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US and Huawei wage battle of self-righteousness

CEO Ren Zhengfei sees his company as scapegoat in trade war

The latest U.S. crackdown on Huawei might complicate the ongoing trade negotiations with China to follow up on the "phase one" deal signed in January.   © Reuters

TOKYO -- Huawei Technologies CEO Ren Zhengfei held up a ragged picture during a press conference with Japanese media at the company's Shenzhen headquarters on May 18. The photo was of a badly battered Soviet Ilyushin aircraft from World War II.

"Even if we are beat up, we will make it out [of this fight with the U.S.] alive," he said while holding up the image.

Perhaps Ren was suggesting that he is fighting a righteous battle.

The U.S. has begun to restrict exports of 5G wireless communications components to Huawei, citing the company's devices as a potential backdoor for the Chinese government to obtain information. The ban on Huawei, the U.S. insists, is a justified move on national security grounds.

Ren has denied all of these accusations. He feels that his company is caught up in U.S.-China trade tensions.

The U.S., to Ren, is the country where his has learned the most -- a place he admires and respects. Perhaps their troubled relationship is a product of misunderstanding or natural incompatibility. This reporter is reminded of the 1955 film East of Eden in which a young man vies for the love of his father. The U.S. increasingly alienated Huawei as Ren grew more successful, to the point of attacking the company.

The first shot was fired in 2003, when San Jose-based Cisco Systems sued Huawei for copying its intellectual property. The Chinese company began its transformation from a questionable broker of high tech devices to a global communications manufacturer in 1998. While distinguishing itself in India, Europe and Africa, Huawei was also trying to establish a major presence in the U.S., the world's largest market.

Ren predicted that Huawei would be on a collision course with U.S. authorities in a decade's time. So, in the same year of the Cisco lawsuit, he tried to sell Huawei to Motorola for $10 billion. The CEO felt his company could avoid conflict, despite being run by Chinese, if it was under the cowboy hat of a U.S. company. The deal was ultimately rejected by Motorola's board.

Ren praised Trump in the past, when the U.S. lowered its corporate tax rate. He said last week, however, that while the tax cut was a plus for developing industry, Trump has lost his chance to be a great president as he threatens trading partners one after the other. His tone befits a man seemingly focused solely on making Huawei the world's top communications company, but is willing fight if the U.S. wants a battle.

Little is known about Ren. He appears to be a good listener with a hearty laugh and concern for others like entrepreneurs elsewhere.

But the U.S. sees a different picture. The Huawei founder is a former People's Liberation Army engineer with deep ties to the Chinese government. His company also receives government support and financial protection as a matter of national policy.

The conversation, of course, is not so simple. North American and European countries have released many reports about Huawei's relationship with the Chinese government but not have conclusively determined that it is a government or Communist Party entity.

It has also been said that the company's sprawling commercial complexes in various places throughout the country are proof of government support. The U.S., however, also provides generous incentives such as tax breaks and exemptions to lure companies.

Ren noted that he is regarded as a communist overseas and suspected as a capitalist at home. Under that situation, he decided that he would respect international and local laws, never crossing that line.

As a private company, though, Huawei's ownership, management structure and decision-making process is veiled. Employees own 98.99% of the stock, according to a Huawei official in human resources. Ren's stake is just 1.01% and rises to 1.14% when his employee shares are factored in.

About half of the employees, 96,768 people, own stock in the company and elect a representative body of over 100 people each year who decided on important issues at shareholder meetings. Ren is the only veto holder, but his power pales in comparison to golden share holders in U.S. information technology companies. He has never exercised the right either.

Overlooking arguments about unconventionality, Huawei's governance system appears to be well planned. KPMG is in charge of auditing its earnings, which it releases annually.

U.S. competitors like Lucent Technologies Communications, Motorola and 3Com have all been battered by Huawei. Ren believes that being a private company gives Huawei the advantage because it can make large investments more easily, whereas public rivals must be conservative as investors focus on short-term financials.

The U.S.' righteous war has destroyed the business environment in which Huawei found success. Can Huawei plot a comeback in the 6G-era or will it remain a boogeyman for national security issues?

Either way, the repurcussions of fragmenting Huawei's supply chain would be felt by American industry and that of its allies. There is also concern that tensions with Huawei could fracture the internet. The U.S. and China would be wise to search for technology that can guarantee cyber security rather than brandish their self-righteousness.

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