Why is Huawei’s ownership so strange? A case study of the Chinese corporate and socio-political ecosystem

ABSTRACT

One of China's best-known and most successful corporations is Huawei Technologies. Many view Huawei with suspicion, alleging that its opaque structure conceals ties with the Chinese government and Communist Party. However, Huawei claims to be a private corporation controlled by its employees and operating in a purely commercial way. This paper demonstrates how Huawei's strange ownership structure evolved via a series of adaptive survival mechanisms within a state-dominated political and corporate ecosystem. These included profit sharing joint ventures with state-owned enterprises and officials, co-opting a Communist Party branch within the firm, and doing an end run around the PRC Company Law with 'virtual' employee shares. Placing Huawei within this Chinese ecosystem challenges simplistic accounts of top-down government or Party control over the firm. Yet the compromises that ensured Huawei's growth and protection from predation have become maladaptive within the global political ecosystem, where China is increasingly viewed as a threat.

KEYWORDS:

• Huawei
• employee shares
• corporate ownership
• China

Acknowledgments

The author would like to thank Professor Donald C. Clarke for very helpful comments on a previous draft of this article, and the anonymous reviewers for their constructive feedback.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on contributor

Colin Hawes (柯霖) is Associate Professor in the Law Faculty at University of Technology Sydney (UTS) and a Research Associate at the UTS Australia-China Relations Institute. Before joining UTS, he obtained his PhD at the University of British Columbia and practised law in Vancouver, Canada. He has published numerous articles on Chinese law and society, and his second book, The Chinese Transformation of Corporate Culture traces the emergence of a uniquely Chinese hybrid corporate form that combines economic, social and political ends. His recent research focuses on the Chinese corporate ecosystem, the creative interpretation of corporate law by Chinese judges, and the impact of technology on the operation of the Chinese legal system. Colin has been invited by leading international universities to teach law courses or to conduct research as a visiting professor, including Oxford University (UK), China University of Politics & Law (Beijing), South-Western University of Politics & Law (Chongqing), University of British Columbia and Simon Fraser University (Canada), and National Taiwan University in Taipei. He also regularly acts as an expert witness or legal consultant for China-related legal cases.

Notes

1 M Rogers and D Ruppersberger, ‘Investigative Report on the U.S. National Security Issues Posed by Chinese Telecommunications Companies Huawei and ZTE’ US House of Representatives Permanent Select Committee on Intelligence (8 October 2012) vi–vii <https://intelligence.house.gov/news/documentsingle.aspx?DocumentID=96> (hereafter, ‘PSC Report’) 15, 21.

2 PSC Report 22.

3 The Permanent Select Committee that investigated Huawei in 2012 consisted of twenty congressmen, both Democrats and Republicans, and their report was unanimously approved.

4 For Australia, see Stephen McDonell, ‘China Criticizes Government’s Decision to Uphold NBN Ban on Telco Huawei’ ABC Lateline (30 October 2013) <http://www.abc.net.au/news/2013-10-29/china-angered-by-decision-uphold-nbn-ban-on-huawei/5056588>; for India, see Mehal Srivastava and Mark Lee, ‘India Said to Block Orders for ZTE, Huawei Technologies Telecom Equipment’ Bloomberg (30 April 2010) <http://www.bloomberg.com/news/2010-04-30/india-said-to-block-china-s-huawei-zte-from-selling-phone-network-gear.html>; and for Canada, see Steven Chase, ‘Ottawa Set to Ban Chinese Firm from Telecommunications Bid’ The Globe and Mail (10 October 2012) <http://www.theglobeandmail.com/news/politics/ottawa-set-to-ban-chinese-firm-from-telecommunications-bid/article4600199/>.

5 Jodi Xu Klein, ‘US Telecoms Regulator Designates China’s Huawei, ZTE as National Security Threats’ South China Morning Post (1 July 2020) <https://www.scmp.com/news/china/article/3091285/us-telecoms-regulator-designates-chinas-huawei-zte-security-threats>; Bien Perez, ‘Inside China Tech: Are the Chips Down for Huawei?’ South China Morning Post (27 June 2020) <https://www.scmp.com/tech/big-tech/article/3090768/inside-china-tech-are-chips-down-huawei>.

6 My emphasis. Norman Pearlstine et al., ‘The Man Behind Huawei’ Los Angeles Times (10 April 2019) <https://perma.cc/EQL3-W2RB>. Even the 2012 U.S. Congressional investigation of Huawei and its Chinese competitor ZTE Corporation did not conclude that any breaches of national security had actually occurred, but only that the potential was there: ‘It appears that under Chinese law, ZTE and Huawei would be obligated to co-operate with any request by the Chinese government to use their systems or access them for malicious purposes under the guise of state security’ (PSC Report 3).

7 PSC Report 13–14, 22–4.

8 Christopher Balding and Donald C Clarke, ‘Who Owns Huawei?’ (April 2019) <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3372669> 8, 10–12. Clarke has more recently conceded that the suggestion of Huawei being ‘state-owned’ was a hypothetical one based on the assumption that the Huawei trade union was exercising independent control rights in the company, which as argued below, is not the case: personal communication with the author, February 2020.

9 The PSC Report 13. For corporate misbehaviour and use of complex ownership structures elsewhere, including the United States, see Joseph E Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy (WW Norton: New York, 2010); Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Penguin Books 2004); Lawrence E Mitchell, Corporate Irresponsibility: America’s Newest Export (Yale University Press 2001).

10 PSC Report, supra (n 1).

11 The most detailed account is in Cheng Dongsheng and Liu Lili, Huawei zhenxiang [The Truth about Huawei] (Dangdai zhongguo chubanshe 2003), section entitled ‘Capital Chain’ (zijin lian). Cheng and Liu published a more detailed and updated edition of this book in 2016, Huawei sanshi nian [Huawei at Thirty] (Guizhou renmin chubanshe 2016), which I have also cited when it provides further useful information not included in the first edition. Other sources are cited below.

12 PSC Report 24–5; cf. Pearlstine et al. (n 6), who list the names and affiliations of the other five investors, as provided to them by Huawei.

13 Ross Garnaut, Ligang Song, Yang Yao and Xiaolu Wang, Private Enterprise in China (ANU Press 2012) 11–14; PRC State Council, ⟪中华人民共和国私营企业暂行条例⟫effective 1 July 1988.

14 Guanjing Zhang, Huawei si zhang lian (The Four Faces of Huawei) (Jingji chubanshe 2007) 135. Cheng and Liu, Huawei sanshi nian (n 11) 489 date Huawei’s registration as a red cap collective to 1991, noting that prior to this the business was registered in 1987 as a ‘privately-owned technology enterprise’ (minjian keji qiye).

15 Hongliang Zheng and Yang Yang, ‘Chinese Private Sector Development in the Past 30 Years: Retrospect and Prospect’ University of Nottingham, China Policy Institute Paper No.45 (March 2009) 10–11 <http://workspace.unpan.org/sites/internet/Documents/UNPAN92739.pdf>.

16 Ibid. See also Bruce J Dickson, Wealth into Power 37.

17 Ligang Song, ‘Emerging Private Enterprise in China: Transitional Paths and Implications’ in Ross Garnaut and Ligang Song (eds), China’s Third Economic Transformation: The Rise of the Private Economy (Routledge 2004) 29–47 at 33–4.

18 Jiang Ping and Bian Yimin, ‘中国职工持股研究’ (Research on Chinese Employee Share Ownership) (1999) 3–4 Bijiao fa yanjiu 399–410 at 399.

19 See the prologue to 国务院办公厅转发体改委等部门关于立限制止发行内部职工股不规范做法意见的紧急通知, 1993年4月3日国办发[1993]22号. [hereafter ‘Temporary Prohibition’]. For more detailed critique of these early unregulated employee shareholder systems, see Jiang and Bian (n 18) 400–2.

20 Temporary Prohibition, arts.1–2.

21 In Chinese, neibu zhigong gu.

22 See National Center for Employee Ownership (NCEO), ‘Phantom Stock and Stock Appreciation Rights (SARs)’ 9 May 2018 <https://www.nceo.org/articles/phantom-stock-appreciation-rights-sars>; NCEO, ‘A Detailed Overview of Employee Ownership Plan Alternatives’ 10 April 2018 <https://www.nceo.org/articles/comprehensive-overview-employee-ownership>.

23 See Shenzhen Municipal Government, ‘深圳市国有企业内部员工持股试点暂行规定’ issued 30 September 1997 [hereafter, ‘1997 Shenzhen Rules’], art. 30.

24 1997 Shenzhen Rules, arts. 2, 31–2, 33–5. The trade union is given some book-keeping duties (Rules, art.12), but has no voting power.

25 1997 Shenzhen Rules, arts.33–5.

26 Jiang and Bian (n 18) 405.

27 Jiang and Bian (n 18) 405–6. Jiang and Bian pointed out that the system was like a kind of investment trust, with shareholder committees as trustees, but at the time China had no trust law to ensure trustees acted in the interests of the beneficiary employees. Balding and Clarke (n 8) 6 also mention this problem when analysing Huawei’s ownership. However, there have been many other situations where new Chinese rules have been introduced without a complete legal framework to support them. For example, the 1988 Interim Rules for Private Enterprises allowed private firms to establish companies (gongsi) some six years before the first PRC Company Law was approved, without setting out any of the specific rules for formation! For other analogous situations, see Donald C Clarke, ‘How Do We Know When an Enterprise Exists? Unanswerable Questions and Legal Polycentricity in China’ (2005–6) 19 Columbia Journal of Asian Law 51–71, esp. s.III; and for Chinese courts’ creation of legal rules prior to any statutory basis, see Nicholas C Howson, ‘The Doctrine That Dared Not Speak Its Name’ ch.9 in H Kanda, K Kim and CJ Milhaupt, Transforming Corporate Governance in East Asia (Routledge 2008).

28 1997 Shenzhen Rules, art. 32.

29 See 1997 Shenzhen Rules, arts. 33-5. The trade union is given some book-keeping duties (Rules, art.12), but has no voting power.

30 Donald C Clarke, ‘Corporate Governance in China: An Overview’ (2003) 14 China Economic Review 494–507 at 495.

31 For a more detailed account of the development and provisions of the PRC Company Law, see Wang Jiangyu, Company Law in China: Regulation of Business Organizations in a Socialist Market Economy (Elgar 2015). The Company Law was amended further in 2014, to remove the requirement for limited liability companies to pay in a minimum amount of capital in order to register as a company, and in 2018, to slightly liberalize the rules surrounding share buy-backs. For a bilingual version of the current Company Law, see Lawinfochina, ‘Company Law of the People’s Republic of China (2018 Amendment)’ <http://lawinfochina.com/display.aspx?id=e797dd968c30e172bdfb&lib=law> accessed 5 July 2020.

32 PSC Report 13–15; Balding and Clarke (n 8) 2, 10–11.

33 Wang Yongde, Langxing guanli zai Huawei [Wolf-style management at Huawei] (Wuhan University Press 2007) 100–1.

34 Cheng and Liu, Huawei zhenxiang (n 11) 116.

35 For the lack of formality and failure to issue share certificates, see Cheng and Liu, Huawei sanshi nian (n 11) 183, 187–9, 490–1.

36 Cheng and Liu, Huawei sanshi nian (n 11) 187–9.

37 Anon, 全面解析华为的虚拟股权 (A complete analysis of Huawei’s virtual stock ownership) <https://cj.sina.com.cn/article/detail/1198029974/260765>; Cheng and Liu, Huawei sanshi nian (n 11) 183–4; and Xie Baiqing and Dong Yayu, 第一股权纠纷案原告败诉 华为员工持股谜团难解 Yuegang xinxi bao, 16 December 2003 <http://business.sohu.com/2003/12/16/43/article216974356.shtml>.

38 Ren Zhengfei, 华为的红旗到底能打多久’ (How Long Can Huawei’s Red Flag Fly?), collected in Wu Chunbo and Huang Weiwei, 走出混沌 (2nd edn, Renmin youdian chubanshe 2001) 351–86.

39 Zhang (n 14) 21, 46, 233–4; Cheng and Liu, Huawei sanshi nian (n 11) 191–2.

40 Dickson (n 16) 206–7.

41 For departing employees’ dissatisfaction, see Cheng and Liu, Huawei sanshi nian (n 11) 186–7.

42 Zhang (n 14) 246–50.

43 See Balding and Clarke (n 8) 6. Cheng and Liu, Huawei sanshi nian (n 11) 185, note that for a short period after 1997, there were actually two different companies’ trade unions holding Huawei’s shares. One belonged to Huawei Technologies Corporation and the other was Huawei New Technologies Joint Stock Corporation Trade Union (‘Huawei New Tech TU’), which owned around 33% of the shares. Cheng and Liu state that Huawei New Tech TU was one of the investment vehicles for Huawei’s subsidiary JVs with telecom employees and officials, which is why it disappeared in the subsequent 2001–3 restructuring, as those external JV shareholders were bought out: see below for more details.

44 Zhang (n 14) 20, 135; and PSC Report 15.

45 See Shenzhen Municipal Government, ⟪深圳市公司内部员工持股规定⟫深府❲2001❳8号, 11 January 2001.

46 Zhang (n 14) 20.

47 Cheng and Liu, Huawei zhenxiang (n 11) 112–13.

48 For the lawsuit, see Cheng and Liu, Huawei sanshi nian (n 11) 183–4; and Xie Baiqing and Dong Yayu (n 37).

49 Sources note that this form of ‘phantom stock’ structure, and Huawei’s broader restructuring plan, was based on advice Huawei received from Hay Group, an international human resources consultancy firm between 1997 and 2000: Wang, Langxing guanli zai Huawei (n 33) 102; Zhang (n 14) 20.

50 See PSC Report 15–20. Huawei provided extensive documentation about this program to the Congressional Committee (as listed at PSC Report 16), only part of which was actually published in the PSC Report.

51 PSC Report 16–20. Cf. Huawei Technologies, ‘2018 Annual Report’ 131. Retiring employees can keep their shares and continue to receive dividends, but cannot purchase new shares: see PSC Report 17, 20; and Huawei Technologies, ‘Who Runs Huawei?’ <https://www.huawei.com/minisite/who-runs-huawei/en/> accessed 3 November 2019, which states that currently 10.02% of the employee shareholders are ‘retired and restructured employees’. Balding and Clarke (n 8) 5 cite a court case involving a Huawei employee in 2018 which refers to ‘restricted phantom shares’, suggesting that the term is still in use.

52 See Huawei Technologies, ‘Who Runs Huawei?’ (n 51) Huawei’s total current workforce is around 194,000 employees, but very junior and low-performing Chinese employees cannot participate in the ESOP, and retired or restructured employees have no voting powers: PSC Report 16–17. Likewise, non-Chinese employees of Huawei in other countries do not directly participate in the Chinese ESOP, but they are given units in employee investment funds managed by Huawei’s regional divisions overseas and tied to the company’s performance: author’s conversation with a senior executive at Huawei’s Australian subsidiary, Sydney 2015.

53 See Huawei Technologies, ‘The Shareholders’ Meeting and the Representatives’ Commission’ <https://www.huawei.com/en/about-huawei/corporate-governance/the-shareholders-meeting-and-the-representatives-commission>. It is not clear from available information how the Representatives are nominated, or whether rank and file employees are given any choice of candidates.

54 Huawei Technologies, ‘Who Runs Huawei’, (n 51) states that there is ‘one vote per [employee] share’ in elections for the Rep Com.

55 See Huawei Technologies, ‘Who Runs Huawei’ (n 51); Pearlstine et al. (n 6); PSC Report 20.

56 Huawei Technologies, ‘2018 Annual Report’ (n 51) 131; PSC Report 18–19. The Supervisory Board theoretically monitors the Board of Directors and has powers to bring lawsuits for breach of directors’ duties, but up to now the role of Supervisory Boards in most Chinese companies has been a passive one, due to the relatively low status of Supervisors as company employees compared to senior executives. See discussion in Colin Hawes and Grace Li, ‘Transparency and Opaqueness in the Chinese ICT Sector: A Critique of Chinese and International Corporate Governance Norms’ (2017) 12(1) Asian Journal of Comparative Law 41–80; and Donald C Clarke, ‘The Independent Director in Chinese Corporate Governance’ (2006) 31 Delaware Journal of Corporate Law 125–228 at 173–5.

57 PSC Report 16; for entrenchment of existing management in international firms through board nomination and share proxy practices, see Paul Redmond, Companies and Securities Law (5th edn, Thomson Reuters Lawbook Co 2009) 2.185 and 6.85.

58 Huawei Technologies, ‘2018 Annual Report’ (n 51) 135–9.

59 There is a slight complication pointed out by Balding and Clarke (n 8) 3–4 that in 2003, Huawei established a 100% holding company on top of Huawei Technologies, so the employee shareholding trade union committee referred to in the main text is actually holding around 99% of the shares of the holding company Huawei Investment and Holding Corporation, and this Holding Corporation owns 100% of the shares of Huawei Technologies Corporation. So, when we talk about the Rep Com above, it refers to the Holding Corporation, but all decisions of the Holding Corporation are presumably then duplicated by Huawei Technologies: for example, according to their corporate records, the Boards of Directors and Supervisors of Huawei Holding and Huawei Technologies are exactly the same people: see Baidu Enterprise Credit, 华为投资控股有限公司 <https://xin.baidu.com/detail/compinfo?pid=xlTM-TogKuTwp4Istb5Hlq2s4pLs-uuwjwmd> and 华为技术有限公司 <https://xin.baidu.com/detail/compinfo?pid=xlTM-TogKuTwmQIdC%2A09kbLmkDAjgAlc1gmd&fl=1&castk=LTE%3D>. This Holding Corporation structure was apparently set up to prepare the company for partial listing on a securities exchange: Huawei Technologies would have been split into four different subsidiary companies of the Holding Corporation, focusing on mobile equipment, technology, project investment, and property management, and one or more of these subsidiaries would have been listed in Hong Kong or Shanghai. However, the listing ultimately never occurred, as Huawei’s management decided it wasn’t necessary for raising capital: see Qiu Huihui, 华为技术一分为四 上市之路究竟还走多远？21 Shiji Jingji Baodao 14 June 2004 [copy on file with author]; and Zhang (n 14) 92–4.

60 PSC Report 14, states that Huawei is controlled by ‘an elite subset of its management’, whatever that means; and Balding and Clarke (n 8) 12, claim that employee shareholders have no ‘governance or control rights’, which overlooks the fact that they do actually elect the Representatives, who then elect the Directors of the company.

61 See this rule in Huawei’s ‘Articles for Restricted Phantom Shares’, cited in PSC Report 17.

62 See Facebook Inc., ‘Proxy Statement’ filed 12 April 2019 41 <https://investor.fb.com/annual-meeting/default.aspx>; Alphabet, Inc., ‘Proxy Statement’ 30 April 2019 34 <https://abc.xyz/investor/other/annual-meeting/>.

63 PSC Report 17.

64 In the UK and Australia, the default rule is a 75% majority to approve shareholder special resolutions, and a simple majority for ordinary resolutions.

65 Huawei’s 2010 Annual Report was the first to give a more detailed description of the company’s board of directors and shareholder voting procedures: see https://www.huawei.com/en/press-events/annual-report.

66 For an example of such speculation, see PSC Report 14, 21–2.

67 This is particularly so for joint stock companies (also commonly translated as companies limited by shares), which Huawei would have to become if it registered over 50 shareholders: see PRC Company Law, art.24. Huawei gave this explanation for retaining its ESOP in materials cited in the PSC Report 15–16.

68 Jiang and Bian (n 18) 405.

69 Li Guo, ‘Chinese Style VIEs: Continuing to Sneak under Smog?’ (2014) 47 Cornell Int’l Law Journal 569–606; Paul Gillis and Fredrik Oqvist, ‘Variable Interest Entities in China’ GMT Research Guest Series, 13 March 2019 <https://www.chinaaccountingblog.com/weblog/2019-03-vie-gillis.pdf>.

70 Cheng and Liu, Huawei sanshi nian (n 11) 192.

71 For appointment of SOE managers, see Dickson (n 16) 60; Yukyung Yeo, ‘Between Owner and Regulator: Governing the Business of China’s Telecommunications Service Industry’ (2009) 200 The China Quarterly 1013–-32, 1021; Richard McGregor, The Party: The Secret World of China’s Communist Leaders (Harper Collins 2010) ch.3.

72 PSC Report 23–4.

73 Ibid 14, 23; and Huawei Technologies, ‘Huawei Facts’.

74 For example, the websites of Zhengtai Group (CHINT), ‘Dangjian gaikuang’ (Party Building Overview) <http://www.chint.com/zh/index.php/about/building.html>; and Wanda Group, ‘Party of Wanda Online’ <http://party.wanda.cn/>.

75 PRC Company Law, art.19, and the CPC Charter, arts. 30, 33 <http://www.xinhuanet.com//english/download/Constitution_of_the_Communist_Party_of_China.pdf>.

76 Chen Simin, ‘华为2012年在美国听证关键问题上欺骗’ 26 December 2018 <http://www.epochtimes.com/gb/18/12/26/n10933427.htm>; Sun Jin, ‘Huawei dangwei shuji Zhou Daiqi: guojihua tui Shenqi tisheng jingzhengli’ (Huawei’s Party Secretary Zhou Daiqi Declares: Internationalization has Pushed Shenzhen’s Business Firms to Increase their Competitiveness), Shenzhen tequ bao, 23 November 2011 <http://tech.southcn.com/t/2011-11/23/content_33696313.htm> accessed 4 November 2019; and Huawei Technologies, ‘Mr Zhou Daiqi’ <https://www.huawei.com/en/about-huawei/executives/supervisory-board/zhou-daiqi>.

77 Chen (n 76); and Anon, 华为首任人力资源部部长陈珠芳应邀为五华企业‘授课’ (Huawei’s First Human Resources Director Chen Zhufang Invited to ‘Give a Class’ for Wuhua’s Enterprises), Meizhou ribao, 29 July 2019 <http://www.sohu.com/a/330141152_689760>.

78 PSC Report 23.

79 Anon, 把过去的失误领回去 把明天的希望鼓起来华为公司党委举办研发体系自我批判反思交流活动 (Take Back the Errors of the Past, and Drum Up Hope for Tomorrow: Huawei’s Party Committee Organizes Self-criticism and Reflective Exchange Meetings among the Firm’s R&D Divisions), Huawei People vol. 109, 22 September 2000 <http://app.huawei.com/paper/newspaper/newsBookCateInfo.do?method=showDigestInfo&infoId=13744&amp;amp;sortId=-1>.

80 Ma Xuan, 华为创新民企党建经验值得重视推广 (Huawei’s Experience in Innovative Party Building within a Private Enterprise Deserves to be Taken Seriously and Publicized) Shenzhen tequ bao, 9 July 2007 <http://news.sina.com.cn/o/2007-07-09/040012168279s.shtml>.

81 See, for example, Anon, 潜能的开发——记华为党委书记陈珠芳老师在拉美的培训有感 (Developing Potential: Moved by Recollections of Huawei Party Committee Secretary Chen Zhufang’s Training Sessions in Latin America), 13 August 2009 <http://blog.sina.com.cn/s/blog_618b69f70100esha.html>; Anon, ‘Take Back the Errors of the Past’ (n 79); Chen Zhufang, 任正非给陈珠芳及党委成员的一封信 (A Letter from Ren Zhengfei to Chen Zhufang and [Huawei’s] Party Committee Members), IT Shidai Zhoukan, 10 April 2008 <http://tech.sina.com.cn/roll/2008-04-10/1440629970.shtml>; Li Chuantao, 华为思想导师制出台始末 (A Complete Account of the Origins of Huawei’s Thought Mentor System), iHeima wang, 14 March 2014 <http://www.iheima.com/article-59501.html>.

82 Li Chuantao (n 81); Chen Simin (n 76); Anon, ‘Huawei’s First Human Resources Director’ (n 77).

83 Anon, 任正非为什么找来老专家担任思想导师？(Why did Ren Zhengfei Recruit Retired Experts to Become Thought Mentors?) Sohu.com, 22 August 2018 <https://www.sohu.com/a/249308778_205354>.

84 Li Chuantao (n 81).

85 Anon, ‘Take Back the Errors’ (n 79); Zhao Jijun, ‘Ganwu Huawei wenhua’ (My Sudden Realization about Huawei’s Culture), Huawei People 164 (10 June 2005); C Luo, X Chen, C Xiao, and C Guo, Qiye wenhua jianshe ge’an pingxi (Evaluation of Case Studies on Corporate Culture Building) (Tsinghua University Press 2006) 405–27. For the earlier Communist technique of self-criticism, see Mao Zedong, Quotations from Chairman Mao Tse-tung (Foreign Languages Press 1967), section entitled ‘Criticism and Self-Criticism’.

86 Luo et al. (n 85) 413.

87 Anon, ‘Take Back the Errors’ (n 79).

88 For more details, see Colin Hawes, The Chinese Transformation of Corporate Culture (Routledge 2012) ch. 2.

89 Ibid.

90 Ren Zhengfei, ‘Jinqi zai canjia gongsi youxiu dangyuan zuotanhui shi fayan’ (Speech Given While Participating in a Recent Symposium for Huawei’s Outstanding Party Members), Sina.com, 13 June 2008 <https://tech.sina.com.cn/t/2008-06-13/15252257028.shtml>; and Chen Zhufang, ‘A letter from Ren Zhengfei’ (n 81).

91 For the contrasting SOE/government connections, see Kjeld Erik Brødsgaard, ‘Politics and Business Group Formation in China: The Party in Control?’ (2012) 211 China Quarterly 624–48; and Wendy Leutert, ‘The Political Mobility of China’s Central State-Owned Enterprise Leaders’ (2018) 233 China Quarterly 1–21. Print publication: September 2012.

92 Huawei Technologies, ‘2018 Annual Report’ (n 51) 135–9.

93 Huawei’s alleged military links are discussed in detail in Colin Hawes, ‘Framing Chinese Hi-tech Firms: A Political and Legal Critique’ (2015) 30(1) Australian Journal of Corporate Law 34–57.

94 China Internet Watch, ‘Statistics: Internet Users’ <https://www.chinainternetwatch.com/statistics/china-internet-users/>; and China Internet Network Information Center, ‘34th Statistical Survey on Internet Development in China’ (July 2014) <http://www1.cnnic.cn/IDR/> accessed 15 January 2015; Xinhua, ‘China’s Mobile Phone Users Hit 1.22 Billion’ Xinhua Online (21 November 2013) <http://news.xinhuanet.com/english/china/2013-11/21/c_132907784.htm>; and Central People’s Government of the People’s Republic of China, 新中国60年报告之十五：邮电通信业发展突飞猛进 (Sixty Years of New China Fifteenth Report: The Exponential Development of the Postal and Telecommunications Sector), 24 September 2009 <http://www.gov.cn/gzdt/2009-09/24/content_1425053.htm>.

95 International Telecommunication Union (ITU), ‘Statistics’ <https://www.itu.int/en/ITU-D/Statistics/Pages/stat/default.aspx> accessed 26 October 2019.

96 Huawei Basic Law (1998), Art. 1.1.5. Copy on file with author. See detailed discussion below.

97 Zhang (n 14) 23–4, 135, 223–4. Due to space constraints, our account does not focus on Huawei’s technological development or specific telecom and internet products: for a useful English summary, see Nathanael Ahrens, China’s Competitiveness: Myth, Reality, and Lessons for the United States and Japan, Case Study: Huawei, CSIS Hills Program in Governance (February 2013) <https://csis-website-prod.s3.amazonaws.com/s3fs-public/legacy_files/files/publication/130215_competitiveness_Huawei_casestudy_Web.pdf>.

98 Harwit ch.3; Scott Y Guan, China’s Telecommunications Reforms: From Monopoly towards Competition (Nova Science Publishers 2003) 18–39.

99 Cheng and Liu, Huawei zhenxiang (n 11) 104–5; Cheng and Liu, Huawei sanshi nian (n 11) 177–8.

100 Mobeike was later renamed Huawei Electric Power Corp. See Wang, Langxing guanli zai Huawei (n 33) 284–5.

101 Chen 2007 121–2.

102 Cheng and Liu, Huawei zhenxiang (n 11) 76–8, 104–9.

103 Figures confirmed by Huawei’s media spokesperson, Fu Jun, in 2004: see Anon, 华为上市先清历史旧账 揭开股权变迁谜团 (Huawei Clears Historical Accounts Prior to Listing; Unravelling the Knot of Its Share Restructuring), Nanfang Zhoumo, 30 September 2004 <http://tech.sina.com.cn/t/2004-09-30/1001434392.shtml>. Cheng and Liu, Huawei zhenxiang (n 11) 76–8, 104–9, provide slightly lower numbers, but still estimated over one hundred different groups of investors; cf. Cheng and Liu, Huawei sanshi nian (n 11) 177–8. At that time in the 1990s, the two main telecom firms were China Telecom and China Unicom, and Huawei established JV arrangements with employees and officials in various regional offices of both firms.

104 Zhang (n 14) 37.

105 Cheng and Liu, Huawei zhenxiang (n 11) 105; Cheng and Liu, Huawei sanshi nian (n 11) 179.

106 Wang, Langxing guanli zai Huawei (n 33) 286; Cheng and Liu, Huawei sanshi nian (n 11) 127.

107 Cheng and Liu, Huawei zhenxiang (n 11) 104–5.

108 CEIC, ‘China Bank Lending Rate, 1988-2019’ <https://www.ceicdata.com/en/indicator/china/bank-lending-rate> accessed 28 October 2019. For the broader difficulties of private firms accessing bank finance in the 1990s, see Adam Segal, Digital Dragon: High-Technology Enterprises in China (Cornell University Press 2003) ch.3, esp. 63–5.

109 Cheng and Liu, Huawei sanshi nian (n 11) 177–80.

110 Wang, Langxing guanli zai Huawei (n 33) 285–6.

111 For example, 国务院办公厅关于印发邮电部职能配置、内设机构和人员编制方案的通知，国办发❲1994❳24号，国务院办公厅 9 February 1994, which separated the regulation function of the Ministry of Post and Telecommunications from China Telecom, which became a commercial telecom services firm.

112 PRC State Council, 国务院批转国家计委关于全国第三产业发展规划基本思路的通知 (Notice of the State Council approving the basic ideas and circulation of the State Planning Commission’s national development plan for tertiary industries.) 国发[1993]20号, 3 December 1993: ‘Telecom firms … should make a positive effort to raise funds from multiple different channels. They should introduce enterprise competition mechanisms, and promote experiments with shareholding systems’ (section 2).

113 Jane Duckett, ‘Bureaucrats in Business, Chinese-Style: The Lessons of Market Reform and State Entrepreneurialism in the People’s Republic of China’ (2001) 29(1) World Development 23–37, esp. 25–6.

114 Ibid 28.

115 Ibid 27.

116 Ibid 29; Jin (n 76) 27; Zhang (n 14) 36.

117 Central People’s Government (n 94).

118 Harwit 122–4.

119 Cheng and Liu, Huawei sanshi nian (n 11) 179–80.

120 The PRC Chinese-Foreign Equity Joint Venture Law and PRC Chinese-Foreign Co-operative Joint Venture Law were first promulgated in 1979 and 1988 respectively. I am not aware of any Chinese joint venture law that applies only to domestic Chinese JVs rather than Sino-foreign JVs.

121 Harwit 117–22.

122 Ibid 118.

123 Cheng and Liu, Huawei sanshi nian (n 11) 489, 492, 495.

124 Zhang (n 14) 8, 38, 55; and for Chinese officials’ forays into business more broadly, and subsequent restriction by the government, see Dickson (n 16) 205. The Southern Weekend article cited earlier gives one example of a share redemption conducted by Huawei among telecom employees in Beihai City, Guangxi Province in 2004, which shows that the process was still ongoing at that stage: see Anon, ‘Huawei Clears Accounts’ (n 103). Another report suggested that the redemption process was still ongoing in 2010, but the telecom employees whom they interviewed stated Huawei had already redeemed their JV shares. See Zhao Hejuan, 谁挡了华为的路 (Who is Blocking Huawei’s Path?), Xin shiji, 8 August 2010 <https://cn.reuters.com/article/idCNCHINA-2793920100809>.

125 Zhang (n 14) ch.7.

126 Wang, Langxing guanli zai Huawei (n 33) 102.

127 Cheng and Liu, Huawei sanshi nian (n 11) 497; and for recent figures, see Huawei Investment & Holding Co., Ltd., 2018 Annual Report <https://www.huawei.com/en/press-events/annual-report/2018>: ‘2018: Healthy Operating Results, Strong Financial Position’.

128 Zhang (n 14) 84; D Brautigam, The Dragon’s Gift: The Real Story of China in Africa (Oxford University Press 2009) 140–1.

129 See Brautigam (n 128) ch.3; and Peter J Buckley, L Jeremy Clegg, Adam R Cross, Xin Liu, Hinrich Voss, and Ping Zheng, ‘The Determinants of Chinese Outward Foreign Direct Investment’ (2007) 38 Journal of International Business Studies 499–518.

130 See Zhang (n 14) 138–9; Cheng and Liu, Huawei sanshi nian (n 11) 176; Wang, Langxing guanli zai Huawei (n 33) 284; Brautigam (n 128) 140–2.

131 Zhang (n 14) 27; Charles Ding, ‘Written Statement for Charles Ding’ Permanent Select Committee on Intelligence, U.S. House Of Representatives, 13 September 2012 <https://cryptome.org/2012/10/huawei-no-spy.pdf> 8.

132 PSC Report 21, 28; 2011 U.S.-China Economic and Security Review Commission, Report to Congress of the U.S.-China Economic and Security Review Commission One Hundred Twelfth Congress First Session, November 2011 60–1 (hereafter ‘2011 ESRC Report’).

133 James T Bennett, Corporate Welfare: Crony Capitalism that Enriches the Rich (Transaction Publishers 2015) ch.6.

134 Andrew TH Tan, The Global Arms Trade: A Handbook (Routledge 2014) 205.

135 Cheng and Liu, Huawei zhenxiang (n 11) 103, 284–7; Adrian Buckley, Multinational Finance (Financial Times Prentice Hall 2004) ch.30–1; Canada Export Development Corporation <http://www.edc.ca/EN/About-Exporting/Trade-Links/Pages/financing.aspx>; Efic (Australia) <http://www.efic.gov.au/export-community/Pages/bankingandfinance.aspx>.

136 For French support of Alcatel’s China JV in 1994: Harwit 121; for Ericsson’s no interest loan in Ethiopia (1996): Zhang (n 14) 149.

137 Even today, the average starting salary of IT developers in China is approximately RMB 67,200 yuan (US$9,550) per year, just one seventh of the average $74,000 per year salary for similarly qualified graduates in the U.S.: Chang Meng and Xie Chen, ‘2016年应届生就业竞争力报告 : 专业与技能篇’ BOSS Zhipin, 5 December 2016 <https://www.zhipin.com/article/27.html?ka=article-list-title-detail4>; Payscale.com, ‘Average Software Engineering Salary’ <https://www.payscale.com/research/US/Job=Software_Engineer/Salary#targetText=An%20entry%2Dlevel%20Software%20Engineer,%2473%2C866%20based%20on%207%2C207%20salaries>; and Glassdoor.ca, ‘Huawei Technologies Software Engineer Monthly Pay’ Updated Sep 27, 2019, <https://www.glassdoor.ca/Salary/Huawei-Technologies-Software-Engineer-China-Salaries-EJI_IE9304.0,19_KO20,37_IL.38,43_IN48.htm>.

138 In fact, one could argue there was reverse discrimination against Chinese firms like Huawei: many multinational telecom equipment firms were heavily subsidized during the 1980s and ‘90s to enter the Chinese market, both by receiving generous tax breaks from the Chinese government (which was anxious to modernize its networks), and in some cases, low interest loans from their own national governments. For example, Nortel Networks benefited from a several hundred-million-dollar foreign aid loan from the Canadian government to enter the Chinese market in 1988: See Cheng and Liu, Huawei sanshi nian (n 11) 58–9. Other firms benefiting from tax breaks in China included Ericsson, Alcatel, Lucent, Fujitsu, NEC, Siemens, and more recently Cisco Systems. Some of these tax breaks were removed in 1996, but others continue down to the present in certain research and technological development zones or hi-tech product sectors. See Harwit 117–22, 132.

139 See Zhang (n 14)136.

140 Cheng and Liu, Huawei zhenxiang (n 11) 285.

141 PSC Report 29.

142 Sarah Dai, ‘China Adds Huawei, Hikvision to Expanded ‘National Team’ Spearheading Country’s AI Efforts’ South China Morning Post (30 August 2019) <https://www.scmp.com/tech/big-tech/article/3024966/china-adds-huawei-hikvision-expanded-national-team-spearheading>.

143 Perez (n 5).

144 Clarke has argued convincingly that Huawei would have little option but to comply with such a request: Donald C Clarke, ‘The Zhong Lun Declaration on the Obligations of Huawei and Other Chinese Companies under Chinese Law’ (17 March 2019) <https://ssrn.com/abstract=3354211>.

145 Nathan Vanderklipp, ‘Huawei’s Partnership with China on Surveillance Technology Raises Concerns for Foreign Users’ The Globe and Mail (14 May 2018) <https://www.theglobeandmail.com/world/article-huaweis-partnership-with-china-on-surveillance-raises-concerns-for/>; and for Huawei supplying the military with telecommunications equipment, see Huawei’s testimony in the PSC Report 34.

146 Duckett (n 113) 31.

147 David M Lampton, ‘How China Is Ruled: Why It’s Getting Harder for Beijing to Govern’ (2014) 93(1) Foreign Affairs 74–84, at 80.

148 Ibid.

149 Curtis J Milhaupt and Wentong Zheng, ‘Beyond Ownership: State Capitalism and the Chinese Firm’ (2015) 103 The Georgetown Law Journal 665–722, 694.

150 PSC Report 23.

151 Dickson (n 16) 111.

152 Xi Jinping, ‘Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a New Era’ delivered at the 19th National Congress of the Communist Party of China, 18 October 2017 <https://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm>.

153 Evan S Medeiros, Roger Cliff, Keith Crane, and James C Mulvenon, A New Direction for China’s Defense Industry (RAND Corporation 2005) 206 & 241. Harwit 122–3; Zhang (n 14) 189–92.

154 Harwit 122–3.

155 Bloomberg, ‘Datang Telecom Technology Co. Ltd.’ <https://www.bloomberg.com/quote/600198:CH> accessed 15 November 2019; RAND Report 222–3.

156 Datang Telecom Board of Directors, 大唐电信科技股份有限公司关于股东权益变动的提示性公告 issued 1 November 2018 <http://static.sse.com.cn/disclosure/listedinfo/announcement/c/2018-11-01/600198_20181101_1.pdf>; and for other Chinese competitors defeated by Huawei, Zhang (n 14) 221–9.

157 Zhang (n 14) 130–3.

158 Milhaupt and Zheng (n 149) 681–2, 688–99.

159 Jianwei Wang, ‘Building a New Conceptual Framework for U.S.-China Relations’ ch.2 in Yufan Hao, CX George Wei, and Lowell Dittmer, Challenges to Chinese Foreign Policy: Diplomacy, Globalization, and the Next World Power (The University Press of Kentucky 2009).

160 Brian Fung, ‘How China’s Huawei took the lead on 5G’ Washington Post, 10 April 2019 <https://www.washingtonpost.com/technology/2019/04/10/us-spat-with-huawei-explained/>; and IEEE ComSoc, ‘Dell’Oro: #1 Huawei Increased Market Share at the Expense of Ericsson, Nokia and ZTE’ 10 March 2019 <https://techblog.comsoc.org/2019/03/10/delloro-1-huawei-increased-market-share-at-the-expense-of-ericsson-nokia-and-zte-capex-flat-5g-market-forecasts/>.

161 Chengxin Pan, Knowledge, Desire and Power in Global Politics: Western Representations of China’s Rise (Edward Elgar 2012). Pan 72–6 also notes that there are often links between the more hawkish ‘China threat’ advocates and the American ‘military industrial complex’, with some key U.S. foreign policy think tanks either funded by the military or headed by former military personnel. We saw this with the RAND Report cited earlier, which was commissioned by the U.S. Air Force.

162 For example, s.103b(2) of the U.S. Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 prohibits exports from the US to Iran, but makes an exception for ‘hardware, software, or technology necessary for access to the Internet’. Huawei’s core business is in internet hardware and technology.

163 See for example, a careful analysis of the net job impact on the U.S. of increased Chinese imports since the WTO, which found a net gain in U.S. jobs of 1.7 million jobs between 1995-2011: Robert C Feenstra and Akira Sasahara, ‘The ‘China Shock’, Exports and U.S. Employment: A Global Input-output Analysis’ (2018) 26 Review of International Economics 1053–83. A further study based on more recent years confirmed these findings, and noted that even U.S. manufacturing jobs, which in contrast to a huge gain in service sector jobs had been impacted negatively by Chinese imports between 1997 and 2007, recovered between 2008-14: see Adam Jakubik and Victor Stolzenburg, ‘The ‘China Shock’ Revisited: Insights from Value Added Trade Flows’ World Trade Organization Staff Working Paper ERSD-2018-10, 26 October 2018, 1–28.

164 World Bank, China 2030: Building a Modern, Harmonious, and Creative Society (International Bank for Reconstruction and Development 2013) ch.1; and World Bank Group and PRC Development Research Center, Innovative China: New Drivers of Growth (International Bank for Reconstruction and Development 2019) ch.1.

165 Paul G Clifford, The China Paradox: At the Front Line of Economic Transformation (Walter de Gruyter 2017); and Edward Tse, China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business (Portfolio/Penguin 2015).

166 Huawei’s equipment is used by many European telecom firms. For the contrasting European attitude, which varies from country to country, see Jan-Peter Kleinhans, ‘Europe’s 5G Challenge and Why There is No Easy Way Out’ Technode (25 June 2019) <https://technode.com/2019/06/25/europes-5g-challenge-and-why-there-is-no-easy-way-out>; ChinaFile, ‘The Future of Huawei in Europe’ 18 October 2019 <http://www.chinafile.com/conversation/future-of-huawei-europe>; and Brian Fung, ‘How China’s Huawei took the lead on 5G’ Washington Post (10 April 2019) <https://www.washingtonpost.com/technology/2019/04/10/us-spat-with-huawei-explained/>.

167 Kleinhans (n 166).

168 Ibid. For details of some cyber-attacks that allegedly originated from the Chinese military, see Department of Justice, ‘U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against U.S. Corporations and a Labor Organization for Commercial Advantage’ (19 May 2014) <http://www.justice.gov/opa/pr/2014/May/14-ag-528.html>; for other countries’ cyber-attacks on the U.S., see Robert S Mueller, III, ‘Report on the Investigation into Russian Interference in the 2016 Presidential Election’ submitted Pursuant to 28 C.F.R. § 600.8(c), Washington, D.C., March 2019, vol.1, 36–50 <https://www.justice.gov/storage/report.pdf>; and for cyber-attacks by the U.S. on other countries, see Marouf Hasain Jr., Sean T Lawson, and Megan McFarlane, The Rhetorical Invention of America’s National Security State (Lexington Books 2015) ch.5.