WEBVTT - It's My Way or the Huawei 0:00:04.240 --> 0:00:07.240 Welcome to Tech Stuff, a production of I Heart Radios 0:00:07.320 --> 0:00:13.920 How Stuff Works. Hey there, and welcome to tech Stuff. 0:00:13.960 --> 0:00:16.959 I'm your host, Jonathan Strickland. I'm an executive producer with 0:00:17.040 --> 0:00:19.239 I Heart Radio and How Stuff Works, and I love 0:00:19.320 --> 0:00:24.639 all things tech. Kind of man, I may need to 0:00:24.680 --> 0:00:28.760 rethink that intro. So one of the ongoing stories in 0:00:28.800 --> 0:00:32.200 twenty nineteen has been about how various governments around the world, 0:00:32.440 --> 0:00:36.640 particularly the United States government, have been mounting in opposition 0:00:36.720 --> 0:00:41.560 to the Chinese telecom company Huawei. That company has only 0:00:41.600 --> 0:00:46.200 been around since nineteen eight seven slash so a little 0:00:46.240 --> 0:00:49.480 more than thirty years, and yet it's now a dominant 0:00:49.520 --> 0:00:52.879 company in the telecom industry that brings in more than 0:00:53.040 --> 0:00:57.560 ninety billion dollars in revenue. In today's episode, I want 0:00:57.600 --> 0:01:01.640 to explore the history of Huawei ties to the Chinese government, 0:01:01.920 --> 0:01:05.640 the incredible rise to prominence on the world stage, and 0:01:05.680 --> 0:01:09.479 the reasons why the company is encountering resistance today. Now, 0:01:09.880 --> 0:01:12.959 before I jump into the whole backstory, I want to 0:01:13.000 --> 0:01:16.839 address a real issue about covering these types of topics. 0:01:17.319 --> 0:01:20.480 Researching topics is always a challenge because you have to 0:01:20.520 --> 0:01:25.560 take into consideration your sources. Some sources may be unreliable, 0:01:25.800 --> 0:01:29.319 either because they are poorly constructed, or they may be 0:01:29.560 --> 0:01:33.760 part of a propaganda or a misinformation campaign specifically designed 0:01:33.760 --> 0:01:36.440 to project a particular story. You can think of it 0:01:36.520 --> 0:01:40.080 as a quote unquote version of the truth, and truth 0:01:40.120 --> 0:01:43.560 would be an extra quotation marks. In this episode, I 0:01:43.600 --> 0:01:46.640 attempted to corroborate as much information as I could with 0:01:46.760 --> 0:01:50.000 several sources, but much of the information coming out of 0:01:50.080 --> 0:01:55.800 China has been let's say, vetted heavily, and so getting 0:01:55.840 --> 0:01:59.280 to what is really going on remains a challenge. It's 0:01:59.320 --> 0:02:02.640 possible that the story that's being presented is in fact 0:02:02.720 --> 0:02:06.840 a reflection of what is really happening, but it's also 0:02:06.960 --> 0:02:11.160 possible that it's not. Also, I'll be talking a lot 0:02:11.240 --> 0:02:15.320 about the Communist Party of China in this episode, and 0:02:15.360 --> 0:02:18.239 I want to make it clear that the Communist Party 0:02:18.560 --> 0:02:23.400 is essentially synonymous with the Chinese government, and it's communist 0:02:23.440 --> 0:02:26.600 with a capital C, as opposed to someone who believes 0:02:26.639 --> 0:02:29.919 in the philosophy of communism, which would be a lower 0:02:29.919 --> 0:02:33.880 case see communist. When I say communist in this episode, 0:02:34.080 --> 0:02:37.320 I'm talking about the political power in China, not the 0:02:37.320 --> 0:02:41.520 philosophy that the political party takes its name from the 0:02:41.600 --> 0:02:46.000 two are different, largely different in fact. Okay, now let's 0:02:46.000 --> 0:02:49.360 get on with the show. A lot of Huawei's history 0:02:49.480 --> 0:02:53.120 hinges on the massive changes in China that began in 0:02:53.160 --> 0:02:56.960 earnest in. If you want to learn more about China's 0:02:56.960 --> 0:03:00.000 path to entering the modern age, listen to the episode 0:03:00.440 --> 0:03:04.400 that came out just before this episode, because those changes 0:03:04.400 --> 0:03:06.960 are what made it possible for a company like Huawei 0:03:07.000 --> 0:03:10.440 to exist in the first place. The story of Huawei 0:03:10.480 --> 0:03:13.960 begins with the story of its founder, Ren Shan Fai. 0:03:14.360 --> 0:03:17.920 Wren was born in nineteen forty four in Unshun, a 0:03:18.080 --> 0:03:22.400 city in the province of Gishao, China. I apologized, by 0:03:22.400 --> 0:03:25.760 the way for butchering the pronunciation of all these names, 0:03:25.880 --> 0:03:29.480 And I have to admit, I really am quite ignorant 0:03:29.480 --> 0:03:32.400 about much of China, So all of what I'm about 0:03:32.440 --> 0:03:35.200 to relay to you was brand new to me when 0:03:35.200 --> 0:03:38.960 I started researching this episode. I don't want to even 0:03:39.000 --> 0:03:42.440 remotely make it seem like I feel I'm an expert 0:03:42.480 --> 0:03:46.760 on this subject matter. So Gishao is an interior province 0:03:46.920 --> 0:03:50.200 of China. It's far from the coastal cities that marked 0:03:50.320 --> 0:03:54.320 China's centers of trade, and it's a more rural province 0:03:54.520 --> 0:03:57.320 in China, though that has been changing over the past 0:03:57.440 --> 0:04:01.080 several years. When the economic reform arms of nineteen seventy 0:04:01.160 --> 0:04:04.960 eight began to take effect in China, Gao would largely 0:04:05.000 --> 0:04:09.440 be left behind, becoming the poorest province for nearly two 0:04:09.480 --> 0:04:13.840 decades now. Wren's parents worked at a school in ann 0:04:14.320 --> 0:04:18.840 His father also had worked for a weapons factory as 0:04:18.839 --> 0:04:22.480 sort of a clerk. The order in which that actually 0:04:22.480 --> 0:04:25.640 happened is one I'm not entirely sure about, because there's 0:04:25.640 --> 0:04:30.920 some conflicting information, conflicting stories in various sources. There's even 0:04:30.960 --> 0:04:34.880 one version of this story I've seen that said definitively 0:04:35.279 --> 0:04:38.920 that Wren was born in October nineteen forty four and 0:04:38.960 --> 0:04:43.320 that his parents first met in nineteen forty nine, which 0:04:43.320 --> 0:04:45.960 I considered to be something of a puzzler. Now this 0:04:46.040 --> 0:04:49.400 comes as a little surprise to me, because I mean, 0:04:49.440 --> 0:04:52.120 after all, getting information out of China is a is 0:04:52.160 --> 0:04:54.080 a bit of a crap shoot on the best of days, 0:04:54.120 --> 0:04:58.719 So really, I guess you should expect it. One thing 0:04:58.839 --> 0:05:01.960 that definitively but in nineteen forty nine is that was 0:05:02.000 --> 0:05:05.840 the year the Communist Party gained control of China, and 0:05:05.880 --> 0:05:10.400 it has held onto China's government ever since. I mean 0:05:10.400 --> 0:05:16.159 the two are essentially synonymous. Bren attended school, enrolling in 0:05:16.240 --> 0:05:19.320 university in nineteen sixty. After he left school, at least 0:05:19.320 --> 0:05:22.640 according to some sources, he worked in civil engineering for 0:05:22.680 --> 0:05:26.839 a while, but in the nineteen seventies. Frequently it's cited 0:05:26.880 --> 0:05:31.279 as nineteen seventy four he joined the People's Liberation Army 0:05:31.520 --> 0:05:36.080 or p l A. That's China's official armed forces, and 0:05:36.120 --> 0:05:39.920 it's overseen by the Communist Party of China. This is 0:05:40.000 --> 0:05:43.440 an important part of our story, not just because it's 0:05:43.440 --> 0:05:46.520 certainly had an impact on the life of the founder 0:05:46.560 --> 0:05:50.000 of Huawei, but also because the p l A effectively 0:05:50.520 --> 0:05:53.480 belongs to the Communist Party as much as it does 0:05:53.560 --> 0:05:55.640 to China. In fact, you could argue that the p 0:05:55.839 --> 0:05:59.600 l A is really the Communist Party's military, as one 0:05:59.640 --> 0:06:03.320 of its founding principles is to ensure the Communist Party 0:06:03.320 --> 0:06:08.760 of China maintains its power in government. Rents specifically worked 0:06:09.000 --> 0:06:11.600 within the p l A at a research institute as 0:06:11.640 --> 0:06:15.000 a technologist. When he joined, China was going through Mount 0:06:15.120 --> 0:06:18.680 z Thong's Cultural Revolution, and if you listen to the 0:06:19.000 --> 0:06:22.920 episode before this one, you'll learn more about the Cultural Revolution. 0:06:23.279 --> 0:06:27.159 Much of China was tumultuous and chaotic during those years. 0:06:27.480 --> 0:06:31.680 Large areas of China faced enormous challenges, with people struggling 0:06:31.720 --> 0:06:36.680 to make their basic needs met just to survive. So 0:06:36.800 --> 0:06:41.160 Ren's department his his unit was sent to the northeast 0:06:41.240 --> 0:06:44.200 region of China, in an area that was quite different 0:06:44.240 --> 0:06:49.000 from Ren's home province, and conditions there were frigid and 0:06:49.040 --> 0:06:52.520 they were harsh. And Rin's department was tasked with building 0:06:52.560 --> 0:06:56.320 a factory that would produce synthetic fibers, which would then 0:06:56.360 --> 0:06:59.720 be woven together to create new clothing for Chinese citizens. 0:07:00.080 --> 0:07:02.760 According to Wren, he talked about this period of his 0:07:02.839 --> 0:07:06.320 life in a press conference in early twenty nineteen. During 0:07:06.360 --> 0:07:12.360 this time, each Chinese citizen had a government mandated allotment 0:07:12.640 --> 0:07:15.840 of one third of a meter of cloth, and Wren 0:07:15.840 --> 0:07:19.000 said in that interview that this small amount of cloth 0:07:19.080 --> 0:07:22.320 meant you really only had enough material to patch holes 0:07:22.360 --> 0:07:25.840 in older clothing. So this factory that he was working 0:07:25.880 --> 0:07:28.400 on was part of an effort to counteract the scarcity 0:07:28.400 --> 0:07:32.120 of cloth made from natural fibers by augmenting it with 0:07:32.240 --> 0:07:36.120 synthetic fiber. Clothing now the factory would not be dependent 0:07:36.280 --> 0:07:41.680 upon Chinese technology. Frankly, Chinese technology wasn't up to the task, 0:07:42.160 --> 0:07:46.800 so China imported equipment from France, which supplied a system 0:07:46.840 --> 0:07:51.640 that relied heavily on automated controls. The Chinese team learned 0:07:51.800 --> 0:07:55.320 how these components worked, how to maintain them, and then 0:07:55.400 --> 0:07:59.000 even how to reverse engineer them to an extent, so 0:07:59.040 --> 0:08:01.880 you could take this base strategy and apply it across 0:08:02.040 --> 0:08:06.360 China across all industries. That's essentially how China was able 0:08:06.400 --> 0:08:08.080 to start to catch up to the rest of the world, 0:08:08.480 --> 0:08:13.760 importing technology and then reverse engineering it. So that was 0:08:13.880 --> 0:08:17.600 pretty much part and parcel the way China got caught 0:08:17.680 --> 0:08:22.280 up on lots of technologies throughout the seventies, eighties, and nineties, 0:08:22.840 --> 0:08:25.400 and then after that they could start designing their own 0:08:25.400 --> 0:08:28.920 technology and innovating upon it. Now, Wren would go on 0:08:28.960 --> 0:08:32.120 to become part of the p l a's Engineering Corps 0:08:32.200 --> 0:08:34.760 and later still as a member of the Communist Party, 0:08:34.800 --> 0:08:38.320 but this was not a smooth path for him. His 0:08:38.400 --> 0:08:42.840 father had been labeled a capitalist during the Cultural Revolution, 0:08:43.200 --> 0:08:46.160 and that accusation meant that Wren's family would all be 0:08:46.280 --> 0:08:50.040 disqualified entry into the Communist Party, and that would end 0:08:50.120 --> 0:08:53.280 up being a big hurdle because at the time, being 0:08:53.320 --> 0:08:55.640 a member of the Communist Party was pretty much a 0:08:55.679 --> 0:08:59.359 prerequisite if you wanted to reach any sort of status 0:08:59.440 --> 0:09:03.360 within your career. You couldn't advance in your position if 0:09:03.400 --> 0:09:06.040 you weren't a member of the Communist Party, even if 0:09:06.040 --> 0:09:08.719 you were clearly talented and had a lot of aptitude. 0:09:09.320 --> 0:09:12.559 Bren would work in the Engineering Corps, eventually inventing a 0:09:12.600 --> 0:09:15.920 tool that could be used to help test factory equipment 0:09:16.160 --> 0:09:19.440 at that synthetic fiber factory. That achievement earned him the 0:09:19.480 --> 0:09:23.680 honor of being able to attend China's National Science Conference, 0:09:24.040 --> 0:09:27.480 which was held by the Communist Party of China. His 0:09:27.559 --> 0:09:31.199 work gained him support of party members and his Engineering 0:09:31.200 --> 0:09:34.800 Corps supervisor, and they essentially sponsored him and helped him 0:09:34.840 --> 0:09:38.920 secure membership within the Communist Party in ninety eight, just 0:09:39.120 --> 0:09:42.640 as those economic reforms were starting to take place. Now, 0:09:43.200 --> 0:09:47.160 this was two years after the death of Chairman Mao, 0:09:47.280 --> 0:09:50.640 and it was when China was just beginning to reverse 0:09:50.880 --> 0:09:54.679 decades of practices that had in many ways held back 0:09:54.800 --> 0:09:57.719 the country. One of the big ones was an attitude 0:09:57.760 --> 0:10:02.640 of suspicion towards intellectualism and education during the Cultural Revolution, 0:10:02.920 --> 0:10:05.680 Mao saw to it the intellectuals and students whom he 0:10:05.760 --> 0:10:09.160 viewed as potential threats to his position were sent off 0:10:09.240 --> 0:10:12.800 to do manual labor in many of the interior sections 0:10:12.880 --> 0:10:16.800 of the nation by night. The Chinese authorities decided that 0:10:16.840 --> 0:10:20.160 this had done an incredible disservice to the country, and 0:10:20.200 --> 0:10:22.640 so now people like Wren were being looked at as 0:10:22.720 --> 0:10:26.560 potential leaders to bring China up to speed with developed nations. 0:10:27.080 --> 0:10:29.760 Bren would rise to the rank of deputy director of 0:10:29.760 --> 0:10:32.840 a research institute within the p l A. He oversaw 0:10:32.920 --> 0:10:36.960 work that mainly focused on construction, which makes sense after 0:10:37.040 --> 0:10:41.840 his experiences in helping establish that synthetic fiber factory. But 0:10:41.920 --> 0:10:45.360 in nineteen eighty three, the Chinese government disbanded the engineering 0:10:45.400 --> 0:10:47.880 core of the p l A and Wren was left 0:10:47.880 --> 0:10:51.720 without a position, so he retired from the army, and 0:10:51.720 --> 0:10:54.280 then he went on to work at the Shenjin South 0:10:54.440 --> 0:10:59.440 Sea Oil Corporation. Shenjin is in southeast China Hong Kong, 0:10:59.480 --> 0:11:01.280 which at the time was under the control of the 0:11:01.360 --> 0:11:06.839 United Kingdom borders Snjin. The Shenjen South Sea Oil Corporation 0:11:07.000 --> 0:11:10.680 is a state owned entity, meaning the oil boat company 0:11:10.720 --> 0:11:14.360 belongs to the government of China that therefore the Communist 0:11:14.400 --> 0:11:17.160 Party of China. Ren worked there for a few years, 0:11:17.160 --> 0:11:20.160 but reportedly found the job unsatisfying, and he left in 0:11:20.240 --> 0:11:23.199 nineteen seven with a new goal to create a company 0:11:23.240 --> 0:11:25.320 of his own. And there are a lot of different 0:11:25.320 --> 0:11:30.559 reports about Ren founding Huawei along with maybe four partners, 0:11:30.679 --> 0:11:33.560 with the equivalent of somewhere between three thousand dollars and 0:11:33.600 --> 0:11:37.280 five thousand dollars American. That's a pretty amazing story, considering 0:11:37.320 --> 0:11:41.199 that today it's number nineties seven on Forbes's Most Valuable 0:11:41.240 --> 0:11:45.320 Companies list and an estimated brand value of eight billion dollars. 0:11:46.160 --> 0:11:48.959 Getting a handle in the company's value is actually really hard, 0:11:49.000 --> 0:11:53.240 because well, to call its financial reporting opaque is going 0:11:53.720 --> 0:11:58.920 beyond being generous. However, a piece in the Far Eastern 0:11:59.000 --> 0:12:02.880 Economic Review, which took a detailed look at Huawei's financial 0:12:02.920 --> 0:12:07.720 operations and complicated ownership status, tells a very different story. 0:12:07.760 --> 0:12:10.840 In that version, Wren and fourteen colleagues took out a 0:12:10.880 --> 0:12:14.680 loan from a state operated bank for the princely sum 0:12:14.880 --> 0:12:18.480 of eight and a half million US dollars the equivalent 0:12:18.520 --> 0:12:22.480 of that anyway, it was with this slightly less modest 0:12:22.720 --> 0:12:26.280 nest egg that he founded the company Huawei. Now I 0:12:26.320 --> 0:12:29.880 have no clue which version of this story is closest 0:12:30.000 --> 0:12:32.800 to the truth. It may be that both are true, 0:12:32.920 --> 0:12:35.240 and that the initial founding of the company was for 0:12:35.840 --> 0:12:39.400 three to five thousand dollars and then startup costs were 0:12:39.440 --> 0:12:43.600 covered by a substantial loan. I don't know, but there 0:12:43.600 --> 0:12:47.440 are conflicts. Now, the original business of Huawei wasn't in 0:12:47.520 --> 0:12:51.760 manufacturing or design. The company started off as a reseller. 0:12:52.240 --> 0:12:56.199 It would import telecom equipment from other countries and also 0:12:56.280 --> 0:13:00.480 from Hong Kong, stuff like telephone network switches, so the 0:13:00.520 --> 0:13:03.959 basic components you would use to build out a telecommunications 0:13:04.000 --> 0:13:08.079 network infrastructure. Then it would sell that equipment to clients 0:13:08.120 --> 0:13:12.360 within China. So obviously this wasn't like average people in China. 0:13:12.440 --> 0:13:16.240 This was for organizations, companies, the government. So one of 0:13:16.280 --> 0:13:20.160 its earliest and largest clients was Ren's old employer, the 0:13:20.200 --> 0:13:25.040 People's Liberation Army. Now, while reselling imported equipment was the 0:13:25.080 --> 0:13:28.160 source of revenue, Huawei also would create a team of 0:13:28.200 --> 0:13:30.760 engineers whose job it was to learn everything about the 0:13:30.760 --> 0:13:34.000 equipment they were bringing in and then to reverse engineer 0:13:34.040 --> 0:13:39.120 it with the ultimate goal being to produce similar tech independently. 0:13:39.559 --> 0:13:44.200 In fact, Huawei had an imbalance between researchers and production. 0:13:44.360 --> 0:13:48.400 Typically you would have way more people in production and 0:13:48.440 --> 0:13:52.400 then a smaller number as engineers who are working in 0:13:52.600 --> 0:13:55.959 R and D. Huawei through that on its side, where 0:13:56.400 --> 0:13:59.559 you had about twice as many people who are working 0:13:59.600 --> 0:14:02.640 in R and D essentially trying to reverse engineer this technology. 0:14:03.080 --> 0:14:06.160 Then you have people actually producing the stuff, and thus 0:14:06.160 --> 0:14:10.559 began Huawei's journey towards becoming a major telecommunications company. Now, 0:14:10.559 --> 0:14:13.000 when we come back, I'll go into a bit more 0:14:13.280 --> 0:14:16.240 detail about what we know or think we know of 0:14:16.280 --> 0:14:19.240 the way the company operates. But first let's take a 0:14:19.360 --> 0:14:30.000 quick break. The fact that v p l A partnered 0:14:30.080 --> 0:14:33.960 with Huawei to build out a telecommunications infrastructure for the 0:14:34.000 --> 0:14:38.040 military is a big reason for the success of the company. 0:14:38.360 --> 0:14:43.320 In nine six, Huawei's reputation set it up for enormous 0:14:43.360 --> 0:14:47.120 success as the Chinese government decreed that it would support 0:14:47.160 --> 0:14:51.800 domestic telecommunications companies and prevent foreign companies from coming into 0:14:51.880 --> 0:14:56.360 China to build out communications and internet infrastructure. So, whether 0:14:56.400 --> 0:15:00.240 you view Huawei as truly independent or not, an in 0:15:00.280 --> 0:15:03.800 case you're curious. I think any company in China is 0:15:03.840 --> 0:15:06.920 at least partly subject to the whims of the Chinese government, 0:15:06.960 --> 0:15:11.120 if not under the direct control of the Chinese government. Anyway, 0:15:11.120 --> 0:15:14.960 the company owes much of its success to state backed support. 0:15:15.440 --> 0:15:20.000 The Chinese government suppressed competition from foreign companies, and Huawei 0:15:20.080 --> 0:15:22.840 got a nice, big boost both from the government and 0:15:22.920 --> 0:15:26.840 the p l A. Now, why Huawei got such preferential 0:15:26.880 --> 0:15:31.000 treatment is one of many unanswered questions about the company, 0:15:31.080 --> 0:15:35.240 because it's not the only telecommunications company in China. There 0:15:35.240 --> 0:15:37.520 are others as well. So why did Huawei get a 0:15:37.520 --> 0:15:41.440 bigger boost than some of its fellow domestic telecom companies. 0:15:41.880 --> 0:15:46.520 It's possible that the military and Communist party connections were 0:15:46.640 --> 0:15:51.320 largely responsible for that. Huawei often ended up being the 0:15:51.400 --> 0:15:55.480 site of many visits from high ranking members of the 0:15:55.480 --> 0:15:58.400 Communist Party of China, and so there's a lot of 0:15:59.600 --> 0:16:04.400 guests is that it was this political connection that gave 0:16:04.480 --> 0:16:08.640 Huawei the advantage. Shen Jin named Huawei one of its 0:16:09.000 --> 0:16:13.000 twenty six key development projects that have been selected for 0:16:13.080 --> 0:16:16.840 state support, and state backed banks began to extend credit 0:16:17.000 --> 0:16:20.680 to parties that were buying Huawei's products. So if you 0:16:20.760 --> 0:16:24.040 were trying to build out an infrastructure, you were essentially 0:16:24.200 --> 0:16:28.880 getting a sort of discount almost if you went with 0:16:28.960 --> 0:16:32.240 Huawei over anyone else. At this point, we're still really 0:16:32.280 --> 0:16:35.720 just talking about companies and governments, because again, Huawei's focusing 0:16:35.760 --> 0:16:39.480 on networking technologies, not in consumer electronics, although the company 0:16:39.520 --> 0:16:42.880 would start to do that later on. Huawei also received 0:16:42.960 --> 0:16:45.760 large loans from the government in order to develop Chinese 0:16:45.760 --> 0:16:50.360 operated GSM mobile phone infrastructure and technology, again to avoid 0:16:50.360 --> 0:16:54.520 becoming dependent upon foreign companies. Huawei delivered upon that promise 0:16:54.720 --> 0:16:57.880 and as a result, received even greater support from state 0:16:57.960 --> 0:17:03.000 backed banks. For example, in nineteen, the China Construction Bank 0:17:03.360 --> 0:17:08.440 extended three point nine billion ranmimbi. That's the official currency 0:17:08.520 --> 0:17:12.440 of the People's Republic of China. Okay, but how much 0:17:12.840 --> 0:17:16.520 is that in a different currency like US dollars three 0:17:16.560 --> 0:17:22.480 point nine billion, Well, in the one, which is the 0:17:22.600 --> 0:17:26.120 unit of currency for China, had an average exchange rate 0:17:26.160 --> 0:17:29.520 of eight point to seven nine one to the US dollar. 0:17:29.800 --> 0:17:32.640 So using that figure, we can estimate that this line 0:17:32.640 --> 0:17:36.280 of credit was equivalent to about four hundred seventy one 0:17:36.480 --> 0:17:41.320 million dollars in nineteen in US dollars. But then we 0:17:41.359 --> 0:17:44.200 also should factor an inflation, right, because I mean we've 0:17:44.200 --> 0:17:49.800 had inflation since nine So today that line of credit 0:17:49.840 --> 0:17:53.600 would be worth about seven hundred forty one million dollars. 0:17:53.680 --> 0:17:57.320 That's a lot of smack arooos. It represented nearly half 0:17:57.440 --> 0:18:00.960 of all the credit this bank would exp end that year, 0:18:01.720 --> 0:18:05.200 and it all went to one company. This is one 0:18:05.200 --> 0:18:08.280 of the reasons why Huawei was able to grow so rapidly. 0:18:08.840 --> 0:18:12.760 Had this enormous support of the Chinese government and financial 0:18:12.760 --> 0:18:16.240 sector behind it. Coupled with the Chinese government's efforts to 0:18:16.280 --> 0:18:21.040 suppress any sort of foreign competition, Huawei had no shortage 0:18:21.119 --> 0:18:25.359 of domestic customers. You had railways, telecommunications companies, you had 0:18:25.400 --> 0:18:28.720 the military, all having high demand for Huawei's equipment. On 0:18:28.800 --> 0:18:31.320 top of that, the company began to enter into the 0:18:31.359 --> 0:18:35.200 international market, and for a ton of reasons, Huawei's equipment 0:18:35.359 --> 0:18:38.159 was much cheaper than most other products that were on 0:18:38.240 --> 0:18:42.680 the market. Again, we're talking about big infrastructure, network switches, 0:18:42.920 --> 0:18:47.120 telecommunications components, that sort of thing. So companies from other 0:18:47.160 --> 0:18:50.600 countries began to order lots of equipment at essentially a 0:18:50.640 --> 0:18:54.280 big discount compared to Huawei's competitors, and that brought a 0:18:54.320 --> 0:18:58.879 welcome dose of foreign revenue into China, and all the 0:18:58.880 --> 0:19:02.560 while the international community expressed surprise to see this kind 0:19:02.560 --> 0:19:05.240 of technology emerge out of China in the first place. 0:19:05.240 --> 0:19:07.920 A lot of people just didn't expect to see China 0:19:07.960 --> 0:19:10.639 produce this kind of stuff. And what they didn't really 0:19:10.880 --> 0:19:14.600 know or appreciate was that Huawei was pouring a ton 0:19:15.080 --> 0:19:18.000 of money that it had secured in loans or made 0:19:18.000 --> 0:19:21.439 in revenue back into research and development. I'm talking on 0:19:21.480 --> 0:19:25.239 the order of billions of dollars to put all of 0:19:25.280 --> 0:19:29.080 this onto a fast track, and it was occasionally lifting 0:19:29.119 --> 0:19:33.679 designs from other companies and countries wherever it could uh, 0:19:33.840 --> 0:19:36.679 sometimes to the point that would get it into trouble. 0:19:37.160 --> 0:19:39.919 Now there's a lot we don't know about Huawei. Some 0:19:40.080 --> 0:19:43.199 of that is around the technology they produce. We don't 0:19:43.200 --> 0:19:46.359 necessarily know everything about it, and that raises a lot 0:19:46.400 --> 0:19:49.080 of concerns. Some of it is in how much influence 0:19:49.160 --> 0:19:53.119 the Chinese government has within the company that raises other concerns, 0:19:53.359 --> 0:19:54.960 and some of it just has to do with how 0:19:55.000 --> 0:19:57.639 the company itself is structured. So I'm going to go 0:19:57.680 --> 0:20:00.119 through a little bit of what's been publicly report. Did 0:20:00.800 --> 0:20:04.800 Huawei is, according to the company, privately held and owned 0:20:04.920 --> 0:20:09.000 by the company's employees. It is not state owned, so 0:20:09.440 --> 0:20:13.080 the government of China does not own and operate Huawei. 0:20:13.400 --> 0:20:16.879 But it's also not publicly traded, and because no shares 0:20:16.920 --> 0:20:20.360 of Huawei are on open markets, there are no requirements 0:20:20.480 --> 0:20:24.040 for the company to share its financial reports, so there's 0:20:24.080 --> 0:20:28.000 no auditing of Huawei's operations, and so much about what 0:20:28.119 --> 0:20:30.919 is actually going on remains a bit of a mystery. Now. 0:20:30.960 --> 0:20:35.720 According to Huawei, employees own virtual shares in the company. 0:20:35.760 --> 0:20:38.159 The idea is that if you work for Huawei, and 0:20:38.200 --> 0:20:42.560 if you are a Chinese citizen, then you can have 0:20:42.640 --> 0:20:45.639 some equity in the company and share in some of 0:20:45.640 --> 0:20:48.280 those profits. So by own, I don't mean they can 0:20:48.280 --> 0:20:52.800 actually buy and sell shares. They earn an equity stake 0:20:52.840 --> 0:20:56.120 in the company and they receive payouts based on company 0:20:56.160 --> 0:20:59.359 and individual performance. Essentially, if you do a great job 0:20:59.400 --> 0:21:02.480 at Huawei, you get awarded more shares, each of which 0:21:02.520 --> 0:21:04.840 pays out a certain amount of money at a regular 0:21:04.880 --> 0:21:07.879 interval based on profits in the company. It's meant to 0:21:07.920 --> 0:21:10.640 be an incentive to attract top talent and to keep 0:21:10.680 --> 0:21:13.879 it at Huawei, but there are some big qualifiers that 0:21:13.920 --> 0:21:16.879 go along with this. One of those is that you 0:21:16.960 --> 0:21:19.800 have to be Chinese to receive any shares in the 0:21:19.840 --> 0:21:22.440 company at all. This is due to the laws of China. 0:21:22.760 --> 0:21:26.520 No overseas employees of Huawei would be allowed to own 0:21:26.800 --> 0:21:30.760 or be awarded shares in Huawei. Another is that you 0:21:30.800 --> 0:21:34.760 can't sell those shares they you don't actually have something 0:21:34.800 --> 0:21:37.520 you can sell at a market to someone else. That 0:21:37.600 --> 0:21:40.840 shares themselves don't have a value the way a publicly 0:21:40.880 --> 0:21:44.600 traded share would, so it sounds to me like they 0:21:44.920 --> 0:21:47.879 more represent how much an employee will receive in what 0:21:47.960 --> 0:21:50.840 amounts to bonus pay. If you were to leave the 0:21:50.880 --> 0:21:54.280 employment of Huawei, the company would pay you the value 0:21:54.359 --> 0:21:58.240 of those shares, whatever that value happened to be at 0:21:58.240 --> 0:22:01.360 the time that you ended your employment with the company. 0:22:01.400 --> 0:22:05.359 But again, there's no way to actually know how many 0:22:05.560 --> 0:22:09.399 shares there are or what the individual value of a 0:22:09.520 --> 0:22:12.679 share is at any given times, so I don't know 0:22:12.760 --> 0:22:14.680 that you would even realize if you had been given 0:22:14.720 --> 0:22:17.879 a fair deal or not. Shares then revert back to 0:22:17.920 --> 0:22:22.480 the company, which could then award them to a different employee. UM, 0:22:22.600 --> 0:22:26.320 I honestly don't know how legit this whole share thing is. Now. 0:22:26.320 --> 0:22:30.920 According to Huawei ren himself, the founder, owns only one 0:22:31.000 --> 0:22:35.200 point four percent of those shares, though other sources suggest 0:22:35.280 --> 0:22:38.440 that he might actually own as much as five percent. Now. 0:22:38.480 --> 0:22:41.360 To be fair, some of those reports are older reports, 0:22:41.440 --> 0:22:44.080 and things could have changed between then and now, So 0:22:44.160 --> 0:22:47.040 maybe he used to own five percent but now only 0:22:47.119 --> 0:22:51.240 owns one point four percent. I'm not entirely certain. The 0:22:51.320 --> 0:22:53.240 rest of the ownership of the company is said to 0:22:53.280 --> 0:22:57.200 be split between the thousands of employees at Huawei now. 0:22:57.240 --> 0:23:00.800 Back in an article in I t Who's stated that 0:23:00.920 --> 0:23:05.960 according to Huawei, out of the nine thousand employees working 0:23:06.000 --> 0:23:09.880 for the company, around sixty one thousand, four hundred and 0:23:09.920 --> 0:23:14.400 fifty seven of them had shares in the company. Today, 0:23:14.440 --> 0:23:18.240 about twice as many people work for Huawei, So the 0:23:18.240 --> 0:23:21.560 company has around a hundred eighty thousand employees according to 0:23:21.560 --> 0:23:24.600 a two thousand seventeen report, and again, not all of 0:23:24.600 --> 0:23:27.960 those employees are eligible to hold shares. But again there's 0:23:27.960 --> 0:23:30.520 no external auditing of Huawei to tell anyone whether or 0:23:30.560 --> 0:23:34.000 not this is what is actually happening. One thing that 0:23:34.119 --> 0:23:37.040 has been reported is that the company maintains an active 0:23:37.040 --> 0:23:41.400 branch of the Communist Party within the company itself. This 0:23:41.600 --> 0:23:45.639 isn't unusual for private companies in China or companies in 0:23:45.680 --> 0:23:48.800 general in China. In fact, if a company employees at 0:23:48.920 --> 0:23:53.359 least three party members, then by Communist Party rules, there 0:23:53.359 --> 0:23:57.040 should be a committee formed within that company. Ten Cent, 0:23:57.240 --> 0:24:00.159 another major tech company in China, has its own mean 0:24:00.200 --> 0:24:03.359 this party committee. So does Ali Baba, and so this 0:24:03.440 --> 0:24:06.240 continues to blur the lines between how much of Huawei's 0:24:06.240 --> 0:24:10.439 operations are really that of a privately held company versus 0:24:10.520 --> 0:24:14.359 a state run enterprise. There are a lot of unanswered 0:24:14.440 --> 0:24:17.480 questions about how much influence does the Communist Party have 0:24:17.720 --> 0:24:21.720 over the operations of these companies. And by the way, 0:24:22.119 --> 0:24:26.280 the Communist Party involvement doesn't just include companies that originate 0:24:26.480 --> 0:24:30.760 inside China. Plenty of foreign companies that operate within the 0:24:30.800 --> 0:24:35.280 borders of China also have their own party committees. These 0:24:35.320 --> 0:24:39.200 include companies like Walmart, which blows my mind because famously 0:24:39.280 --> 0:24:44.000 Walmart opposes unionization in the United States, which is a 0:24:44.320 --> 0:24:48.800 kind of a central theme in communism. But they have 0:24:49.080 --> 0:24:53.040 party committees in Chinese operations because that's required if they're 0:24:53.040 --> 0:24:57.080 going to operate within China. In fact, Walt Disney's interests 0:24:57.119 --> 0:25:01.320 in China have Communist Party committees. Part of the cost 0:25:01.359 --> 0:25:04.600 of doing business in China is dealing with the Communist Party, 0:25:04.960 --> 0:25:09.760 and because business in China means billions of dollars, a 0:25:09.800 --> 0:25:13.000 lot of companies are willing to make that trade, even 0:25:13.000 --> 0:25:16.960 when it can get pretty sticky in some cases. Now moreover, 0:25:17.040 --> 0:25:21.600