Who owns Huawei

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EVENT TRANSCRIPT: “Who Owns Huawei” Roundtable

DATE: 9:00 am – 10:00 am, 27 June 2019

VENUE: Millbank Tower, Henry Jackson Society

SPEAKERS: Christopher Balding and others

CHAIR: Dr. John Hemmings

 

Dr. John Hemmings: Good morning everyone, my name is Dr John Hemmings, I think I know many of you here and you’ve probably been bombarded by various invitations to this and that. Very pleased to have you here today on such a beautiful sunny day, it’s one of the days when we can look out the window and see Westminster, see democracy in action below us there. It has been a busy week, we’ve had a lot of different activities and they’ve all been extremely good, and i’m extremely pleased to say that we are continuing that tradition of very good events this week, very good episodes. I’d like to briefly introduce our guest and, if it is not too unfair on some of you, if we could just sweep round once because we are small and fairly informal group. Some of you take a government pay cheque, some of you scribble for a living. I think that it is fair to say that puts a certain tension in the room, but what we should do, I think, is have the simple rules that everything that Christopher Balding says in his statement and in his initial presentation is on the record. Discussions are very much so off the record, questions are off the record, and any journalist who has a problem with that will not be invited back. However, just to soften that warning, you can come up afterwards and ask any individual for their permission to go forward with that because it is, and I don’t say that because we want things to be in the media but it’s because it is, as everyone knows, although it is a deeply contentious and deeply politicised issue, with strong economic and national security elements to it, it is a public importance which is what our line has been this entire time, and why we have felt strongly about it and done the work that we have done. Professor Balding came to my attention through the twitter verse as all good seems to do for us think tank wonks at the moment. In fact, a few weeks before our paper on Huawei came out, there will be some copies of our own report laid out that many of you will have heard of no doubt. Can I ask where are our copies of the report? We’ll have some on the side table if anyone wants to take them on their way out that would be welcome.

Professor Balding is someone who has lived for nine years in China, he’s lived in Shenzhen so, of course, the kind of heart of things, at the Peking University Shenzhen campus. He’s a political economist. He has a very deep and, I think, intimate knowledge of the Chinese economy. His basic bread and butter is sifting through Chinese data. For people like myself who are struggling to understand the phenomenon that is China, both trade and national security, people like Professor Balding are gold mines for us, we stand on your shoulders. We made sure in our report that because we did use ‘who owns Huawei?’ to boldly put your name and I think it’s Donald Clark, your co-author. So with that can I just sweep around the room and I’ll start the format just to give you a sense of how little you need say. Dr John Hemmings, director of the Asia Studies Centre. My interest in Huawei is that I work on Asia and China. And then we’ll go this way.

Ken England: Good morning everyone, Ken England of the Canadian High Commission. Like others, we have an interest in this issue. We have not publicly pronounced our 5G position. So we are taking in as much information as we can.

Ian Bond: Ian Bond, Centre for European Reform.

James Palmer: James Palmer, I am an editor for a foreign policy magazine in DC. And occasionally Chris’ editor.

Viktorija Starych-Samuoliene: Viktorija Starych-Samuoliene, I am the strategic relations manager at the Henry Jackson Society.

 

Ben Scott: I’m Ben Scott from the national cyber security centre where I’m the policy lead on tel-co and 5G.

Sam Armstrong: Sam Armstrong, I do communications at the Henry Jackson Society.

Andrew Foxall: Andrew Foxall, I run the Russia and Eurasia programme here at HJS.

John (inaudible): John (inaudible), I’m the telecoms, security and resilience at DCMS.

Ming-chin Monique Chu: Ming-chin Monique Chu, lecturer in Chinese politics at the University of Southampton. My dissertation turned book is about globalisation, security and semi-conductors, so I continue to research how China (inaudible).

Hans van Leeuwen: Europe correspondent for the Australian Financial Review. I’ll be ducking out at half past so I’ll try and go quietly.

Latika Bourke: I’m Latika Bourke from the Sydney Morning Herald, his friend and rival.

Gordon Corera: Gordon Corera, I’m the security correspondent for the BBC. I visited Huawei in Shenzhen back in 2013.

Danny McCarthy: Danny McCarthy, I’m from the national security investment team at the Business Department here. So I’m team lead on the UK’s investment screening reforms on national security finance.

Rachel: I’m Rachel, I’m also from the Business, Energy and Industrial Strategy Department. I’m head of global trade but I am also the China lead (inaudible).

Andrew Hastie: Good morning, I am Andrew Hastie, I am a member of the Australian Parliament, also Chair of our parliamentary joint committee for intelligence and security. I’m an advocate for the Australian government position on Huawei.

Kristin Mencer: Hi, good morning, my name is Kristin Mencer, apologies for the delay, South West Rail was running late. I’m from the US embassy and I cover the cyber portfolio so have watched this issue very closely.

Dr. John Hemmings: So I think with that, Christopher, the floor is yours.

Christopher Balding: Sure, so before I jump in I have been advised to try and keep it to 15-20 minutes, then hopefully we can open it for questions and go from there. So the first one is that, with all due respects to my American friend here, I am not a government contractor or employee at any point. I have lived in China for nine years and now Vietnam, so this work is just my research as a Professor, that’s the extent of it. I should say that a lot of this came about because as I was living in China you quickly realise that maybe what you’re seeing is not what you’re hearing or is the official data for instance. So, if you were to say I have an area of expertise it is just being able to figure out where to find information more than anything else. So I’m going to try and stick what I say today, and any questions I answer too simply, what can be documented. I think it’s very easy to go much further on what we could infer, or what people have told me. But I am not a journalist, I have no sources. This is not a friend of mine, this is what we can very clearly document. I think one of the things is, if you don’t know China, one of the things that is a great big misconception is that China in a lot of ways has one of the most open information societies in the world. And you think of it as being very very censored, which in some ways it absolutely is, but if you want to find out who owns a company and who the shareholders are of a company, you can go get that information. There is almost no companies in China that you cannot get that information for. So what consequently happens is that, very frequently, it is like a Russian nesting doll, you have to follow it 20 levels up to get to who is the ultimate official owner. But this information does exist. So, when we’re presenting this, keep in mind that this information does exist, it is document-able. This is not speculation, inference sources, things like that. I think the straightest way to say this is that Huawei is effectively an extension of the Chinese state; whether it is the CCP, intelligence gathering, corporate intelligence. I think that this is true, both as a matter of law and as a matter of pragmatic reality. The paper that I think most people received dealt more with the legal issues about who owns Huawei. Huawei represents itself as a privately-owned company. Today, they repeat that mantra over and over, but as a matter of actual law that is simply false. There is no other way to say it. That is wrong, that is false. It is a complete lie to represent that they are a private company. That is not true in any conceivable way. We could show this in detail so I’ll try to simplify this without the use of many whiteboards and slides and things like that. But basically, what everyone here knows as Huawei is actually a company called ‘Huawei technologies’, and Huawei technologies today has what I believe about 180,000 employees. Huawei technologies is actually owned by a company called ‘Huawei investment holdings’. And Huawei investment holdings is actually owned by the ‘Huawei investment holdings trade union committee’. So it is the trade union committee that owns the holding company that actually owns Huawei technology that you all are familiar with.

Now there are a couple of very important facts about this, that are very important to know. First of all, a trade union committee in China is what is referred to as a public or a mass organisation. This is similar in legal standing to the Communist youth league. It is not necessarily an SOE, but it is referred to as being owned by the people. Again, this is a documented fact. This is the entire extent of the holding company chain. So it is, and this trade union committee is actually under a giant umbrella of trade unions in China. So, I don’t know how trade unions work in the UK or Australia, but in the United States you might have the Ford Auto Union is one, and they might be associated with the AFLCIO. But you have all these different unions in the United States, and there is some type of loose network. In China, the way it works is it is one giant umbrella, so the Huawei union will be underneath the Shenzhen China Federation of Trade Unions. That will be underneath the Guangdong branch, and then the Guangdong branch will be underneath the China branch. So it is basically all one union, and then everything flows upwards, for lack of a better term. So they’re not, in a sense, independent. China says that it has the world’s largest trade union, and there’s only one legally permitted trade union. So all these essentially sub-branches are underneath. So effectively, the Huawei trade union which owns Huawei is owned by the All-China Federation of Trade Unions at its top. That is simply the legal status. One of the few unanswered questions about the legal status is this; the company that actually owns Huawei technologies is the Huawei investment holding company. Huawei technologies has roughly 180,000 employees. Huawei investment holding and, out of that by extension, the trade union that owns the holding company lists less than 500 employees. The significance of this is that implies that that trade union that owns everything all the way down actually only has a trade union of 500 people. So it is unclear when the rank and file are telling you that they vote to elect people to certain board positions or things like that. It is unclear what it is exactly they are voting for because the employees that vote for a trade union are only supposed to be the employees of that company. So if you’re a member of Huawei tech, if you’re an employee of Huawei tech, theoretically you’re not allowed to vote for who the trade union committee of Huawei investment is. That would be like, if you worked for Land Rover, voting for who the union of Jaguar is. It is not entirely clear what is happening there. We don’t have a clear answer but, theoretically, that shouldn’t be happening which would imply that the 500 employees at the Huawei investment holding are really the controlling owners in some capacity of the entire Huawei universe, for lack of a better term. So, all of this is to say, as a legal matter of fact, Huawei is absolutely not a private enterprise. That is just a matter of law. You can go look up these legal documents, you can find them yourself, they can be provided to you, Huawei is absolutely not a private company.

Turning a little bit more to reality, how does Huawei function in this, what is their relationship? When our paper was released, there was a, Huawei actually held a press conference to rebut our paper. I was a little bit surprised because when the paper was released they released an initial statement that called it scurrilous and unfounded. I was quite willing to accept the scurrilous part, unfounded was where I drew the line. I was waiting for what they were going to come up with to rebut our points. And so throughout, and I actually have a transcript of the conference call, they said over and over again that they were a private company. Somebody said, well know here is the legal documentation, and they actually said, yes, as a matter of legal fact we are not owned by our employees, we are owned by the trade union which is owned by the All China Federation of Trade Unions. They admitted that as the legal fact and they continue to say over and over again that they are privately owned, but they have admitted that it is the legal fact we are not actually owned by our employees but ultimately by the All China Federation of Trade Unions. Their defence, their defence I found rather amusing. They went on to say that because we’re foreigners we do not understand China, and that the union in China does not actually control anything. The only thing they do is organise badminton and hiking trips. Their words not mine. That is what they said. Needless to say I don’t think anybody anywhere believes that that is what they do. I think that what is important to note about this is that for instance, leaving aside their relationship with some of the things that they talk about, just as a matter of pragmatic reality, if we look at who runs and how the All China Federation of Trade Unions operates, it clearly does not operate as a badminton organisation system. Just to give you an idea of the level of importance that the All China Federation of Trade Unions holds in China today, the gentleman that runs, that oversees the All China Federation of Trade Unions in China today, he arrived in Beijing to run the All China Federation of Trade Unions just over a year ago. Before this time he was the party secretary in Sichuan and Chongshin and you ask; why is that important? If you go back to when a British gentleman was killed in Shandong which set of a chain of events and, most notably, I think there was very strong evidence that there was a coup attempt that this gentleman was essentially sent there to clean up the situation. So he ran Sichuan and Chongshin for six years and is now heading the All China Federation of Trade Unions, the ultimate owner of Huawei. So if you think that this gentleman was sent to oversee the All China Federation of Trade Unions to organise hiking trips, I suggest you read a little bit on China and what goes on there. I think that the other thing is, and there was just a story that was released overnight, and full disclosure I know the people that wrote this story, I occasionally write for Bloomberg, but there were some people, and I didn’t know that the story was coming, but there was a story out of Bloomberg overnight about documenting a long history of research between Huawei engineers that were either doing research with the PLA or affiliated with PLA universities, other things like that on a wide range of projects going back about 15 years. Some of the research that we’re working on now will kind of delve into this and is quite document-able. And even what you can find doing something like googling something in Chinese, it’s rather astounding the depth of relationships that you can find between Huawei and the PLA and some of these organisations that is quite clearly document-able in some of the things they’re continuing to do today. There are senior Huawei engineers that have gone on to run specific departments at universities, either at PLA universities, or universities which are essentially next door to major PLA research labs which are essentially affiliated with them. So there is a very deep influence.

I think the last point that I’ll make before I stop talking and we open this up to the Q and A is that this isn’t just about Huawei. If we look at any Chinese company in this general space, it is very clear that a relationship exists between the Chinese state and intelligence gathering committee and these types of companies. If you look at ZTE. ZTE is even more clear as day. If you look at a company, some people know this company well, some people have never heard of it. It’s a company called HIK vision. Basically, they are in the security camera, they do a lot of facial recognition, whether it’s for local bars or whether it is high grade things in shopping malls, they do a lot of work in Shingzhon and places like that. They are actually owned by PLA research labs and things like that. ZTE is basically owned by some of the major armed suppliers in China. Everything from high grade next generation all the way through to traditional, pretty simple armoury. It would be a complete outlier and we can clearly document an enormous history of interaction between Huawei, the PLA, MSS, basically the entire security apparatus in China.

HJS



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