3 billion users in total. We have maintained a solid track record in security. Huawei is an independent business organization. When it comes to cyber security and privacy protection, we are committed to siding with our customers. We will never harm any nation or any individual. Secondly, China’s Ministry of Foreign Affairs has officially clarified that no law in China requires any company to install backdoors. Neither Huawei, nor I personally, have ever received any requests from any government to provide improper information.

    • Joe McDonald, Associated Press: Pardon me. I’m not arguing with you. Any government, the United States or Australia, would say you are a company that sells networks. A customer has to trust a vendor with the most secret information about how a national telecommunications network operates. Suppose, for instance, the Ministry of State Security were to come to Huawei to ask Huawei to give information about a foreign country to the Ministry of State Security. Legally, there’s nothing Huawei can do to refuse. Huawei must obey. So what can and will Huawei do to reassure customers?

    Mr. Ren: Can I sell Huawei to you?

    Joe McDonald, Associated Press: Yes, I did just buy a Huawei product.

    Mr. Ren: If you cannot afford [to buy Huawei], I would probably have to shut the company down. Customer-centricity has been at the very core of Huawei’s business operations since our founding. We will never do anything to harm the interests of our customers. Apple is an example we look up to in terms of privacy protection. We will learn from Apple. We would rather shut Huawei down than do anything that would damage the interests of our customers in order to seek our own gains.

    • Dan Strumpf, Wall Street Journal: I was hoping to ask you about your daughter, Meng. It’s been just more than one month since she was detained in Canada. I was just wondering how you’re feeling knowing this was an [extradition] request? And tell me if you feel that your daughter has been targeted because she is your family member and because of her position in Huawei?

    Mr. Ren: As you must be aware, the case of Meng Wanzhou right now is in legal proceedings. So, we’d rather leave it to legal proceedings. I won’t provide much comment about it here.

    As Meng Wanzhou’s father, I miss her very much. And I’m deeply grateful to the fairness of the Honorable Justice, William Ehrcke. I’m also much grateful to Prosecutor John Gibb-Carsley and Prosecutor Kerri Swift. I also thank the Alouette Correctional Centre for Women for its humane management. Thanks to Meng Wanzhou’s cellmates, for treating her kindly.

    I also appreciate the consular protection that the Chinese government has provided in safeguarding the rights and interests of Meng Wanzhou as a Chinese citizen. I trust that the legal systems of Canada and the United States are open, just, and fair, and will reach a just conclusion. We will make our judgment after all the evidence is made public.

    • Arjun Kharpal, CNBC: Thank you for taking the time, Mr. Ren. I just want to follow up on the answer you gave to Joseph in which you mentioned Apple, in your response. You were referring to the case when Apple was asked to hand over evidence from an iPhone and they took it to court. Is that what you will do if there was a request from the Chinese government for data from the networks? Just a second one, let’s say, topic. What kind of correspondence do you have with the US authorities around some of the other engagements that may let you back in the market? What have the conversations been? And what is coming up for the very thing?

    Mr. Ren: We don’t have any channels for communicating with the US government, and, honestly, we don’t know much about each other. Regarding what would happen if the implied cyber-security case occurred, I believe I have made myself very clear: We will never harm the interests of our customers.

    • Eamon Barrett, Fortune: Thank you Mr. Ren for talking to us today. A couple of points have been raised already regarding issues which foreign nations may consider as causes of concern for Huawei, namely military background, affiliations with the communist party, etc. Another primary concern foreign nations have is that the government somehow has ownership for Huawei. Huawei claims to be an employee-owned company, but the exact way that the shares are spread out among its employees is still secret. If you were to make that information public or even make Huawei public, you would surely have resolved all the suspicious, so why do you keep the shareholding structure private.

    Mr. Ren: First, I think there are very few success stories where public companies become strong and big. 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.

    Ever since we were a relatively small company, with just several hundred employees, we have focused all of our efforts in one direction. Even as we grew larger, to several thousand, tens of thousands, or even today with over 100,000 employees, we have maintained the same focus as we move forward.

    Our annual R&D investment has reached 15 to 20 billion US dollars. Over the next five years, we are going to invest a total of more than 100 billion US dollars into R&D. Public companies, however, are unlikely to do this, because they focus on making their balance sheets look good. What matters more to Huawei is the future industry structure. Our decision-making system is different from public companies. It is very simple, and we are working hard to make the information society a reality.

    Here, I also have a piece of information to share with you. We have 96,768 shareholding employees. Just a few days ago on January 12, we completed the election of the new representatives of shareholding employees at 416 polling stations across over 170 countries and regions. The entire process of this election lasted about one year. We first communicated our Articles of Governance to all employees. Through those efforts, our employees became more familiar with how the corporate governance structure of this company works.

    Then, we nominated candidates at different tiers of our organization. All candidates then gave some presentations to win the support of the constituency. At that time, they were only nominated, not yet elected. Then the list of nominated individuals was put together, and submitted to a higher-level department for review. Feedback from more shareholding employees was collected. After that, we had a certain level of convergence, meaning the list of individuals was narrowed down. And then that shortlist was subject to reviews, discussions, and deliberations at higher levels of the company, which also took into account the opinions of people around those individuals. The shortlist then got shorter. This list was reported to the Election Committee, then it was sent back again, further polished and narrowed down to a list of roughly 200+ individuals. This list was published on our internal information sharing platform to collect employee feedback, and then the list of candidates was finalized.

    On January 12, we completed the voting – the election – of our shareholding employee representatives around the world. Over the past few days, our messengers around the world have been taking those votes back to Shenzhen. We are going to calculate the votes on our electronic platform, and audit the authenticity of those votes. Eventually, we will come up with 115 representatives for all shareholding employees. The Representatives’ Commission, consisting of these 115 employees, is the highest decision-making authority in Huawei, and the company is owned by our 96,768 shareholding employees.

    Our shareholding employees are currently working at Huawei or are retired former employees who have worked at Huawei for years. There is no single individual that owns even one cent of Huawei’s shares without working at Huawei. There is no external institution or government department that owns our shares, not even one cent’s worth. We have a shareholding registry that lists the shares held by our shareholding employees. Journalists who are interested are welcome to take a look at it.

    I myself am the founder of this company. At the time when I wanted to found Huawei, I did not have enough money. When I got demobilized from the military, my wife and I received a total of CNY3,000 as compensation from the military. At the time, a minimum of CNY20,000 was required as registered capital to start a company in Shenzhen. By pooling funds from different people, I managed to get CNY21,000 to register Huawei.

    Today, the total number of shares that I personally have within Huawei is 1.14%, and the stake that Steve Jobs had in Apple was 0.58%. That means there is still potential for my stake to be further diluted. I should learn from Steve Jobs.

    • Yuan Yang, Financial Times: Last year, it was reported that the African Union said there was infiltration from the Chinese side on their equipment based in Ethiopia. And we also learned that some of the equipment used by the African Union was provided by Huawei. Do you have any comment on that? You have said that Huawei will never harm the interest of any customer or individual. Suppose one, either Chinese or foreigner did something illegal here in China, and they left some trace on their Huawei smartphone, for example. Huawei, just like any other company, is supposed to provide support and cooperate with public security authorities because it is required by the law. Then in that case, would Huawei cooperate? Then, imagine that one Chinese or one foreigner committed a crime in countries outside of China, what would be Huawei’s actions in those cases?

    Mr. Ren: For Huawei employees, whether they are Chinese or non-Chinese, if they violate local laws, we’ll always cooperate with the investigations. We stand strongly against any behavior that violates laws and regulations. Within Huawei, we have a very sound internal and external compliance management system. The idea is to prevent those wrongdoings or bad things from happening. Those who commit violations will be disciplined by our compliance department. Huawei may grow even bigger in the future. In the cloud era, our society is becoming more and more complex. If we do not govern our behavior through discipline, we might get overwhelmed.

    For the breach of equipment used by the African Union, it had nothing to do with Huawei.

    • Eamon Barrett, Fortune: Following up on that and about how Huawei implements its disciplinary actions, just last week, a member of Huawei’s staff was arrested in Poland on suspicion of spying. Huawei has fired that employee already without waiting for the trial, without waiting for the evidence to move forward. Whereas in Canada, where Meng Wanzhou was arrested in December, Huawei appears to at least stand by her and is still, in a sense, putting trust in her innocence. So why was the decision made to fire the employee in Poland? Why has that action not been taken in Canada?

    Mr. Ren: Both cases are in the judicial process, and I’m not in a position to make further comments other than the information available from our official statements.

    • Gao Yuan, Bloomberg: My question is more related to Huawei’s business. In light of recent developments, especially where some European countries have also stopped using Huawei’s equipment based on the concerns on cyber security. What impacts will this have on Huawei’s business? What actions and plans does Huawei have in mind or what do you think Huawei should be doing to address this kind of situation and to sustain its business in those markets, like Europe, US, and other Five Eyes countries?

    Mr. Ren: First, it has always been the case that some customers accept Huawei and others don’t. This is nothing new at all. If only a handful of congressmen decide that Huawei should not be accepted, then that does not represent the entire government. We can reach out to talk with the right stakeholders. If those individual opinions become orders coming from a government, then we may have to stop our sales there.

    One of the major topics currently in question is 5G. If you look at 4G, I do not believe there was any controversy or debate about it. So, for products where there is no such debate, we will continue working to drive our sales. Some countries have decided not to buy equipment from Huawei. Therefore, we can shift our focus to better serve countries that welcome Huawei. We can build high-quality networks in those countries to prove that we are trustworthy. Therefore, it’s like a peaceful race from a technical point of view, and I think that’s fair.

    • Arjun Kharpal, CNBC: Mr. Ren, I just want to go back to a point you made earlier. You said that if there was a request by the government to access data, to create backdoors and networks, then you would deny it. You would not comply. Considering that you are a member of the Communist party, how could you deny what they are asking for? What means do you have to actually fight against any request from the Chinese government to do any of these things? What assurance would you be able to give to your customers that if there was a request for something along those lines you would actually be able to fight it?

    Mr. Ren: We are a company, and we are a business entity. The values of a business entity are such that it must be customer-centric and the customer always comes first. We are a business organization, so we must follow business rules. Within that context, I can’t see close connections between my personal political beliefs and the business actions we are going to take as a business entity. I think I already made myself very clear earlier. We will certainly say no to any such request. After writing this quote in your story, maybe 20 or 30 years down the road, if I am still alive, people will consider this quote and check my behavior against it, as well as the behavior of our company.

    • Arjun Kharpal, CNBC: This one just follows up the previous one asked. Like you mentioned, Apple went to court against the government. Is there a system here such that you can take the government to court to fight such requests?

    Mr. Ren: If I or Huawei deny those requests, I think it should be the government in question that files litigation against Huawei, not the other way around. Whether or not the government would file such litigation, I don’t know.

    • Gao Yuan, Bloomberg: Follow-up question on that: You talked about retirement. Do you have any plan right now to retire? And the two other questions are related to the United States. You mentioned earlier that you do not have access or channels to talk to the US government. Right now we have so many foreign media outlets and journalists here. What is the message that you want to communicate through us to the US government? Trump also mentioned or tweeted that he could intervene in Meng’s case if that would serve the trade negotiations with China. What would you say about that? And how do you feel about Donald Trump as a person?

    Mr. Ren: To your first question, the timing of my retirement will depend on when Google can invent a new medicine that will allow people to live forever. I’m waiting for that medicine.

    To your second question, the message to the US that I want to communicate is collaboration and shared success. In our high-tech world, it is increasingly impossible for any single company or even any single country to do the whole thing.

    In the industrialization era, maybe one nation alone would have all the capabilities needed to produce a complete textile machine, a complete train, or a complete ship. We are in a world of information. In an information society, interdependence between one another is very significant. And it is these interdependencies that drive human society to progress even faster. The information society we are going to see will be massive. And for any single market opportunity, it cannot be sustained or supported by any single company. Instead, it calls for the concerted efforts of thousands or even tens of thousands of companies working together.

    As for your third question, for President Trump’s comment that he might intervene in the case of Meng Wanzhou, we need to wait and see whether he acts upon this. Right now I can’t make a judgment about that.

    And then for President Trump as a person, I still believe he’s a great president, in the sense that he was bold to slash taxes. I think that’s conducive to the development of industries in the U.S.

    With the increasing adoption of AI in industry and also in the management of companies, traditional challenges like trade unions, social welfare issues, and possible strikes might be mitigated.

    Reducing taxes is conducive to encouraging investment. It is like digging a trench in the ground, which makes it easy for water to flow into that trench. However, it’s also important to treat all countries and all companies – which are potential investors – nicely, so that they will proactively invest. Benefits from increased investment can offset loss of revenue from tax cuts for the government.

    If countries or companies are frightened, let’s say, by the detention of certain individuals, then those potential investors might be scared away, and the favorable environment created by tax cuts will not perform to expectations.

    • Yuan Yang, Financial Times: Many people are saying that the suspicion around Huawei’s 5G in Europe and the United States is not all about technology. It is about politics as well. Some people even argue that Huawei perfectly embodies the cold war going on between China and the US. What do you have to say about that?

    Mr. Ren: First, I would say Huawei is not that important. We are like a small sesame seed, stuck in the middle of conflict between two great powers. What role can we play? The trade conflict between China and the US has not had a major impact on our business. We are expected to continue our growth in 2019, but that growth won’t be greater than 20%.

    Second, some people in the West believe that Huawei’s equipment is stamped with some sort of ideology. That’s as silly as people smashing textile machines back during the industrial revolution, as they thought advanced textile machines would disrupt the world. We only provide equipment to telecom operators, and that equipment doesn’t have an ideology. It is controlled by telecom operators, not by Huawei. So I definitely hope that people do not go back to the old days of the industrial revolution when textile machines were being smashed.

    • Eamon Barrett, Fortune: Thank you. You were talking earlier about the need for the telecom industry worldwide to be integrated and be interconnected. Let’s look at what happened to your state-owned rival ZTE last year when sanctions of America shut down the company’s production. Are you worried that something similar might happen to Huawei if the US were to impose sanctions? Will it stifle Huawei’s business? Secondly, I read that when Huawei was still young, and just a manufacturer of telephone switches, you had a meeting with Jiang Zemin when you told him that telephone switches were related to national security, and that a country without its own telephone switches is a country without its own military. I just want to ask, what do you mean by that? Maybe you still think domestically producing telecoms equipment is vital to China’s national security?

    Mr. Ren: We have been investing heavily in R&D for years, and we have extended great effort. We are a company that is different from ZTE. What has happened to ZTE, I believe, will not happen to Huawei. On top of that, we have made it clear in our corporate policy and fundamental business principles that we must abide by all applicable laws and regulations in the countries where we operate, including all applicable export controls and sanction laws and regulations of the United Nations, the United States, and the European Union. We are committed to building and improving our compliance system.

    If this type of situation did happen to Huawei, it would impact Huawei, but I think the impact would not be very significant. That is because I believe telecom operators around the world would continue to trust us.

    Let me give you some examples. One example is the tsunami that happened in Japan. There was nuclear leakage in Fukushima. People were evacuated from the affected areas, but Huawei employees went to the affected areas to restore telecommunications equipment. Huawei employees risked their lives and restored 680 base stations within two weeks. That was a really important lifeline, especially in those difficult times. Meng Wanzhou also flew from Hong Kong to Japan during that time. There were only two passengers on that flight. Huawei is a company that does not run away in the face of disasters. Instead, we march toward those disaster-stricken areas.

    The second example is a tsunami that happened in Indonesia. 47 Huawei employees restored 668 base stations in affected areas within 13 hours, supporting the disaster relief efforts.

    Another example is the 9.1-magnitude earthquake that happened in Chile. Three Huawei employees were out of touch at the epicenter of the earthquake. The local team sought my opinion when they were about to send a rescue team. I thought there could be subsequent earthquakes and I feared that there would be even greater losses if we were to send the rescue team. We decided to wait patiently. Finally, those three individuals managed to contact their supervisor. That supervisor told them where microwave equipment was broken. And then those three individuals returned to repair the microwave equipment. We then shot a short movie based on their experience. Afterwards, I went to Chile and talked with those employees. The richest man in Chile gave me a box of very good wine as a gift. I gave it to the three employees.

    The other example is Africa. In a lot of African countries, there is not only war, but also very serious disease. A lot of Huawei employees have contracted malaria. A great number of Huawei employees often go to war- or disease-affected areas to do their job. We have pictures to prove it. If you are interested, we can have our public relations staff send them to you.

    We’re able to do these things partly because we are not a public company, so we can work truly for our ideals, and for the greater good of society. Public companies tend to focus more on their financial numbers. So no matter how harsh the conditions are, we have committed ourselves to working for the bigger ideals of human society.

    I also visited a village near Mount Everest at an altitude of 5,200 meters, as well as the base stations nearby. I told everyone that, if I’m personally afraid of death, how could I motivate my people to charge forward?

    If Huawei were a public company, I think a lot of behavior that I shared with you just now would not have been possible. Over the past 30 years, Huawei has made very admirable contributions to the progress of people around the world, especially people living in poor and remote areas. Some of our people have even sacrificed their lives. Those people should never be forgotten. Likewise, we should not forget the contributions that Huawei has made to human society. More importantly, we shouldn’t allow suspicion to confuse the facts.

    For your second question, President Jiang Zemin once came to visit Huawei. That was a time when Huawei was very, very small, and the floor, made of cement, was still wet, not even dry yet. President Jiang did not give any specific instructions. I have never heard of what you mentioned just now. But he did encourage us to work harder.

     

    • Yuan Yang, Financial Times: Several questions related to the PLA. What is the relationship between Madam Sun Yafang and Chinese Ministry of State Security, and how does that relate to Huawei? Second, what is your business collaboration with the PLA, or PLA-related institutions? If yes, what type of products do you provide to them? Third, is there any R&D collaboration or partnerships between Huawei and PLA-affiliated institutions?

    Mr. Ren: For the first question, the biography of Madam Sun Yafang is available on Huawei’s website. Second, we are probably selling a small amount of civilian products to the PLA, but I don’t know the exact number, because it is not our major customer. Third, we don’t have any R&D collaboration or partnerships with the PLA-affiliated institutions.

    • Josh Chin, Wall Street Journal: Just ask a general question. You were talking about President Donald Trump and the investment environment in the US. What are your views on the issues of trade war which is the access of American companies to the Chinese market? Currently foreign investment in the sector where Huawei is involved, which is cloud, is quite restricted. Do you think China should open up the access for foreign companies, and what impacts will this have on Chinese technology companies?

    Mr. Ren: I’m a person that always advocates open policies; however, I’m not the one who is making decisions.

    I can share several stories with you. In 2003, there was litigation between Huawei and Cisco that drew wide attention at the time. Back then, Huawei was still a fairly small company. That was, I would say, an overwhelming case that we had to deal with, and I personally felt enormous pressure, which was mainly attributable to a lack of experience. However, even back then, I didn’t try to win the case by inciting nationalistic sentiments against Cisco. Several years later at an airport meeting that I had with John Chambers, he told me that he was aware of Huawei’s attitude towards Cisco at the time. This is because we believe that China, as a nation, would only have hope once it opens up and implements reform. The country should not close its door simply because of one company, Huawei.

    When unexpected huge incidents happened, like US companies that suddenly decided to stop buying Huawei phones, some people in China said we should do the same to Apple’s iPhones in China. My opinion was that the Chinese government should not take similar measures against Apple in China. The national interests or policies around economic reform and opening up cannot be sacrificed for the benefit of Huawei. Even in light of the recent setbacks we encountered in some Western countries, we still support China, as a country, to become even more open. I think China can become more prosperous only when it becomes more open, and continues to press ahead with its reform agenda.

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