New research casts doubts on Huawei’s claims of being employee-owned

Open this photo in gallery:

Corporate documents raise doubts about Huawei’s claims to be an employee-owned company that operates independently of Chinese political influence, two American scholars argue in a new analysis.

Battling to persuade customers – and national leaders – around the world to buy its fifth-generation wireless technology, Huawei has insisted that it is a private firm with no state links, repeatedly attacking critics who suspect it of being a tool of the Chinese state.

“No government or organization holds Huawei equity or has the right to control Huawei in any way,” the company said in a statement earlier this year.

But publicly available Chinese records paint a less clear picture, according to Christopher Balding, associate professor of economics at Fulbright University Vietnam, and Donald Clarke, professor at George Washington University law school. The two scholars analyzed Huawei’s ownership in a working paper released this week. It has not been published in a refereed academic journal.

Huawei Technologies Co. Ltd., the global giant with 180,000 employees, is formally owned by a holding company which in turn is owned by just two shareholders: company founder Ren Zhengfei, with nearly 1.14 per cent, while the remainder belongs to an entity called the “Union of Huawei Investment & Holding Co. Ltd.”

That union, the researchers say, appears to be a trade-union committee. And such entities in China are part of a system ultimately controlled by the Communist Party.

“Thus, if Huawei Holding is 99-per-cent owned by a genuine Chinese-style trade union operating the way trade unions in China are supposed to operate, it is in a non-trivial sense state-owned,” they conclude.

That supposition is based on incomplete knowledge: Huawei has not made public the guidelines or makeup of the Union of Huawei Investment & Holding. It’s possible that it is not a trade union committee at all, but “something else entirely going by a misleading name. It is cloaked in opacity,” the authors say.

Huawei, for its part, rejected their conclusion, releasing a statement on Wednesday that criticized the scholars’ work as “based on unreliable sources and speculations, without an understanding of all the facts” that led to “completely unsubstantiated” conclusions.

“Huawei is a private company wholly owned by its employees,” the company said.

But the differing accounts return to the fore a long-standing dispute over the independence of Huawei. The company’s dominating size – it is the world’s largest maker of telecommunications equipment – and global ambitions have raised concerns that it is a tool of the Chinese state that can be used to pursue national objectives, including espionage. Huawei has repeatedly denied such allegations, with its top executives saying not even Chinese President Xi Jinping could order the company to spy abroad.

At the heart of the debate is the legal standing of a glass case at Huawei headquarters that holds a registry with what the company says are the names of nearly 100,000 employee shareholders. It’s proof, Huawei says, that neither the Communist Party nor the Chinese government holds any ownership stake.

“Through the Union of Huawei Investment & Holding Co., Ltd., Huawei implements an Employee Shareholding Scheme that complies with applicable laws and regulations,” the company said on Wednesday. And the authoritative Representatives’ Commission of the Union, the company said, is chosen by employees with voting rights and does “not report to any government agency or political party, nor are they required to do so.”

But, Prof. Balding said in an interview, ”They’re flat-out not being accurate in what they’re representing about the role that employees play.”

Take the glass case.

“The thick volumes of names and numbers displayed to journalists – paper records, under glass, in a shrine-like setting, at a high-tech company in the 21st century – bear every mark of being a Potemkin shareholder register,” he and Prof. Clarke write.

Huawei, in Chinese court documents, has also described employee holdings as “virtual limited shares” that cannot be transferred or sold.

“What have been called ‘employee shares’ in ’Huawei’ are in fact at most contractual interests in a profit-sharing scheme,” Prof. Balding and Prof. Clarke write.

Anita Chan, a researcher at Australian National University who is an expert in Chinese trade unions, expressed doubt over the corporate structure Huawei has described in official records. “The company belongs to the trade union? It doesn’t make sense,” she said. In China, that kind of thing “doesn’t happen.”

With reporting by Alexandra Li.