Speaker 1: Welcome to Tech Stuff, a production of I Heart Radios
Speaker 1: How Stuff Works. Hey there, and welcome to tech Stuff.
Speaker 1: I'm your host, Jonathan Strickland. I'm an executive producer with
Speaker 1: I Heart Radio and How Stuff Works, and I love
Speaker 1: all things tech. Kind of man, I may need to
Speaker 1: rethink that intro. So one of the ongoing stories in
Speaker 1: twenty nineteen has been about how various governments around the world,
Speaker 1: particularly the United States government, have been mounting in opposition
Speaker 1: to the Chinese telecom company Huawei. That company has only
Speaker 1: been around since nineteen eight seven slash so a little
Speaker 1: more than thirty years, and yet it's now a dominant
Speaker 1: company in the telecom industry that brings in more than
Speaker 1: ninety billion dollars in revenue. In today's episode, I want
Speaker 1: to explore the history of Huawei ties to the Chinese government,
Speaker 1: the incredible rise to prominence on the world stage, and
Speaker 1: the reasons why the company is encountering resistance today. Now,
Speaker 1: before I jump into the whole backstory, I want to
Speaker 1: address a real issue about covering these types of topics.
Speaker 1: Researching topics is always a challenge because you have to
Speaker 1: take into consideration your sources. Some sources may be unreliable,
Speaker 1: either because they are poorly constructed, or they may be
Speaker 1: part of a propaganda or a misinformation campaign specifically designed
Speaker 1: to project a particular story. You can think of it
Speaker 1: as a quote unquote version of the truth, and truth
Speaker 1: would be an extra quotation marks. In this episode, I
Speaker 1: attempted to corroborate as much information as I could with
Speaker 1: several sources, but much of the information coming out of
Speaker 1: China has been let's say, vetted heavily, and so getting
Speaker 1: to what is really going on remains a challenge. It's
Speaker 1: possible that the story that's being presented is in fact
Speaker 1: a reflection of what is really happening, but it's also
Speaker 1: possible that it's not. Also, I'll be talking a lot
Speaker 1: about the Communist Party of China in this episode, and
Speaker 1: I want to make it clear that the Communist Party
Speaker 1: is essentially synonymous with the Chinese government, and it's communist
Speaker 1: with a capital C, as opposed to someone who believes
Speaker 1: in the philosophy of communism, which would be a lower
Speaker 1: case see communist. When I say communist in this episode,
Speaker 1: I'm talking about the political power in China, not the
Speaker 1: philosophy that the political party takes its name from the
Speaker 1: two are different, largely different in fact. Okay, now let's
Speaker 1: get on with the show. A lot of Huawei's history
Speaker 1: hinges on the massive changes in China that began in
Speaker 1: earnest in. If you want to learn more about China's
Speaker 1: path to entering the modern age, listen to the episode
Speaker 1: that came out just before this episode, because those changes
Speaker 1: are what made it possible for a company like Huawei
Speaker 1: to exist in the first place. The story of Huawei
Speaker 1: begins with the story of its founder, Ren Shan Fai.
Speaker 1: Wren was born in nineteen forty four in Unshun, a
Speaker 1: city in the province of Gishao, China. I apologized, by
Speaker 1: the way for butchering the pronunciation of all these names,
Speaker 1: And I have to admit, I really am quite ignorant
Speaker 1: about much of China, So all of what I'm about
Speaker 1: to relay to you was brand new to me when
Speaker 1: I started researching this episode. I don't want to even
Speaker 1: remotely make it seem like I feel I'm an expert
Speaker 1: on this subject matter. So Gishao is an interior province
Speaker 1: of China. It's far from the coastal cities that marked
Speaker 1: China's centers of trade, and it's a more rural province
Speaker 1: in China, though that has been changing over the past
Speaker 1: several years. When the economic reform arms of nineteen seventy
Speaker 1: eight began to take effect in China, Gao would largely
Speaker 1: be left behind, becoming the poorest province for nearly two
Speaker 1: decades now. Wren's parents worked at a school in ann
Speaker 1: His father also had worked for a weapons factory as
Speaker 1: sort of a clerk. The order in which that actually
Speaker 1: happened is one I'm not entirely sure about, because there's
Speaker 1: some conflicting information, conflicting stories in various sources. There's even
Speaker 1: one version of this story I've seen that said definitively
Speaker 1: that Wren was born in October nineteen forty four and
Speaker 1: that his parents first met in nineteen forty nine, which
Speaker 1: I considered to be something of a puzzler. Now this
Speaker 1: comes as a little surprise to me, because I mean,
Speaker 1: after all, getting information out of China is a is
Speaker 1: a bit of a crap shoot on the best of days,
Speaker 1: So really, I guess you should expect it. One thing
Speaker 1: that definitively but in nineteen forty nine is that was
Speaker 1: the year the Communist Party gained control of China, and
Speaker 1: it has held onto China's government ever since. I mean
Speaker 1: the two are essentially synonymous. Bren attended school, enrolling in
Speaker 1: university in nineteen sixty. After he left school, at least
Speaker 1: according to some sources, he worked in civil engineering for
Speaker 1: a while, but in the nineteen seventies. Frequently it's cited
Speaker 1: as nineteen seventy four he joined the People's Liberation Army
Speaker 1: or p l A. That's China's official armed forces, and
Speaker 1: it's overseen by the Communist Party of China. This is
Speaker 1: an important part of our story, not just because it's
Speaker 1: certainly had an impact on the life of the founder
Speaker 1: of Huawei, but also because the p l A effectively
Speaker 1: belongs to the Communist Party as much as it does
Speaker 1: to China. In fact, you could argue that the p
Speaker 1: l A is really the Communist Party's military, as one
Speaker 1: of its founding principles is to ensure the Communist Party
Speaker 1: of China maintains its power in government. Rents specifically worked
Speaker 1: within the p l A at a research institute as
Speaker 1: a technologist. When he joined, China was going through Mount
Speaker 1: z Thong's Cultural Revolution, and if you listen to the
Speaker 1: episode before this one, you'll learn more about the Cultural Revolution.
Speaker 1: Much of China was tumultuous and chaotic during those years.
Speaker 1: Large areas of China faced enormous challenges, with people struggling
Speaker 1: to make their basic needs met just to survive. So
Speaker 1: Ren's department his his unit was sent to the northeast
Speaker 1: region of China, in an area that was quite different
Speaker 1: from Ren's home province, and conditions there were frigid and
Speaker 1: they were harsh. And Rin's department was tasked with building
Speaker 1: a factory that would produce synthetic fibers, which would then
Speaker 1: be woven together to create new clothing for Chinese citizens.
Speaker 1: According to Wren, he talked about this period of his
Speaker 1: life in a press conference in early twenty nineteen. During
Speaker 1: this time, each Chinese citizen had a government mandated allotment
Speaker 1: of one third of a meter of cloth, and Wren
Speaker 1: said in that interview that this small amount of cloth
Speaker 1: meant you really only had enough material to patch holes
Speaker 1: in older clothing. So this factory that he was working
Speaker 1: on was part of an effort to counteract the scarcity
Speaker 1: of cloth made from natural fibers by augmenting it with
Speaker 1: synthetic fiber. Clothing now the factory would not be dependent
Speaker 1: upon Chinese technology. Frankly, Chinese technology wasn't up to the task,
Speaker 1: so China imported equipment from France, which supplied a system
Speaker 1: that relied heavily on automated controls. The Chinese team learned
Speaker 1: how these components worked, how to maintain them, and then
Speaker 1: even how to reverse engineer them to an extent, so
Speaker 1: you could take this base strategy and apply it across
Speaker 1: China across all industries. That's essentially how China was able
Speaker 1: to start to catch up to the rest of the world,
Speaker 1: importing technology and then reverse engineering it. So that was
Speaker 1: pretty much part and parcel the way China got caught
Speaker 1: up on lots of technologies throughout the seventies, eighties, and nineties,
Speaker 1: and then after that they could start designing their own
Speaker 1: technology and innovating upon it. Now, Wren would go on
Speaker 1: to become part of the p l a's Engineering Corps
Speaker 1: and later still as a member of the Communist Party,
Speaker 1: but this was not a smooth path for him. His
Speaker 1: father had been labeled a capitalist during the Cultural Revolution,
Speaker 1: and that accusation meant that Wren's family would all be
Speaker 1: disqualified entry into the Communist Party, and that would end
Speaker 1: up being a big hurdle because at the time, being
Speaker 1: a member of the Communist Party was pretty much a
Speaker 1: prerequisite if you wanted to reach any sort of status
Speaker 1: within your career. You couldn't advance in your position if
Speaker 1: you weren't a member of the Communist Party, even if
Speaker 1: you were clearly talented and had a lot of aptitude.
Speaker 1: Bren would work in the Engineering Corps, eventually inventing a
Speaker 1: tool that could be used to help test factory equipment
Speaker 1: at that synthetic fiber factory. That achievement earned him the
Speaker 1: honor of being able to attend China's National Science Conference,
Speaker 1: which was held by the Communist Party of China. His
Speaker 1: work gained him support of party members and his Engineering
Speaker 1: Corps supervisor, and they essentially sponsored him and helped him
Speaker 1: secure membership within the Communist Party in ninety eight, just
Speaker 1: as those economic reforms were starting to take place. Now,
Speaker 1: this was two years after the death of Chairman Mao,
Speaker 1: and it was when China was just beginning to reverse
Speaker 1: decades of practices that had in many ways held back
Speaker 1: the country. One of the big ones was an attitude
Speaker 1: of suspicion towards intellectualism and education during the Cultural Revolution,
Speaker 1: Mao saw to it the intellectuals and students whom he
Speaker 1: viewed as potential threats to his position were sent off
Speaker 1: to do manual labor in many of the interior sections
Speaker 1: of the nation by night. The Chinese authorities decided that
Speaker 1: this had done an incredible disservice to the country, and
Speaker 1: so now people like Wren were being looked at as
Speaker 1: potential leaders to bring China up to speed with developed nations.
Speaker 1: Bren would rise to the rank of deputy director of
Speaker 1: a research institute within the p l A. He oversaw
Speaker 1: work that mainly focused on construction, which makes sense after
Speaker 1: his experiences in helping establish that synthetic fiber factory. But
Speaker 1: in nineteen eighty three, the Chinese government disbanded the engineering
Speaker 1: core of the p l A and Wren was left
Speaker 1: without a position, so he retired from the army, and
Speaker 1: then he went on to work at the Shenjin South
Speaker 1: Sea Oil Corporation. Shenjin is in southeast China Hong Kong,
Speaker 1: which at the time was under the control of the
Speaker 1: United Kingdom borders Snjin. The Shenjen South Sea Oil Corporation
Speaker 1: is a state owned entity, meaning the oil boat company
Speaker 1: belongs to the government of China that therefore the Communist
Speaker 1: Party of China. Ren worked there for a few years,
Speaker 1: but reportedly found the job unsatisfying, and he left in
Speaker 1: nineteen seven with a new goal to create a company
Speaker 1: of his own. And there are a lot of different
Speaker 1: reports about Ren founding Huawei along with maybe four partners,
Speaker 1: with the equivalent of somewhere between three thousand dollars and
Speaker 1: five thousand dollars American. That's a pretty amazing story, considering
Speaker 1: that today it's number nineties seven on Forbes's Most Valuable
Speaker 1: Companies list and an estimated brand value of eight billion dollars.
Speaker 1: Getting a handle in the company's value is actually really hard,
Speaker 1: because well, to call its financial reporting opaque is going
Speaker 1: beyond being generous. However, a piece in the Far Eastern
Speaker 1: Economic Review, which took a detailed look at Huawei's financial
Speaker 1: operations and complicated ownership status, tells a very different story.
Speaker 1: In that version, Wren and fourteen colleagues took out a
Speaker 1: loan from a state operated bank for the princely sum
Speaker 1: of eight and a half million US dollars the equivalent
Speaker 1: of that anyway, it was with this slightly less modest
Speaker 1: nest egg that he founded the company Huawei. Now I
Speaker 1: have no clue which version of this story is closest
Speaker 1: to the truth. It may be that both are true,
Speaker 1: and that the initial founding of the company was for
Speaker 1: three to five thousand dollars and then startup costs were
Speaker 1: covered by a substantial loan. I don't know, but there
Speaker 1: are conflicts. Now, the original business of Huawei wasn't in
Speaker 1: manufacturing or design. The company started off as a reseller.
Speaker 1: It would import telecom equipment from other countries and also
Speaker 1: from Hong Kong, stuff like telephone network switches, so the
Speaker 1: basic components you would use to build out a telecommunications
Speaker 1: network infrastructure. Then it would sell that equipment to clients
Speaker 1: within China. So obviously this wasn't like average people in China.
Speaker 1: This was for organizations, companies, the government. So one of
Speaker 1: its earliest and largest clients was Ren's old employer, the
Speaker 1: People's Liberation Army. Now, while reselling imported equipment was the
Speaker 1: source of revenue, Huawei also would create a team of
Speaker 1: engineers whose job it was to learn everything about the
Speaker 1: equipment they were bringing in and then to reverse engineer
Speaker 1: it with the ultimate goal being to produce similar tech independently.
Speaker 1: In fact, Huawei had an imbalance between researchers and production.
Speaker 1: Typically you would have way more people in production and
Speaker 1: then a smaller number as engineers who are working in
Speaker 1: R and D. Huawei through that on its side, where
Speaker 1: you had about twice as many people who are working
Speaker 1: in R and D essentially trying to reverse engineer this technology.
Speaker 1: Then you have people actually producing the stuff, and thus
Speaker 1: began Huawei's journey towards becoming a major telecommunications company. Now,
Speaker 1: when we come back, I'll go into a bit more
Speaker 1: detail about what we know or think we know of
Speaker 1: the way the company operates. But first let's take a
Speaker 1: quick break. The fact that v p l A partnered
Speaker 1: with Huawei to build out a telecommunications infrastructure for the
Speaker 1: military is a big reason for the success of the company.
Speaker 1: In nine six, Huawei's reputation set it up for enormous
Speaker 1: success as the Chinese government decreed that it would support
Speaker 1: domestic telecommunications companies and prevent foreign companies from coming into
Speaker 1: China to build out communications and internet infrastructure. So, whether
Speaker 1: you view Huawei as truly independent or not, an in
Speaker 1: case you're curious. I think any company in China is
Speaker 1: at least partly subject to the whims of the Chinese government,
Speaker 1: if not under the direct control of the Chinese government. Anyway,
Speaker 1: the company owes much of its success to state backed support.
Speaker 1: The Chinese government suppressed competition from foreign companies, and Huawei
Speaker 1: got a nice, big boost both from the government and
Speaker 1: the p l A. Now, why Huawei got such preferential
Speaker 1: treatment is one of many unanswered questions about the company,
Speaker 1: because it's not the only telecommunications company in China. There
Speaker 1: are others as well. So why did Huawei get a
Speaker 1: bigger boost than some of its fellow domestic telecom companies.
Speaker 1: It's possible that the military and Communist party connections were
Speaker 1: largely responsible for that. Huawei often ended up being the
Speaker 1: site of many visits from high ranking members of the
Speaker 1: Communist Party of China, and so there's a lot of
Speaker 1: guests is that it was this political connection that gave
Speaker 1: Huawei the advantage. Shen Jin named Huawei one of its
Speaker 1: twenty six key development projects that have been selected for
Speaker 1: state support, and state backed banks began to extend credit
Speaker 1: to parties that were buying Huawei's products. So if you
Speaker 1: were trying to build out an infrastructure, you were essentially
Speaker 1: getting a sort of discount almost if you went with
Speaker 1: Huawei over anyone else. At this point, we're still really
Speaker 1: just talking about companies and governments, because again, Huawei's focusing
Speaker 1: on networking technologies, not in consumer electronics, although the company
Speaker 1: would start to do that later on. Huawei also received
Speaker 1: large loans from the government in order to develop Chinese
Speaker 1: operated GSM mobile phone infrastructure and technology, again to avoid
Speaker 1: becoming dependent upon foreign companies. Huawei delivered upon that promise
Speaker 1: and as a result, received even greater support from state
Speaker 1: backed banks. For example, in nineteen, the China Construction Bank
Speaker 1: extended three point nine billion ranmimbi. That's the official currency
Speaker 1: of the People's Republic of China. Okay, but how much
Speaker 1: is that in a different currency like US dollars three
Speaker 1: point nine billion, Well, in the one, which is the
Speaker 1: unit of currency for China, had an average exchange rate
Speaker 1: of eight point to seven nine one to the US dollar.
Speaker 1: So using that figure, we can estimate that this line
Speaker 1: of credit was equivalent to about four hundred seventy one
Speaker 1: million dollars in nineteen in US dollars. But then we
Speaker 1: also should factor an inflation, right, because I mean we've
Speaker 1: had inflation since nine So today that line of credit
Speaker 1: would be worth about seven hundred forty one million dollars.
Speaker 1: That's a lot of smack arooos. It represented nearly half
Speaker 1: of all the credit this bank would exp end that year,
Speaker 1: and it all went to one company. This is one
Speaker 1: of the reasons why Huawei was able to grow so rapidly.
Speaker 1: Had this enormous support of the Chinese government and financial
Speaker 1: sector behind it. Coupled with the Chinese government's efforts to
Speaker 1: suppress any sort of foreign competition, Huawei had no shortage
Speaker 1: of domestic customers. You had railways, telecommunications companies, you had
Speaker 1: the military, all having high demand for Huawei's equipment. On
Speaker 1: top of that, the company began to enter into the
Speaker 1: international market, and for a ton of reasons, Huawei's equipment
Speaker 1: was much cheaper than most other products that were on
Speaker 1: the market. Again, we're talking about big infrastructure, network switches,
Speaker 1: telecommunications components, that sort of thing. So companies from other
Speaker 1: countries began to order lots of equipment at essentially a
Speaker 1: big discount compared to Huawei's competitors, and that brought a
Speaker 1: welcome dose of foreign revenue into China, and all the
Speaker 1: while the international community expressed surprise to see this kind
Speaker 1: of technology emerge out of China in the first place.
Speaker 1: A lot of people just didn't expect to see China
Speaker 1: produce this kind of stuff. And what they didn't really
Speaker 1: know or appreciate was that Huawei was pouring a ton
Speaker 1: of money that it had secured in loans or made
Speaker 1: in revenue back into research and development. I'm talking on
Speaker 1: the order of billions of dollars to put all of
Speaker 1: this onto a fast track, and it was occasionally lifting
Speaker 1: designs from other companies and countries wherever it could uh,
Speaker 1: sometimes to the point that would get it into trouble.
Speaker 1: Now there's a lot we don't know about Huawei. Some
Speaker 1: of that is around the technology they produce. We don't
Speaker 1: necessarily know everything about it, and that raises a lot
Speaker 1: of concerns. Some of it is in how much influence
Speaker 1: the Chinese government has within the company that raises other concerns,
Speaker 1: and some of it just has to do with how
Speaker 1: the company itself is structured. So I'm going to go
Speaker 1: through a little bit of what's been publicly report. Did
Speaker 1: Huawei is, according to the company, privately held and owned
Speaker 1: by the company's employees. It is not state owned, so
Speaker 1: the government of China does not own and operate Huawei.
Speaker 1: But it's also not publicly traded, and because no shares
Speaker 1: of Huawei are on open markets, there are no requirements
Speaker 1: for the company to share its financial reports, so there's
Speaker 1: no auditing of Huawei's operations, and so much about what
Speaker 1: is actually going on remains a bit of a mystery. Now.
Speaker 1: According to Huawei, employees own virtual shares in the company.
Speaker 1: The idea is that if you work for Huawei, and
Speaker 1: if you are a Chinese citizen, then you can have
Speaker 1: some equity in the company and share in some of
Speaker 1: those profits. So by own, I don't mean they can
Speaker 1: actually buy and sell shares. They earn an equity stake
Speaker 1: in the company and they receive payouts based on company
Speaker 1: and individual performance. Essentially, if you do a great job
Speaker 1: at Huawei, you get awarded more shares, each of which
Speaker 1: pays out a certain amount of money at a regular
Speaker 1: interval based on profits in the company. It's meant to
Speaker 1: be an incentive to attract top talent and to keep
Speaker 1: it at Huawei, but there are some big qualifiers that
Speaker 1: go along with this. One of those is that you
Speaker 1: have to be Chinese to receive any shares in the
Speaker 1: company at all. This is due to the laws of China.
Speaker 1: No overseas employees of Huawei would be allowed to own
Speaker 1: or be awarded shares in Huawei. Another is that you
Speaker 1: can't sell those shares they you don't actually have something
Speaker 1: you can sell at a market to someone else. That
Speaker 1: shares themselves don't have a value the way a publicly
Speaker 1: traded share would, so it sounds to me like they
Speaker 1: more represent how much an employee will receive in what
Speaker 1: amounts to bonus pay. If you were to leave the
Speaker 1: employment of Huawei, the company would pay you the value
Speaker 1: of those shares, whatever that value happened to be at
Speaker 1: the time that you ended your employment with the company.
Speaker 1: But again, there's no way to actually know how many
Speaker 1: shares there are or what the individual value of a
Speaker 1: share is at any given times, so I don't know
Speaker 1: that you would even realize if you had been given
Speaker 1: a fair deal or not. Shares then revert back to
Speaker 1: the company, which could then award them to a different employee. UM,
Speaker 1: I honestly don't know how legit this whole share thing is. Now.
Speaker 1: According to Huawei ren himself, the founder, owns only one
Speaker 1: point four percent of those shares, though other sources suggest
Speaker 1: that he might actually own as much as five percent. Now.
Speaker 1: To be fair, some of those reports are older reports,
Speaker 1: and things could have changed between then and now, So
Speaker 1: maybe he used to own five percent but now only
Speaker 1: owns one point four percent. I'm not entirely certain. The
Speaker 1: rest of the ownership of the company is said to
Speaker 1: be split between the thousands of employees at Huawei now.
Speaker 1: Back in an article in I t Who's stated that
Speaker 1: according to Huawei, out of the nine thousand employees working
Speaker 1: for the company, around sixty one thousand, four hundred and
Speaker 1: fifty seven of them had shares in the company. Today,
Speaker 1: about twice as many people work for Huawei, So the
Speaker 1: company has around a hundred eighty thousand employees according to
Speaker 1: a two thousand seventeen report, and again, not all of
Speaker 1: those employees are eligible to hold shares. But again there's
Speaker 1: no external auditing of Huawei to tell anyone whether or
Speaker 1: not this is what is actually happening. One thing that
Speaker 1: has been reported is that the company maintains an active
Speaker 1: branch of the Communist Party within the company itself. This
Speaker 1: isn't unusual for private companies in China or companies in
Speaker 1: general in China. In fact, if a company employees at
Speaker 1: least three party members, then by Communist Party rules, there
Speaker 1: should be a committee formed within that company. Ten Cent,
Speaker 1: another major tech company in China, has its own mean
Speaker 1: this party committee. So does Ali Baba, and so this
Speaker 1: continues to blur the lines between how much of Huawei's
Speaker 1: operations are really that of a privately held company versus
Speaker 1: a state run enterprise. There are a lot of unanswered
Speaker 1: questions about how much influence does the Communist Party have
Speaker 1: over the operations of these companies. And by the way,
Speaker 1: the Communist Party involvement doesn't just include companies that originate
Speaker 1: inside China. Plenty of foreign companies that operate within the
Speaker 1: borders of China also have their own party committees. These
Speaker 1: include companies like Walmart, which blows my mind because famously
Speaker 1: Walmart opposes unionization in the United States, which is a
Speaker 1: kind of a central theme in communism. But they have
Speaker 1: party committees in Chinese operations because that's required if they're
Speaker 1: going to operate within China. In fact, Walt Disney's interests
Speaker 1: in China have Communist Party committees. Part of the cost
Speaker 1: of doing business in China is dealing with the Communist Party,
Speaker 1: and because business in China means billions of dollars, a
Speaker 1: lot of companies are willing to make that trade, even
Speaker 1: when it can get pretty sticky in some cases. Now moreover,
Speaker 1: Huawei itself is actually a subsidiary. The parent company is
Speaker 1: called shen Xin Huawei Investment and Holding Company, which oversees
Speaker 1: the Huawei shareholding arrangement. And according to Huawei, employees own
Speaker 1: Huawei Holding with no other outside parties, including the government.
Speaker 1: No one else holds shares except for employees. But this
Speaker 1: means that Huawei employees own both Huawei and the holding
Speaker 1: company that quote unquote owns Huawei. See I told you
Speaker 1: it was confusing. No matter who owns what, the executives
Speaker 1: of Huawei control the whole thing, and the Communist Party
Speaker 1: certainly has an interest in it. The corporate culture in
Speaker 1: Huawei is similar to what you'll find in other businesses
Speaker 1: in China. There's an emphasis on hard work. Employees frequently
Speaker 1: work long hours, and not too long ago, the company
Speaker 1: was known for having what was called a mattress culture.
Speaker 1: Essentially that means you worked there until you were so
Speaker 1: exhausted you would go and pass out on a mattress
Speaker 1: inside the office. Like the office actually had rooms with
Speaker 1: mattresses in them, and instead of going home, you would
Speaker 1: just go collapse and fall asleep. The extremes went even further,
Speaker 1: with one twenty five year old employee passing away in
Speaker 1: two thousand six after contracting viral encephalitis, and it was
Speaker 1: likely complicated by his habit of working long hours and
Speaker 1: staying at the office overnight. There were also several cases
Speaker 1: of employees committing suicide, and the implication was that exhaustion
Speaker 1: and stress contributed to that problem. The company would end
Speaker 1: up creating policies limiting overtime and would hire a person
Speaker 1: to serve as the chief health and safety officer in
Speaker 1: response to these issues. Huawei doesn't have a traditional executive
Speaker 1: structure either. They're actually three executives who take turns serving
Speaker 1: as CEO. They rotate out every six months. According to
Speaker 1: the company, That about sums of the internal operations that
Speaker 1: I can really report on with any level of confidence.
Speaker 1: Next we'll talk about why Huawei has fallen under suspicion
Speaker 1: in the Western world. But first let's take another quick break. Now,
Speaker 1: before I dive into the incidents and accidents, hints and allegations,
Speaker 1: let's establish some context. China, along with Russia and North Korea,
Speaker 1: has been one of the major powers suspected of engaging
Speaker 1: in cyber attacks, hacking, and espionage around the world. Now
Speaker 1: I should add the United States as way up there too,
Speaker 1: But because I live in the United States, that version
Speaker 1: of the story get talked about very much around me.
Speaker 1: But trust me, the US is definitely engaged in cyber
Speaker 1: shenanigans at certain levels. Anyway, Huawei already has a somewhat
Speaker 1: suspicious history even before we get to these questions about espionage.
Speaker 1: In the early two thousands, US technology company Cisco sued
Speaker 1: Huawei after discovering that some of the lines of code
Speaker 1: in Huawei routers originated from Cisco. They were identical to
Speaker 1: Cisco's proprietary code. So essentially this was a case of
Speaker 1: stolen intellectual property and trade secrets. Huawei essentially copped up
Speaker 1: to it, but with the qualification that the code came
Speaker 1: from a third party partner and anyway, that the code
Speaker 1: was really open on the Internet and the company really
Speaker 1: did nothing wrong. This prompted Mark Chandler the chief legal
Speaker 1: officer of Cisco, to respond in a blog post to
Speaker 1: dispute Huawei's explanation as being a misstatement of the facts.
Speaker 1: Rather than present Cisco's own argument, Chandler included an independent
Speaker 1: investigator's findings on the matter. This was something that was
Speaker 1: actually submitted in court. Chandler highlighted several of those findings
Speaker 1: and pointed out that not only did it show Huawei
Speaker 1: had copied code literally in some cases, copying and pasting
Speaker 1: it white spaces and all, but that it went beyond
Speaker 1: the sections of code that Huawei had said it had
Speaker 1: removed from its products following these accusations. So, in other words,
Speaker 1: there were parts of the Huawei said, oh no, we
Speaker 1: were moved that we we found it. That was our bad.
Speaker 1: We took it out. It's fine. But there were other
Speaker 1: parts that Huawei never even acknowledged in its initial response.
Speaker 1: The short version of this long story is that Huawei
Speaker 1: was caught illegally copying the work of another company and
Speaker 1: then tried to brush it off. It was an event
Speaker 1: that cast Huawei's ethics, or lack thereof, into the limelight. Now,
Speaker 1: because China's government maintains a deep, if not explicit relationship
Speaker 1: with all industries within the count tree, and because that
Speaker 1: government is controlled by the Communist Party of China, and
Speaker 1: because that controlling party prioritizes remaining in power as the
Speaker 1: most important component of overseeing the country, there's a lot
Speaker 1: of concern about Chinese businesses. In general. Companies are eager
Speaker 1: to take advantage of the low cost of producing stuff
Speaker 1: in China. If you listen to my last episode, you
Speaker 1: heard me talk about that. It's a huge boost to
Speaker 1: the bottom line for foreign companies. You can make the
Speaker 1: stuff for cheap and then sell it off at a
Speaker 1: high price. But when it comes to buying technology that's
Speaker 1: coming out of China itself, not being assembled in China,
Speaker 1: but actually designed and manufactured in China, other concerns begin
Speaker 1: to pop up. Now, that's not necessarily the fault of
Speaker 1: companies operating within China. Those companies might have every intention
Speaker 1: of remaining as neutral as possible in order to do business.
Speaker 1: It's a smart business move. It means that nobody is
Speaker 1: going to accuse you of doing anything wrong in that level,
Speaker 1: and it's the best way to stay in business. But
Speaker 1: that not necessarily possible with China's government or at least,
Speaker 1: it's impossible for everyone to just accept a company's assurances
Speaker 1: that it's not acting on behalf of a state backed
Speaker 1: entity and face value. There's a perception that the possibility
Speaker 1: exists for China's government to leverage a Chinese company in
Speaker 1: an effort to gain information about other nations, and if
Speaker 1: the perception is there, sadly, it doesn't really matter if
Speaker 1: such a possibility really exists. The perception matters more than
Speaker 1: reality does. It's kind of like when we talked about
Speaker 1: the possibility of hacking a voting machine. If people show
Speaker 1: that it's possible to hack a voting machine, that undermines
Speaker 1: the public's confidence that such machines work, and it inserts doubt.
Speaker 1: It inserts doubt that undermines the confidence we have in
Speaker 1: election results, and that means it undermines democracy as a whole.
Speaker 1: You don't even have to have a documented case of
Speaker 1: actual election interference for this to negatively impact the demo
Speaker 1: credit process. Well, the same thing is true for the
Speaker 1: case of Chinese companies and fears of espionage. Many countries
Speaker 1: have responded to this concern by limiting Huawei's involvement in
Speaker 1: those countries. In two thousand and twelve, the United States
Speaker 1: House Intelligence Committee recommended that American businesses avoid buying equipment
Speaker 1: from Huawei and other Chinese telecommunications companies specifically because of
Speaker 1: concerns over espionage. And the message has been pretty consistent
Speaker 1: ever since. Now you might ask, is this fear justifiable?
Speaker 1: I mean, yes, we know that many of these companies
Speaker 1: have Communist committees in them, and we know that the
Speaker 1: Communist Party in China is chiefly concerned with maintaining its
Speaker 1: power in that country. And surely the Communist Party is
Speaker 1: aware of the potential threat that powerful private companies could
Speaker 1: be to the power structure in China. But that might
Speaker 1: not be quite enough to justify the views we have
Speaker 1: about companies like Huawei. So let's get to a measure
Speaker 1: in twenties seventeen that really spelled it out and made
Speaker 1: the threat apparent. On June two thousand seventeen, the Communist
Speaker 1: Party of China passed a national intelligence law that has
Speaker 1: caused for concern for many parties out there. Several articles
Speaker 1: in the law state that intelligence agencies may ask quote
Speaker 1: relevant institutions end quote to quote provide necessary support, assistance,
Speaker 1: and cooperation end quote in those intelligence agencies efforts. So,
Speaker 1: in other words, China's government passed laws that lay out
Speaker 1: how government agencies can lean on companies to help collect
Speaker 1: and provide intelligence to various government agencies. Since Huawei is
Speaker 1: a communications company that has raised some serious concerns around
Speaker 1: the world, why would you want a company to come
Speaker 1: in and lay out communications infrastructure if you know the
Speaker 1: government that oversees that company maybe leaning on it to
Speaker 1: spy on people. Now, Ren the founder of Huawei, has
Speaker 1: stated that Huawei would never engage in such behaviors. He
Speaker 1: said that if the company were to do that, it
Speaker 1: would betray their customers and it would hurt their business.
Speaker 1: And that's true. But then people will also say, well, yeah,
Speaker 1: but that's exactly what a spy would say. Denying the
Speaker 1: company would ever collaborate with the Chinese government to collect
Speaker 1: information paradoxically confirms the possibility in the minds of many.
Speaker 1: And besides, Huawei might not even have a choice in
Speaker 1: the matter should it come down to that. The company
Speaker 1: continues to benefit from policies in China, and there's a
Speaker 1: lot of speculation over how much leverage the government holds
Speaker 1: over Huawei. Now, there are a lot of complicating factors
Speaker 1: that make this a less than black and white matter.
Speaker 1: For example, you could argue and persuasively. I might add
Speaker 1: that efforts to keep Huawei out of countries like the
Speaker 1: United States might be largely dependent upon keeping them out
Speaker 1: of competition as domest stick companies or other foreign companies
Speaker 1: from different parts of the world race to roll out
Speaker 1: new infrastructures, namely for technologies like five G. Huawei is
Speaker 1: a huge player in the five G space, holding more
Speaker 1: patents on five G related technologies than any other company.
Speaker 1: So I imagine there are a lot of telecommunications companies
Speaker 1: out there who would love to see Huawei struck from
Speaker 1: the playing field. They'd say, well, now we don't have
Speaker 1: to compete against them, We can end up competing against
Speaker 1: each other and have a better chance of getting way
Speaker 1: more money because there are billions of dollars to be
Speaker 1: made rolling out this sort of infrastructure. And you could argue, yeah,
Speaker 1: that's that's dirty pool, that's not that's not playing fair,
Speaker 1: you know, working to get a politician to to ban
Speaker 1: an entire company from being able to operate in an area.
Speaker 1: But then again, this is a very similar strategy to
Speaker 1: how Huawei got so large and successful in the first
Speaker 1: place back in China, because China had effectively done to
Speaker 1: all telecommunications companies outside of its country what other countries
Speaker 1: are now doing to Huawei. This doesn't necessarily make it right,
Speaker 1: mind you, but there's a bit of a well you
Speaker 1: reap what you sow going on here. Moreover, the fears
Speaker 1: about espionage seemed to have more than a little weight
Speaker 1: to them due to real world incidents that have happened
Speaker 1: over the last couple of years. In a French newspaper,
Speaker 1: La Monde Afrique reported that the computer system in the
Speaker 1: African Union headquarters in Addis Ababa had been compromised. The
Speaker 1: reports stated that every night, between midnight and two am,
Speaker 1: this system was sending data clandestinely to servers in Shanghai, China,
Speaker 1: and that this has been going on for five years straight.
Speaker 1: The facility itself had opened in two thousand twelve. Now
Speaker 1: here's the thing. The facility and its computer system had
Speaker 1: essentially been designed and built exclusively by Chinese companies. Africa
Speaker 1: and China have worked very closely together for rolling out
Speaker 1: stuff like infrastructure, and so the implication year was that
Speaker 1: those systems had purposeful backdoors built into them from the beginning.
Speaker 1: In order to give Chinese intelligence agencies access to this data.
Speaker 1: On those systems, there was just an ongoing data collection
Speaker 1: system for the Chinese intelligence community, and yes, Huawei had
Speaker 1: supplied much of the communications technology for that facility, though
Speaker 1: Huawei would deny that any of its equipment had anything
Speaker 1: to do with data transfers. On the other hand, it's
Speaker 1: pretty hard to imagine a scenario in which Huawei, which
Speaker 1: provided ongoing maintenance and support to this facility, would somehow
Speaker 1: remain ignorant that this was going on through the whole time.
Speaker 1: On December first, two thousand eighteen, Canadian officials detained Huawei's
Speaker 1: chief financial officer Ming Wang Shao. Ming, by the way,
Speaker 1: is also Huawei founder Ren's eldest daughter. The officials stopped
Speaker 1: Ming as she was transferring flights in Vancouver. The reason
Speaker 1: was that the United States had accused Ming of breaking
Speaker 1: sanctions against Iran. Indictments followed accusing Ming of using falsified
Speaker 1: information to hide business transactions with Iran, and a second
Speaker 1: indictment was against the company itself, accusing it of attempting
Speaker 1: to steal trade secrets from T Mobile and for obstructing justice.
Speaker 1: The trade secrets case itself is more than a little
Speaker 1: bit bizarre. It centers around a robotic arm nicknamed Tappy,
Speaker 1: which can tap a mobile screen rapidly. The ideas that
Speaker 1: it can mimic how humans can tap on screens. The
Speaker 1: whole point is that it's used to test uh technology
Speaker 1: like smartphones, test responsiveness, make sure that it's registering touches,
Speaker 1: that sort of thing. Huahwei wanted to buy this technology
Speaker 1: from T Mobile, but T Mobile decided not to do that.
Speaker 1: Then a Huawei US employee was discovered with a Tappy
Speaker 1: arm hidden in his bag as he was leaving a
Speaker 1: T Mobile facility, and the Huawei play claims that the
Speaker 1: robotic arm must have just, you know, just somehow fallen
Speaker 1: into the bag. That's weird. Huawei, for its part, stated
Speaker 1: that this employee was acting on his own, essentially taking
Speaker 1: a leap of faith that he would be rewarded if
Speaker 1: he could just get that robot arm back to Huawei.
Speaker 1: And they said, well, we certainly didn't tell him to
Speaker 1: do that. We would never do such a thing, and
Speaker 1: if he had brought it back to us, we certainly
Speaker 1: would have just returned it. I mean, that's just wrong. However,
Speaker 1: there have been some reports of an email trail that
Speaker 1: suggests perhaps company executives back in China were all too
Speaker 1: aware of the attempted robo heist. I guess they could
Speaker 1: say that they disarmed a robot. As of this recording,
Speaker 1: Meng Wren's daughter, the CFO of Huawei, is still being
Speaker 1: held in Canada, or at least really I should say,
Speaker 1: she isn't being allowed to leave Canada. She did post
Speaker 1: a ten million dollar bail back in December of in
Speaker 1: the eighteen and she has an extradition hearing scheduled for
Speaker 1: January twenty which could see her then go to the
Speaker 1: United States for trial, but that is still an ongoing,
Speaker 1: developing situation as of the recording of this podcast. In
Speaker 1: the US, the government has banned the sale of any
Speaker 1: Huawei phones, as well as phones from another Chinese company
Speaker 1: called z t E, on military basis. Google has canceled
Speaker 1: its Android license with Huawei, although there's been some ongoing
Speaker 1: issues between Google and Huawei. Telecommunications companies in various countries
Speaker 1: have started to replace Huawei components with technology from non
Speaker 1: Chinese companies. Several have pledged not to use Huawei tech
Speaker 1: while building out five G networks, though that isn't across
Speaker 1: the board for everybody. The UK, for example, has agreed
Speaker 1: to allow Huawei to build at least some parts of
Speaker 1: the five G infrastructure, though not necessarily the whole thing.
Speaker 1: A Huawei employee in Poland was arrested and accused of spying,
Speaker 1: and the company's subsequently fired the employee. Vota Phone reported
Speaker 1: that it had found hidden back doors in Huawei equipment,
Speaker 1: although some people argue it's possible these were just overlooked
Speaker 1: vulnerabilities and not intentionally left there. Either way, the tech
Speaker 1: was deemed to be, you know, not cool to use
Speaker 1: because it's it represents a security vulnerability. President Donald Trump
Speaker 1: signed a National Security order effectively banning Huawei products in
Speaker 1: the US, and then over the following months, that ban
Speaker 1: has been waffling all over the place. It goes from extremes,
Speaker 1: from absolutely no working with Huahwei too. Okay, you can
Speaker 1: do some business with Hahwei, but you've gotta get approval first,
Speaker 1: to all sorts of stuff in between. It's been a
Speaker 1: big mess and it's still ongoing. Wren has objected to
Speaker 1: many of these developments, which I guess is understandable. I mean,
Speaker 1: his eldest daughter is not allowed to leave Canada. In
Speaker 1: February of twenty nineteen, he lamented that the US treats
Speaker 1: five G technology like military tech, which personally I find
Speaker 1: a mute sing because Wren comes from a military background
Speaker 1: and he's famous for quoting military sayings and applying them
Speaker 1: to business, so I guess he should know. Anyway. I
Speaker 1: hope that this episode kind of got a little more
Speaker 1: perspective on what's going on with Huawei and why there
Speaker 1: has been such a kerfuffle around the company, and also
Speaker 1: just to understand how the heck it managed to get
Speaker 1: so big so fast. Turns out, if you have lots
Speaker 1: of money coming in from your country and you have
Speaker 1: guaranteed protection against competition and no one is there to
Speaker 1: stop you, if you steal other people's ideas, you can
Speaker 1: get pretty big, pretty fast. So what is the future
Speaker 1: for Huawei. Well, Ren's pretty confident that it's going to
Speaker 1: do just fine, even with the US putting in a
Speaker 1: band that it's not going to affect Huawei negatively. Moreover,
Speaker 1: it'll affect the United States negatively. The u US, in
Speaker 1: turn is saying, you know what, ways important and sure
Speaker 1: they're going to be companies that have to license patents
Speaker 1: from Huawei in order to get stuff done. But it's
Speaker 1: not the only player in town. There are other telecommunications
Speaker 1: companies that are very important in the rollout for five G,
Speaker 1: so it's not going to be as big a deal
Speaker 1: as the country and the company are suggesting. The truth
Speaker 1: is probably somewhere in the middle. But that wraps up
Speaker 1: this episode of tech Stuff. If you guys have suggestions
Speaker 1: for future episodes, whether it's a technology, a company, maybe
Speaker 1: it's just a concept in tech, let me know. You
Speaker 1: can send me an email the addresses tech Stuff at
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Speaker 1: have an archive of every single episode ever published on
Speaker 1: tech Stuff over on that website. So if you've missed
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Speaker 1: sleep in two thousand and fourteen and didn't wake up
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