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  • 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 getweird.

  • 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.

  • Casenot 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

  • Phantomspooky 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 totallyreal.

  • 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 questionWho 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 itnational 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 sayIf I asked if you were a knight, what would you say”? and they respondNo”,

  • 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.

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  • Thanks again to Brilliant and to you for watching this video.

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Huawei: The Big Picture

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    葉品銳 posted on 2019/08/31
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