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Huawei: The Big Picture

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12:19   |   Jun 21, 2019

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Huawei: The Big Picture
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  • This video is sponsored by Brilliant.
  • The first 200 to use the link in the description get 20% off the annual subscription.
  • September 9th, 1976.
  • The day, Mao Zedong died, three decades after founding the People’s Republic of China.
  • Few countries are so easily divided into two distinct eras.
  • With his death, the economic walls around the Red Dragon slowly fell, allowing the largest
  • population on earth access to the world economy.
  • In 1978, there were, essentially zero private companies.
  • All were state-owned, with only a tiny 140,000 people, or 0.01% of its population, employed
  • privately.
  • Just three years later, thanks to Mao’s successor, Deng Xiaoping, that number was
  • already 16 times higher.
  • China in the ‘80s and ‘90s was the golden opportunity to start a company.
  • Big, inefficient state-owned corporations had left huge gaps in the economy, people
  • were moving to the city, finally, with money to spend, and the government was eager to
  • encourage enterprise.
  • Which is to say, Ren Zhengfei couldn’t have picked a better time than 1987 to start his
  • company, called Huawei!
  • A few years later, it won a contract with the People’s Liberation Army, which, although
  • small in financial terms, was huge for winning favor with the Communist Party, who then protected
  • the company from competition.
  • With this help, Huawei became, today, the 2nd largest phone company in the world, just
  • ahead of Apple, and behind only Samsung.
  • Up until just a few months ago, it was expected to pass Samsung to become number one, lead
  • the world in the spread of 5G and gain even more market share than its current 29% of
  • all telecommunications equipment on earth.
  • Then, with one, swift signature, Huawei was banned.
  • Not only does this stop the company from selling equipment in the U.S., but all Huawei products,
  • everywhere are banned from working with American companies, who supply Huawei with components
  • like Intel chips, and software like the Google Play Store.
  • So, is Huawei, as the United States claims, a real threat to national security?
  • A trojan horse for the Chinese government?
  • Or is the ban merely political?
  • The problem with most answers to these questions is that they focus only on the technology,
  • the politics, or China.
  • But to really understand Huawei, you have to marry all three.
  • Who really owns a company?
  • It’s a pretty reasonable question and should have a pretty simple answer.
  • You don’t usually need to go around reading Articles of Incorporation, just some common
  • sense.
  • A few decent clues are whoever’s office is on the 100th floor, or, maybe, whoever’s
  • business card is most expensive.
  • But not always.
  • Because, of course, the structure of a company is not designed for our legibility, but, rather,
  • to make more money or limit somebody’s power.
  • So, you see lots of weird subsidiaries, holding companies without employees based in the Virgin
  • Islands, deliberately confusing names, and dual-class shares.
  • Things can get… weird.
  • Take John, for example, of Papa fame, who, facing public pressure, resigned as the company
  • chairman.
  • A few weeks later, John decided actually, he’d like to return to his pizza Papa position.
  • The board said, “Yeeeah…
  • Hard pass!” and changed the company’s bylaws to block their own largest shareholder
  • from taking over the company he founded.
  • He then sued his own company.
  • One time, a pharmaceutical company called Rockwell Medical split into two legal corporations,
  • each claiming to be the real, legitimate Rockwell Medical Incorporated with the same address
  • and same shareholders, leaving everyone wondering, who’s the real pope?
  • The point is, it’s actually not that simple of a question.
  • And, that’s before you add the whole Socialism twist.
  • If you do ask Huawei who owns the company, they’ll happily take you to a special room
  • in their Shenzhen headquarters, where a giant blue book, because little and red were taken,
  • sits behind glass.
  • Exactly the way you’d expect a multi-billion dollar tech company to keep its records.
  • In it, Huawei says, is a list of every person who owns shares in the company.
  • And, as they’ll enthusiastically assure you, none of these people are the Chinese
  • government.
  • Case… not closed, obviously.
  • Here’s what we know:
  • Huawei Technology LLC is 100% owned by a holding company called Huawei Investment & Holding,
  • which is itself owned by two parties:
  • Huawei’s CEO owns about 1%, and the rest, the Union of Huawei Investment & Holding.
  • It says this is only for legal reasons, and, I’ll remind you, convoluted ownership structures
  • aren’t at all unusual.
  • For all practical purposes, Huawei claims, the company is owned by its employees - the
  • names in the blue book - who own stock in the company.
  • But, again, it’s not so simple.
  • What Huawei calls stock is, actually, apologizes in advance to non-business majors, Synthetic
  • Equity, or, for maximum, put-it-in-the-parking-lot, synergize, circle-back jargon-points, Restricted
  • Phantom Shares.
  • OoOooOoo…
  • Phantom… spooky sounding!
  • It’s a lot like regular equity - shareholders, in this case, Huawei employees, receive a
  • share of the company’s profits - a dividend.
  • They stand to make money, so they’re incentivized to add value to the company.
  • Except it’s “synthetic” - as in not totally… real.
  • It can’t be sold or transferred, doesn’t give much say in the operations of the company,
  • and, if an employee, for any reason, leaves the company, he or she must also sell back
  • their shares.
  • As two American researchers summarize “…this virtual stock ownership has nothing to do
  • with financing or control.
  • It is purely a profit-sharing incentive scheme.”
  • When we ask the question “Who owns Huawei?”, what we’re really asking is who, if they
  • really wanted the company to do something, like, say, spy on foreign countries, has the
  • power to do so.
  • The answer, it seems, is the union, who owns the holding company, who owns the company.
  • So, who controls the union?
  • This time the answer is much easier: Under Chinese labor law, Unions are subject to their
  • superior branch - local Unions answer to provincial unions, all the way up through a winding python
  • of hierarchy, ending at the chairman of the All-China Federation of Trade Unions, who
  • also sits on the National People's Congress.
  • Unions in China are, therefore, largely an extension of the Communist Party.
  • Now, you’d be right to point out that this alone shouldn’t be enough to ban an entire
  • company from doing business with an entire country.
  • After all, this logic applies to many Chinese companies, not just Huawei.
  • It would be ridiculous to ban all of them.
  • To that, defenders of the ban would say, But Huawei is no ordinary company; it has a long
  • history of alleged misbehavior.
  • It’s CFO was, quite prominently, arrested in Canada on the grounds of violating US sanctions
  • on Iran.
  • Cisco accused the company of copying their manuals after finding the same typos in Huawei’s,
  • which its CEO said was just a coincidence.
  • The CIA also claims it has evidence that Huawei has taken money from Chinese intelligence
  • services.
  • And finally, in 2012, China gave the African Union a new $200 million headquarters in Ethiopia.
  • Then, last year, a French newspaper quoted anonymous technicians in the building who
  • claimed they caught Huawei equipment copying and sending data to servers in Shanghai - which
  • China and the African Union officially deny.
  • On one hand, there’s a lot of smoke here, on the other, there’s also a lot of people
  • who have a strong interest in you believing there’s a fire.
  • All of these incidents are alleged, and, neither the UK nor the US has ever presented clear
  • evidence of a backdoor in Huawei equipment, despite having many years to investigate.
  • Before the ban, before its phones were cut-off from Google services, before it lost its relationship
  • with ARM, before it was, indirectly, forced to sell off its undersea cable business, Huawei
  • was unstoppable.
  • Experts tend to agree that it’s years ahead of anyone else on 5G technology and that its
  • equipment is, in general, significantly cheaper.
  • That’s why, despite pressure from its allies, Britain has continued buying Huawei equipment
  • - doing so saves, at least, millions of dollars.
  • It mirrors the predicament many countries around the world face with Chinese investment:
  • Even knowing the risk of dependence on China, can they resist the economic benefits?
  • It’s no secret that, while this is going on, the U.S. is in a trade war with China,
  • and banning Huawei gives it both negotiating leverage and protects American telecommunications
  • companies from foreign competition, exactly at its strongest.
  • So, make no mistake: The ban is political.
  • It’s been strongly hinted as being on the table for trade negotiations.
  • And it’s quite possible the ban will soon be reversed if a deal is made.
  • But, it’s just as important to note that just because something is strategically motivated,
  • doesn’t mean there aren’t, other, perfectly legitimate arguments.
  • Much of the confusion around this issue is centered around the fact that politicians
  • can agree on the same policy for vastly different reasons.
  • The truth is you don’t need to make a judgment call on whether you trust Huawei or its CEO.
  • You only need to recognize the most basic feature of the Chinese system: everything
  • is the concern of the state.
  • From what is shown on TV, to who is allowed to travel, even how long you can play Fornite,
  • and certainly the movements of its largest corporations, the Communist Party is everywhere,
  • if not now, and quite possibly, not, in the case of Huawei, eventually.
  • Having an enemy is, unfortunately, useful for American politicians, especially one as
  • misunderstood as China,
  • but so too is it crucial for a country to keep its communications infrastructure, through
  • which national secrets are shared and information wars, increasingly fought, free from foreign
  • influence.
  • This is much bigger than any one company, bigger than who controls 5G, bigger even than
  • the trade-war.
  • It’s really about the Chinese system being used against it.
  • The story of Huawei is very much the story of China - both only realized their full potential
  • upon opening up to the world’s markets, where Huawei now makes the much of its revenue,
  • and how China was turned into one of the most powerful nations on earth.
  • Huawei is what it is today to a significant degree because of its close relationship with
  • and subsequent protection by the Chinese government.
  • Now, it’s a victim of that same closeness - the other side of that very profitable coin,
  • which, ironically, has long blocked many western tech companies - Google, Facebook, Twitter,
  • YouTube… - from operating in China on, you guessed it… national security grounds.
  • China would like the benefits of free, open trade abroad, while closely protecting and
  • controlling business domestically.
  • But now it’s forced to chose.
  • In a trade war like this one, each side is trying to use game theory to interpret and
  • outmaneuver their opponent, who may or may not be lying.
  • For example, say there are two types of people - knights, who always tell the truth, and
  • knaves, who always lie.
  • You say “If I asked if you were a knight, what would you say”? and they respond “No”,
  • which are they - knight or knave?
  • To see the answer and solve other problems like this one, check out the interactive logic,
  • computer science, and math courses on Brilliant.
  • You can even do them offline with their iOS and Android apps.
  • If you want something more bite-sized, Brilliant also has Daily Challenges in math, science,
  • and engineering.
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  • Thanks again to Brilliant and to you for watching this video.

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Music by Epidemic Sound: http://epidemicsound.com

Full list of sources: https://pastebin.com/2ehENRde
*It’s worth noting that a few of these sources are unreliable. For example, CGTN is a branch of China’s international propaganda arm. I’ve included them in my research to understand how China is talking about the issue and trying to persuade outsiders.

Map: World - Single Color and United States by FreeVectorMaps.com

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