Huawei’s CEO Built an Empire. Trump Could Tear It Down
Huawei’s CFO arrest places Huawei in the cross-hairs of an escalating technology rivalry between China and the U.S.,
(Bloomberg) -- At the sprawling Huawei Technologies Co. campus in Shenzhen, the food court’s walls are emblazoned with quotes from the company’s billionaire founder and CEO Ren Zhengfei. Then there’s the research lab that resembles the White House in Washington. Perhaps most curious, though, are the three black swans paddling around a lake.
For Ren, a former People’s Liberation Army soldier turned telecom tycoon, the elegant birds are meant as a reminder to avoid complacency and prepare for unexpected crisis. That pretty much sums up the state of affairs at Huawei, whose chief financial officer, Meng Wanzhou, who’s also Ren’s daughter, is in custody in Canada and faces extradition to the U.S. on charges of conspiracy to defraud banks and violate sanctions on Iran.
The arrest places Huawei in the cross-hairs of an escalating technology rivalry between China and the U.S., which views the company, a critical global supplier of mobile network equipment, as a potential national security risk. Hardliners in Donald Trump’s administration are especially keen to prevent Huawei from supplying wireless carriers as they upgrade to 5G, a next-generation technology expected to accelerate the shift to internet-connected devices and self-driving cars.
Ren is a legendary figure in the Chinese business world. He survived Mao Zedong’s great famine and went on to build a telecom giant with $92 billion in revenue that strikes fear among some policymakers in the West. Huawei is the No. 1 smartphone maker in China, and this year eclipsed Apple to become the second-biggest maker globally, according to research firm IDC. Though it has a low profile compared with China’s Internet giants, Huawei’s revenue last year was more than Alibaba Group Holding Ltd., Tencent Holdings Ltd. and Baidu Inc. combined. About half of its revenue now comes from abroad, led by Europe, the Middle East and Africa.
The company’s high-speed global expansion has come under fire for years, starting with the Committee on Foreign Investment in the United States’s derailing of an acquisition in 2008. More recently, Australia, New Zealand and the U.S. have blocked or limited the use of Huawei gear. Japan’s wireless operators also plan to ban some Huawei gear, Kyodo News reported Monday.
The arrest and prosecution of Meng in U.S. courts comes amid a far bigger U.S.-China struggle for technology dominance in the decades ahead--and could have huge, and potentially severe, consequences for Huawei. Ren declined an interview request from Bloomberg News.
"It gives Trump a bargaining chip," said George Magnus, an economist at Oxford University’s China Centre. "She’s the daughter of the CEO, Ren Zhengfei, himself a former PLA officer, and Huawei’s alleged dealings with Iran are just the latest in a string of concerns."
An outright ban on buying American technology and components, should it come to that, would deal Huawei a crushing blow. Earlier this year, the Trump administration imposed just such a penalty on ZTE Corp., also a Chinese telecom, and threatened its very survival before backing down. Both Huawei and ZTE are banned from most U.S. government procurement work.
A full-blown, commercial ban in the U.S. would apply not only to hardware components, but also cut off access to the software and patents of U.S. companies, Edison Lee and Timothy Chau, analysts with Jefferies Securities, wrote in a report. "If Huawei cannot license Android from Google, or Qualcomm’s patents in 4G and 5G radio access technology, it will not be able to build smartphones or 4G/5G base stations," they note.
The company’s legal troubles in the U.S. may also spill into other markets. "Government telecommunication infrastructure requirements are essentially locking out the Chinese supplier in critical growth markets," noted Morningstar Research equity analyst Mark Cash in an email. "Additionally, telecom providers without government imposed restrictions may start limiting their usage of Huawei equipment for their 5G network build-outs."
If there’s a Darth Vader in the minds of Chinese national security hawks in Washington worried about China’s rising tech power, it’s Ren. In China, though, he’s feted as a national hero, who rose from humble beginnings to the pinnacle of wealth and status in Chinese society.
His grandfather was a master of curing ham in his village in Zhejiang province, which afforded Ren’s father the chance to become the village’s first university student, according to a 2001 essay by Ren about his upbringing, which was published on a website linked to the Chinese Academy of Social Sciences.
His father, Ren Moxun, was a Communist Youth League member, who later worked as a teacher and an accountant at a military factory, but who kept up his rebel fervor under the Kuomintang by selling revolutionary books. After moving to rural Guizhou province, he met his wife Cheng Yuanzhao and gave birth to Ren Zhengfei, the oldest of two sons and five daughters.
The family lived on modest teaching salaries. In one of his speeches, he remembered how his mother read him the story of Hercules, but withheld the ending until he came home with a good report card.
During the Great Leap Forward campaign that started in the late 1950s, a famine came to his home town after Communist Party industrialization and collectivization policies went off the rails. Ren recalled in his essay how his mother stuffed into his hand each morning a piece of corn pancake while asking about his homework. His good grades gained him entry to the Chongqing Institute of Civil Engineering and Architecture.
After graduation, he worked in the civil engineering industry until 1974, when he joined the People Liberation Army’s Engineering Corps as a soldier, and worked on a chemical fiber base in Liaoyang. Huawei says he rose to become deputy director, but did not hold military rank. He does, however, often pepper his speeches with military references.
“Our managers and experts need to act like generals, carefully examining maps and meticulously studying problems,” Ren said in a speech posted on a website for Huawei employees.
Ren’s Communist Party credentials aren’t as deep as his father’s. He attended the 12th National Congress of the Communist Party in 1982, and once cited the party’s dogma of “a struggle that never ends” when defending the company’s tough work hours. But Ren was a bookworm as a kid and was denied acceptance into the Communist Youth League, according to "Huawei: Leadership, Culture and Connectivity," a book co-authored by David De Cremer, Tian Tao and Wu Chunbo.
He didn’t become a Communist Party member in the PLA until late in his military career. However, a 2012 House permanent Select Committee on Intelligence report on Huawei asked why a private company had a Communist Party Committee, which has become common among China’s internet giants and other big corporations.
Ren retired from the army in 1983, and joined his first wife to work at a Shenzhen company involved in the city’s special economic zone. It was around then that he had to sell off everything to pay a debt related to a business partner, and lost his job at Shenzhen Nanyou Group, as well as his first marriage, according to "Ren Zhengfei and Huawei" by author Li Hongwen.
After a period of sleepless nights while living with family members, Ren saw an opportunity. When China began its economic opening under Deng Xiaoping, the telephone penetration rate was lower than the average rate in Africa, or 120th in the world. He founded Huawei with four partners in 1987 with 21,000 yuan in initial working capital, just above the minimum threshold required under Shenzhen rules.
Huawei started out as a trader of telecom equipment, but the company’s technicians studied up on switchboards and were soon making their own. Workers put in long hours, in Shenzhen’s swampy heat with only ceiling fans. Ren kept up morale with subtle gestures, like offering pigtail soup to workers putting in overtime.
The company became known for its “mattress culture” in which workers would pass out on office mattresses from exhaustion. In 2006, a 25-year-old worker Hu Xinyu, who had made a habit of working into the wee hours and then sleeping at the office, died of viral encephalitis. Some Huawei employees subsequently committed suicide. The deaths triggered a revision of the company policy on overtime, and the creation of a chief health and safety officer role.
It wasn’t the only move Ren made to stabilize morale. He used to pay his workers only half their salaries on payday, but eventually decided to convert the other half of employee salaries and bonuses into shares. The company’s 2017 report shows that he has a 1.4 percent stake, giving him a net worth of $2 billion, according to the Bloomberg Billionaires Index.
Huawei struggled for market share with foreign companies using so-called “wolf culture” of aggressive salesmanship, which sometimes materialized in the form of Huawei employees flooding sales events with several times more salespeople than competitors.
The company ventured into international markets in the 2000s, with telecom equipment that was more affordable than products of competitors such as Cisco Systems Inc. Huawei later admitted to copying a small portion of router code from Cisco and agreed to remove the tainted code in a settlement.
Ren since stepped up the company’s research and development. Of its 180,000 employees, about 80,000 are now involved in R&D, according to the company’s 2017 report, and the company has been known to recruit some of China’s top talent out of universities.
The company has recently refocused on existing markets after the U.S. government called Huawei a national security threat, and cited concerns over its possible control of 5G technologies. Trump signed a bill banning government use of Chinese tech including Huawei’s, and has even contacted allies to get them to avoid using Huawei equipment.
Collectively owned by its employees, the company is known for a culture of discipline, in which no one, Ren included, has their own driver or flies first class on the company dime. Lately, Ren has been warning employees against using fake numbers or profit to enhance performance. The company set up a data verification team in 2014 within the finance department, which was overseen by Ren’s daughter.
In a recent speech posted on the Huawei employee network, however, he called for patience with critics, but rejected foreign intervention. “We will never give in or yield to pressure from outside," he said. That maxim is going to be soon put to the test by the U.S. Department of Justice.
--With assistance from Edwin Chan and Kevin Hamlin.
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