Ren Zhengfei’s Interview with The Wall Street Journal
November 5, 2019
01 Matt Murray, Editor in Chief, The Wall Street Journal: Mr. Ren, thank you. It’s a real pleasure to be here and thank you so much for inviting us to visit you here to ask a few questions. We’re very grateful. So, we just toured your European campus and saw your Russian corridors. It’s a grand series of buildings you’ve constructed. Is there a message in this about the power of Huawei at this point in time? Or the power of China as a corporate presence at this time? It’s hard for me as an American not to feel that, coming in here, this grand space and all the things you wanted us to see, is there some message in it?
Ren: To start with, I want to say thank you for this interview. Please feel free to ask me the most challenging questions you have. I will try and be very direct in my answers.
Both the Xi Liu Bei Po Cun on our Songshan Lake campus and the exhibition hall in the Jijia Center were designed by Japanese architects. Each of our product lines has an exhibition hall like this, usually in the basement. After customers tour the halls, we invite them upstairs for a coffee and a chat. These two white and yellow halls were designed for big meetings. So my point is, all these artistic designs came from these architects. They have nothing to do with the culture that we want to disseminate.
We are also building another new R&D campus in Qingpu, Shanghai that is about 430 acres across. Five world-renowned Western architecture companies are participating in its design. They have come up with a modern but classical design that references the views along Chicago’s waterfront. Of course, this design will be influenced by old Shanghai glamor. When it’s ready, scientists from outside China will be sent there to get to work. The designs of these buildings have a lot to do with the taste of architects and their bids and nothing to do with Huawei’s culture.
Matt Murray: While your employee was guiding us down one corridor to the exhibition hall, they said that it was the “Trump Corridor”. So no message in the corridor?
Ren: No. But it’s very beautiful. Those paintings are the works by over 150 famous Russian artists. Due to US sanctions, they are living a difficult life. They came to paint for us because of the economic difficulties in their country. They said if Russia was not sanctioned by the Trump administration, it was unlikely that they would have come to do this work for us. When they were having a coffee here, they joked that this corridor could be called the “Trump Corridor”. They said that we should thank Trump, because even the Kremlin doesn’t have such a beautiful corridor.
Matt Murray: Do you think President Trump would ever come to see this corridor? Can you imagine him coming here and seeing it?
Ren: I would really like to have him here. If it’s not convenient for him when he’s still in office, he’s also welcome to come later. We will certainly give him a warm welcome. Many years ago, President Carter visited Huawei after he left office. We will also show our warmest welcome to US congresspersons, other senior government officials, and journalists. The US is a great and innovative nation.
02 Matt Murray: Let me ask about the US. Long before President Trump, or even President Obama, there have been difficulties with Huawei in the US under both administrations. What do you think is the root cause of the long history of complications between the US government and Huawei?
Ren: In essence, I don’t think there has been confrontation between the US government and Huawei. Our company has always had great admiration for the US. We have learned a lot from its culture and management.
Since Huawei was founded, the sleepless spirit of Silicon Valley has been engraved in the hearts of all our employees. We’ve been working so hard to learn from the US. Many startups in Silicon Valley were started in garages. Huawei didn’t even have one of those. We started in a shabby apartment and have become what we are today by taking one step at a time. The experiences of US companies are good examples for us to keep in mind.
Over the past 20-plus years, we have invited dozens of American consulting firms, to advise us on our management. They have a clear big picture of our organizational structure and processes, which are suffused with American culture. KPMG has also audited us annually for over 10 years. If you want to know about our financial position, just check the reports for the past 10-plus years stored at KPMG.
We have been through so much over the past three decades and are used to difficulties. So I never saw being under the Obama administration as a hardship. For us, the Trump administration is also just a motivator that has forced us out of our complacency. To stay afloat, we need to row intensely. Our hard efforts have driven up revenue and profits. If we have higher profits at the end of the year, despite the fact that we are being targeted, I am worried about how the world will perceive us. Thanks to our employees’ increased efforts, we are seeing much better results. So I don’t feel like there is a true confrontation with the US.
03 Matt Murray: Let me try again, how do you explain American hostility then? And for all you have been done, is there more in hindsight that you might have done or should have done given how the US government now seems to view Huawei?
Ren: I think their hostility is largely because they do not know enough about Huawei. Many big US companies started small. Companies like Amazon, Google, and Facebook were founded after us but grew faster. We were a bit conservative, so we have not grown as fast as them and need more time to grow.
If we look at the history of US companies, they have adopted an excellent approach that combines business model innovation with technological innovation, meaning they have a global business plan even before their products are fully developed. However, Huawei was not as visionary. We started in rural areas, and our horizons were not as broad as US companies’. We started with technological innovation, and our R&D staff were extremely confident in themselves. We only started developing our business model once our products were there. As a result, our growth has been slower than US companies’ and that’s why we do not have real business leaders within Huawei, even today.
We are still focusing on technological innovation, and we often don’t know how to sell products even one or two years after they are developed. So we still have a lot to learn. We still develop products first, and then think about how to sell them.
04 Matt Murray: But you are now in more than 170 countries and regions, you are a leading supplier in most of those countries and regions, and you’re ahead on 5G as we’ve seen. Do you threaten the US because of your success? What do you think?
Ren: I didn’t think the US would feel threatened by this. They are very strong when it comes to scientific and technological innovation. We published an article yesterday outlining the inventions made by the US over the last 100 years and commending the US as a great country. You could go to our internal messaging board, Xinsheng Community, to have a look.
The US has a very strong mechanism for technological innovation, and I don’t think they will be stressed about lagging behind in a certain technology for a short while. I saw the remarks Commerce Secretary Ross recently made in India. He said the US can catch up with and overtake Huawei in three years. I believe it’s totally possible.
The US has made the wrong call on 5G. They went directly for 6G because they thought it had higher bandwidth and would be more valuable. They went for high-frequency bands for millimeter waves. They had not thought that 5G would come so quickly, and instead thought that they had enough time to make breakthroughs on the theories and technologies that address the short coverage distances for 6G. But 5G was commercialized in less than 10 years.
Huawei chose intermediate-frequency bands. This was actually also a bet for us. Most countries did not choose intermediate-frequency bands at the time, and instead went for high-frequency bands because they didn’t think 5G could be commercialized so quickly.
They didn’t realize the mathematical paper from Turkish professor Erdal Arikan would mean that 5G could create an industry in less than 10 years. They thought that they could make breakthroughs with 6G if the development of 5G was slower. When more transmission distance theories are developed and technological innovations are made, 6G will definitely be superior.
However, these theoretical and technological breakthroughs have yet to be made, so 6G just means higher bandwidth. But since transmission distance is very short, commercialization is still not possible. All the while, a wide rollout of 5G has started around the world.
So I don’t think the US has lost to Huawei. They just made the wrong bet in the first place. Huawei bet on centimeter wave technology while the US bet on millimeter wave. If the US changes their direction, I believe they could soon catch up with Huawei, and I don’t think they would attack us simply because we pulled ahead for a bit.
05 Dan Strumpf, Reporter, The Wall Street Journal: Thanks a lot, Mr. Ren, for meeting with us again. We really appreciate your time. On the topic of the US and Huawei and your long history of both cooperation and confrontation, you’ve talked, quite a number of times this year, about the idea of selling the licenses of your 5G technology to a Western, but specifically an American company. Could you give us an idea of how that process is going? Have you had any interest from any American buyers? Have you hired any investment banks or intermediaries to help you try to sell that technology? Where do you see this process going?
Ren: First, we are completely sincere in our offer to license our 5G technology to the US and are not playing tricks. Why do we want US companies to become stronger? Because the world will be more balanced with three 5G “super powers”. If the US lacked 5G, we would face longstanding difficulties and Europe would also find itself in trouble. Therefore, we really hope to license all of our 5G to the US. We will give the US whatever it wants and will not withhold anything. After licensing, we can move forward side by side with the US, and I believe we can still outrun others. This is our motivation and purpose for licensing 5G.
Second, the US cannot bypass 5G and jump directly to 6G. Every step counts in the communications sector. If one leapfrogs one step, they may encounter huge problems down the road. It would take a long time to develop technologies from scratch. The US has a lot of money, and the biggest challenge for Huawei is that we lack money. If the US gives us money to obtain our 5G license, we can use that money to fund our research and development of 5G and other new technologies and make bolder steps forward. And the US can use our technology to grow faster because they have already established a huge foundation of science and technology. We can then pursue peaceful development and competition.
No US companies have approached us yet. Once there is a need from a US company, we will ask investment banks to help with our deal.
Matt Murray: They can call you, right?
Ren: Yes, but they haven’t yet. Perhaps they are afraid too? Afraid of being suspected if they engage with us?
Dan Strumpf: I would just follow up and ask, why do you think no companies have come forth to take you up on this offer? Huawei is widely seen as the most advanced company offering 5G technology. It seems like an opportunity that companies should at least express they are interested in, but it sounds like no one is coming forward at all?
Ren: I don’t know why either. They may be afraid of political suspicions if they engage with Huawei. Or perhaps they don’t want to enter this market, so they don’t necessarily have this need. We cannot proactively reach out to US companies because the Entity List prevents us from doing so.
06 Matt Murray: I have to ask, actually, as you know, throughout the history of Huawei, there have been allegations of theft from big companies, from individuals, from Cisco to CNEX. We wrote about it this year, as you probably know. Why have they been so persistent over so many years? And have there ever been any challenges at the company, even in the past, that have been addressed about theft?
Ren: Allegations are not necessarily facts. Trump has received more allegations than us. We have always respected the intellectual property (IP) of third parties. Many large US companies pay large sums in IP royalties to us every year, but we pay more to them. Over the years, we have received 1.4 billion US dollars of patent fees but paid more than six billion US dollars of IP royalties. In addition, Huawei invests about 15 to 20 billion US dollars in research and development each year, and we have over 80,000 R&D staff. We are not a world leader because of stealing. A good person can still face criticisms. We still believe in decisions made by the US courts.
07 Eva Dou, Reporter, The Wall Street Journal: We recently went to your hometown in Guizhou, and we wanted to know more about your background and your experiences. My parents are from Jinan, Shandong. They lived near the Baotu Spring.
Ren: The place where I grew up was rather closed off, and had little impact on my growth. I was a little naughty when I was a child, and grew up free of many restraints. It was impossible for me to develop high aspirations for the latter half of my life in such a closed-off environment. And I had access to a library only after I was admitted to university, so I read extensively, like it was a hunger. That didn’t have a big impact on my life either. Because the political background for my family was not good, there weren’t great prospects for me. It was already good that I didn’t develop pessimistic sentiments.
In the late 1970s, my old army unit was stationed on Yaotou Road in Jinan’s suburbs, near Shandong Normal University. I feel like Jinan is partially my hometown as well.
Eva Dou: At that time, many people were in the army. Many members of my family joined the army as well. I was reading some articles you wrote when I saw the name Jinan. You were with Troop 00229 in Jinan from 1979 to 1984. Could you describe your work there? That experience wasn’t talked about too much in your official biography. You were born in 1944 but the details after that are a little vague, and there are many years you have not written about in detail.
Ren: After the construction of the Liao Yang Chemical Fiber Factory was finished, the Chinese government decided to initiate 10 big projects, and we were assigned to the construction of the Yi Zheng Chemical Fiber Factory. However, before our transfer went through, that project was terminated due to some political criticism from the central government surrounding these 10 big projects, so I stayed in Jinan. I was then appointed to be the deputy director of a construction research institute, leading a team of just over 20 people. We were responsible for researching machines used in construction.
Eva Dou: It seems that the research institute mainly focused on developing pressure balances.
Ren: I had used my background in mathematics to invent an apparatus for automatic chemical control systems in Liaoyang. While at that institute, I was allowed to continue my previous research, because I was a celebrity then and a heroic benchmark. That was why I could do some research irrelevant to my military unit. Unfortunately, my research proved to be unsuccessful.
When I was younger, I had received a high level of recognition from the government, so I became very ambitious and set even higher goals that were beyond my reach at the time. I was determined to achieve those goals and often worked overtime. However, the results of my research in later years were not satisfactory. That happened around the time when the government decided to downsize the army, so our project ended and I was forced to transfer to a civilian job. That project had lasted five years, and we hadn’t created anything useful in that period. At that time, the computer in Shandong University was only 16 KB of memory, which wasn’t enough for proper calculations. So we had to give up in the end. Looking back, I’d say we had wasted those years.
Eva Dou: My father studied in Shandong University at that time.
Ren: We were not far from each other. Our unit was stationed nearby in Yaotou, near Shandong Normal University. My kids were enrolled in the Majiagou Primary School nearby.
Eva Dou: Didn’t you start your career at the Guizhou 011 army base? What did you do there?
Ren: Yes. I worked in a construction company at the 011 army base, where I was involved in factory construction.
Eva Dou: But you were an engineer, right?
Ren: I wasn’t even a technician at that time. I was an intellectual, one of the “Nine Black Categories”, so I had to undergo re-education. I was first a cook for two years. Then I was a worker for several years and was only transferred to Northeast China in 1974. After I had been with the army for a while, I became a technician. It was only after the Gang of Four was taken down that I finally became an engineer.
Eva Dou: Guizhou is close to Vietnam which was at war with the US back then. Guizhou was also developing military communications infrastructure at that time, wasn’t it? Were you involved in that?
Ren: What I did back then had nothing to do with communications. I was just an ordinary construction worker, just like today’s migrant workers in cities. After I moved to the military in Northeast China, I worked in the Liao Yang Chemical Fiber Factory where I was responsible for building automation control systems. It was about simulation control systems, or proportional-integral-derivative (PID) controllers. This had nothing to do with either today’s communications technology or computer science. I taught myself automation and control when I was a cook and worker. This turned out to be a useful skill when I moved to Northeast China, because I understood it better than anyone else there. I didn’t enter the communications industry until I started my own business in Shenzhen.
08 Matt Murray: You talked about five years wasted and different jobs. How did you get from there to founding Huawei, and how did you find investors to back you and start the company based on the record you started?
Ren: China downsized its military on a large scale, leaving a lot of us feeling completely out of step with the times. The country was undergoing a fundamental change in its economic system, moving from a planned economy to a market economy. We had no idea what that transition meant, and we just came to Shenzhen. We knew nothing about the market economy, either. The monthly pay for jobs at the regimental-commander level was over 200 yuan, which I thought was a decent pay. Then I found out that the average salary for ordinary workers in Shenzhen was more than 500 yuan. So, we asked for compensation from the government for the demobilization without needing to retain the political and economic benefits. The compensation was about 1,800 yuan for each, and my ex-wife and I got more than 3,000 yuan in total. I then worked in a state-owned enterprise (SOE) in Shenzhen. I didn’t know much about how SOEs worked and I didn’t do a good job there. I made some mistakes, so I had to leave.
I was then left with two options: going abroad or staying in China. My family didn’t want to go abroad, so we stayed. This was in 1987, around the time when the Shenzhen government published a document (Doc. No. 1987 ) allowing private tech companies to be established. So, I took the risky move to establish a private tech company. You had to have 20,000 yuan in registered capital and at least five shareholders to start a company. So I raised 21,000 yuan with five other investors and founded the company. Though there were six of us, I was the one who actually started the company. Later, the other five investors decided to withdraw from the company and we ended up going to court to settle this. In the end, they all withdrew with a lot of money in compensation. At that point, the company was wholly owned by me, so I had the freedom to distribute the shares to our employees. That’s how the employee ownership structure we have today came about.
If I hadn’t distributed shares to employees, Huawei might have remained a small company and might not even have survived this long. Maybe then I would have tried my luck with other sectors such as real estate. We’ll never know. Maybe real estate would have been the best choice. I shouldn’t have set foot in communications business. It takes a lot of hard work and is not actually that lucrative.
We still have the court rulings pertaining to the withdrawal of the five other investors. They’re in the shareholder registry room. You can take a look at the original file if you’re interested.
Dan Strumpf: Just a follow-up question on that, Mr. Ren. How did you know the five individuals that helped you found Huawei? We’ve seen their names in your shareholder registry room. They seem to have very diverse backgrounds. How did you come to know them? Are they old friends of yours? Old friends from the military? Who are they?
Ren: No. I hadn’t known them before I came to Shenzhen. And actually, when I founded Huawei, I wasn’t thinking about company ownership or the future of the company. To start the company, I had to raise a certain amount of capital and bring together a certain number of investors. These five people have never worked a single day at Huawei. If I’d had a closer relationship with them, maybe they wouldn’t have cashed out so early; they might have come to work at Huawei.
In Huawei’s first 10-plus years, we went through thick and thin. We were like a candle that was about to be blown out. Every day, we were struggling to survive through crises. Most people had no confidence in our company, but there was no turning back for me. I had to move on, full of confidence.
Some people, who seemed unwise to some, chose to stick with us. They believed what I told them would become a reality some day. We worked together towards that vision, and in the end it really became a reality. Today many of our employees are very rich. The reason is not that they were speculative, but that they were just not wise enough and chose not to leave.
09 Dan Strumpf: Mr. Ren, I wanted to ask you about a later time at Huawei but still in its earlier days. In 1992, you took a long cross-country road trip in the US, starting in New York, and I believe, ending in Silicon Valley with American companies at that time. Tell us what you learned from that trip. Why did you take that trip, and who organized it? And do you feel the US is a different place today than it was then?
Ren: A Boston-based company named CP, which sold power modules, invited us to visit them. We wanted to buy their power modules.
We were curious because we didn’t know what the US was like. We’d thought things were very expensive there, so we took a lot of cash in US dollars with us. You couldn’t get credit cards in China at the time. After we arrived, however, it turned out things were very cheap and we didn’t understand why. Cash started to feel like a bit of a burden.
Funny story. One guy in our team offered to take care of our cash, so we gave most of it to him, but later he complained that his pockets were weighing him down and begged us to spend the money. So our first impression of the US was that everything was surprisingly cheap.
While we were taking a Greyhound bus, we marveled at how beautiful the bus was. While the bus was running fast on the expressway, we were thinking that China would never have such beautiful buses and never be developed to this level.
We then took a train to Silicon Valley, but we didn’t know where it exactly was. We asked people around us, but no one knew the name, because we only knew it as “Gui gu” which is how Chinese people know it. We got off the train not really sure where we were. We asked a local taxi driver and he said we were in Santa Clara, which is actually where Silicon Valley is located. After arriving at Silicon Valley, we couldn’t find anywhere to visit and we didn’t know anybody. Eventually, we found a guy named Zhong Peifeng who could show us around because we needed to buy some components.
We were shocked by how great and advanced the US was. As we were wondering about how large US companies were, we took a taxi and traveled around the IBM campus which produced memory back then. We wanted to know how big that campus was, so we asked the driver to just go straight and not make any turns. We would check the mileage shown on the meter. After we reached the campus, the taxi managed another six kilometers before the driver got lost. We marveled at how large US factories were. We still feel the same now.
Even today, we still admire the US. This has never changed, not even in the face of their campaign against Huawei.
10 Matt Murray: As you know probably, The Wall Street Journal reported earlier this year on a Huawei program in Africa that helped a couple of governments spy on opposition political figures. It was part of the smart cities program. Can you comment on that program? Is it something Huawei is still doing? What have you heard since that report came out from governments around the world?
Ren: First of all, what that report said was not true. You at The Wall Street Journal should be taking responsibility for your reporting. We’ve had our lawyers send you a letter, but I still believe The Wall Street Journal is a great news agency. You should be more conscious of whether what you report is true or not. What you said in that report didn’t happen, so there was never any real response to the accusations in those countries you claimed involved.
11 Eva Dou: I heard that you really like European culture.
Ren: Not really. I like American culture most, which is very enterprising and innovative. I’m the type of person that is not satisfied with the status quo. I really admire the passion and ambition of young Americans. They like to do grandiose things to impress people. My wife said I am of the same type. Europe has a more conservative culture and more relaxed lifestyle. My family likes Europe very much. My wife is currently in Milan.
Eva Dou: Do you know HBO has a TV series about the telecom industry?
Ren: No, I didn’t.
Eva Dou: I recommend you watch it. This TV series is about the telecom industry, telling a story about the first transatlantic phone call between the King of Spain and the US President Calvin Coolidge. At that time, the Spanish government supported Telefónica because they wanted to spy on their enemies. As history shows, states often support the telecom industry because they want to spy on others, don’t they? Is it like that in China? How will Huawei operate in today’s historical and political environment?
Ren: Automobile manufacturers only sell their trucks to their customers. It is the drivers who decide what goods they want to put in the trucks. Manufacturers don’t know anything about it. Just like automobile manufacturers, we only sell equipment. Networks are managed by telecom carriers, and we don’t manage the equipment after selling it. We have no idea how carriers operate that equipment. Carriers build pipes and ensure information flows smoothly through the pipes, while we produce the iron sheets on top of the pipes. What could we do with iron sheets?
12 Matt Murray: I understand the sensitivity, but you have become a large global company with hundreds of thousands of employees. Can you be fully confident that there are no employees affiliated with Huawei anywhere engaging in activities like those we reported?
Ren: Our internal and external compliance systems and Committee of Ethics and Compliance ensure our employees comply with our Employee Business Conduct Guidelines (BCG). We don’t allow for violations. If there were any employees that did such a thing, they would be severely punished.
13 Neil Western, Asia Business Editor, The Wall Street Journal: On the point of selling iron sheets, I don’t think that’s strictly true since you spend a lot of money on cyber security and that money has been increasing over the years. Particularly since Edward Snowden revealed a few years back that the NSA has been able to use Huawei equipment to listen in on people. So where do you see the threat and how can you prevent that threat, from Huawei’s point of view?
Ren: If we didn’t invest in cyber security design, carriers wouldn’t be willing to buy our equipment and many countries would ban us from their markets. If we didn’t comply with GDPR, it would have been impossible for us to establish a presence in Europe. Cyber security and user privacy have become integral to all commodities.
It’s a lot like a car. All cars have four wheels, so why are big brands usually more expensive? Because they are safer.
I think this is a requirement that all companies today have to follow. Otherwise, it’s going to be difficult to sell, not to mention selling at good prices. That’s why we must meet customer requirements for security.
Networks are owned by carriers, who are subject to the laws and regulations of the countries in which they operate. Huawei is no different to companies selling trucks.
14 Dan Strumpf: I want to ask you about the future. Huawei has grown into, as Matt said, a company with hundreds of thousands of employees. It’s all over the world. What are the biggest management challenges facing Huawei as it advances into the future? And what are the biggest challenges that will face the company in the future after you step down? And what would you like the company to look like after you step down?
Ren: Over the past 30 years, Huawei has grown from a small company into what we are today. We have stuck to the centralized management model throughout. Because of this, our HQ has become overstaffed and increasingly bureaucratic. If that continues, sooner or later, the company will be overwhelmed and may even collapse.
We held a meeting in Argentina discussing the pilot project for contract approvals at representative offices. One of the key objectives of this project is to delegate decision-making authority to the people who are closest to our customers, and improve the personal grades and capabilities of people in the field.
If many senior managers who really dare to shoulder responsibilities work in field offices, then the processes in back-end offices at the company will be greatly simplified. And we don’t necessarily need as many managers as we currently have at HQ. This way, our HQ will become streamlined and less bureaucratic, and the burden of supporting so many staff at HQ will be reduced. We plan to complete the transformation and enable contract approvals at representative offices within around five years.
Then, we will have a smaller HQ. There won’t be many senior executives sitting in the office in the future. Most of the people at HQ will be ordinary staff. It’s like removing a heavy hat that we used to wear. Our management system has been reversed and turned upside down so as to revitalize our company.
This is something we’ve learned from the US. This is the practice adopted by the US military. People assigned to the Pentagon may not necessarily have a bright future, while people working in the field may get promoted much faster. It’s going to be the same at Huawei. Otherwise, who would be motivated to work in hardship regions?
Matt Murray: So you don’t want anybody to be assigned here in Shenzhen?
Ren: Take our employees working in Africa, for example. The value they create in dollar terms is not as high as those here in Guangdong province, but they are paid several times more than the people working in Guangdong.
15 Matt Murray: Can any one person replace the founder at a company like this? And I ask because you mentioned American companies and that’s a difficult task to pull off in many American companies.
Ren: A reason that some American companies didn’t work out is that they tied the company’s destiny to one single person. Then the safety of executives in that kind of position is tightly linked with the company’s stock value. So they can’t take commercial flights because they think it’s not safe enough, and they need to take bodyguards with them wherever they go. People like this are closely tied up in the interests of people on Wall Street. If one of these executives die, it can have a significant impact on Wall Street.
But at Huawei, I am more of a figure head. Whether or not I work in the company doesn’t have a big impact on its operations. Years ago, when we wanted to initiate a management transformation, we turned to IBM for advice. IBM’s consultants told me that the ultimate goal of the transformation would be to get rid of me, taking away all the authority I might have. They asked me whether I was willing to do that and I told them I was.
Over the last 10-plus years, several hundred experts from IBM have helped Huawei with our management transformation. They have laid a solid foundation for Huawei’s organizational structure and management, helping make the company what it is today.
Then where has the authority gone? It is actually embedded in processes. As a result, managers at lower levels have relatively strong authority. For example, a waiter can get a bottle of cola when they want. If I want a bottle but don’t have a corresponding e-flow, then I’ll have to pay for it.
Therefore, in this management transformation where we incorporated the lessons learned from Western companies, one of the most successful things we’ve done is leaving me only ceremonial authority. Meanwhile, different parts of the organization have been given different types of authority which flows throughout the organization in a closed loop. That way, whoever takes those positions can shoulder the responsibility to support Huawei’s operations.
We are trying to reverse the authority structure within Huawei and give more authority to employees at lower levels in the hierarchy. If this new structure stabilizes, it will be very difficult for future successors to change it back into a centralized one. I believe this will ensure stability at Huawei for a long time.
16 Jonathan Cheng, China Bureau Chief, The Wall Street Journal: You have talked about this change in the structure and the Argentina meeting was a big part of this. When you were hearing about your daughter’s arrest, you decided to go to Argentina anyway. Can you talk about how important this meeting was to you? Because a lot of people would look at this decision and feel that is rather callous to just go about your business and go to this meeting when your daughter had just been arrested.
Ren: Argentina is undergoing economic difficulties, including serious inflation. Huawei’s former President of the Latin America Region had started a pilot transformation project in the Argentina Rep Office. When he was transferred back to HQ, we asked the new regional president to continue the project.
The goal was to approve contracts at the rep office. In the past, these decisions were made by HQ. But the transformation has given the rep office the authority to make such decisions and also to distribute incentives. That has substantially motivated the team. As a result, the business results of the Argentina Rep Office were very good despite the unprecedentedly challenging environment there. This proved the transformation was a success, so now more than 20 rep offices are learning from Argentina and implementing this same transformation. We also expect that a large number of rep offices will undertake similar transformations next year.
With this transformation, efficiency will be improved and a smaller workforce will be needed. Therefore, in order to avoid large-scale layoffs, I approved a document only a few days ago to allocate a budget of one billion US dollars and headcount of 10,000 to our Strategic Reserve as a buffer for those employees who will no longer be needed in their current positions. They won’t be laid off. Instead, they’ll be given training and take exams within our Strategic Reserve. After they become qualified for new responsibilities, they will have the chance to take up new positions and work on new projects. In this way, we want to ensure stable transformation and transition in the company, and avoid excessive layoffs.
17 Neil Western: Why did you choose to have that meeting in one of the areas that is so close to the G20 Summit?
Ren: That meeting didn’t have anything to do with the G20 Summit. Even if we wanted to have it next to the G20 venue, we’d never find enough hotel rooms. And our meeting was held sometime later, after the summit was over, because the weather was nicer then. We had it in an upscale hotel called Llao Llao Hotel in a remote, scenic part of the country.
Neil Western: Once your daughter was arrested in Vancouver, what were your thoughts about the personal risk of being arrested making that journey?
Ren: It was risky, but if I acted scared, everyone else would too, right? I had to go ahead. I transferred flights in Dubai, which I think is very open.
Dan Strumpf: Were you in communication with your daughter around that time? I mean this meeting was obviously so important for you to attend that you did it just days after the arrest of your daughter, who is also your CFO. What was going through your head at that time? Did you feel anguish and were you in touch with Meng Wanzhou?
Ren: I forgot what my thoughts were back then. I was only focused on the meeting going well.
Eva Dou: Talk a bit about Meng Wanzhou being called “Piggy”. You can see it from the birthday letter she wrote to you the other day. Why that name?
Ren: When she was young, Meng was a chubby girl who could really eat, just like a little pig, so she got the name Piggy.
My younger daughter also likes stuffed pig toys, and she calls herself Piggy too. She calls me Daddy Pig, and her mom Mommy Pig.
It’s such a coincidence that both of my daughters call themselves Piggy. I had never thought about why they both do this. But it’s just a coincidence.
18 Neil Western: Huawei’s problems this year have been inextricably linked to the trade fight between the US and China. Could you describe what conversations you have had with President Xi Jinping or Negotiator Liu He over the past year, in terms of resolving Huawei’s problems with the US?
Ren: The trade talks between China and the US have nothing to do with Huawei because we have virtually no business dealings in the US, and it wouldn’t matter to us if the tariff increased to 1,000%. The China-US trade talks are not something I’m concerned with.
Eva Dou: Huawei is just a bargaining chip.
Ren: If the US thinks we can be used as a bargaining chip, I’d say they probably have the wrong idea. Huawei will never be a bargaining chip, and we can live without relying on the US.
19 Matt Murray: I can attest as I heard directly that the government, in talking about the US trade talks, took up Huawei’s cause and asked me and other journalists about other things, why is the US pressing Huawei, what is the issue? The Chinese government says it’s unfair, and the government does take up Huawei’s cause.
Ren: I didn’t know that, and I haven’t seen reports on that. We don’t need the US to remove Huawei from the Entity List. They may as well keep us there forever because we’ll be fine without them. Having said that, we will still embrace globalization and welcome any US company that supplies us. But even if they can’t supply us, we can still survive.
Matt Murray: To clarify, you’ve actually had a great year. You’ve been doing well and decoupling from the US supply chain through the year, and now you’re saying Huawei doesn’t need the US for the foreseeable future. Does Huawei plan, whatever happens in US-China relations, to proceed without the US, even if they become open to you again?
Ren: We’ll never decouple from the rest of the world, and we’ll continue to unswervingly embrace globalization. But this is only our ideal. If the US continues to block us from their supply chain, we’ll have no problem surviving on our own. We are already not using American components in our 5G base stations, or our transmission, access, and core networks. Of course, we still have a version that can use American components.
20 Eva Dou: There was a question related to Huawei’s history. Some customers in Europe and the US are skeptical of Huawei’s government background and investment coming from the government. I noticed that in the 1990s Huawei had a subsidiary called Mobeck, and it received a lot of investment from provincial and municipal companies of China’s telecom bureau. Several years later, as Huawei’s business grew, those companies were kicked out. Since then, there has been no investor in Huawei. So why was Mobeck set up in the first place? And why was it closed afterwards?
Ren: First, Mobeck was a power supply company, and power supplies were a marginal product for us. Second, in 1992 China started to impose stricter financial controls. Why? China suffered from very serious inflation after the financial bubble burst in the late 1980s, so the central government implemented stringent financial policies in 1993. Banks were prohibited from offering new loans. For the loans already issued, the banks were made to recover them, even if they weren’t due yet. At that time, if we wanted to run a power supply company on our own and sell it later to earn some money, we wouldn’t have enough money to develop Huawei. That was why we sought investment from “tertiary-industry” companies, or labor service companies, which were governed by the telecom bureaus. These companies were all under collective ownership, and they were unique to China during that specific period of history. Such companies were set up because there was no other place to go for staff that had been deemed redundant by state-owned enterprises at the time. So they were moved to these companies just to stay employed. A few years later, when the power supply company grew bigger with the raised funds, it was sold to a US company called Emerson for 750 million US dollars. That money was distributed to the staff and the company was disbanded. Actually, some of the staff wanted to continue running the company, but I said I couldn’t shoulder that burden anymore, so it was disbanded.
21 Matt Murray: Mr. Ren, you’ve seen remarkable changes over your career. Your 5G rollout is now picking up steam dramatically. What will we see in the world of technology in the next 10 years? What comes after 5G and how many more transformative changes lie ahead in the next decade?
Ren: I cannot imagine what society will look like in three years’ time, not to mention 10 years. Not that many years back, very few people could have imagined that we would be able to use our mobile phones to browse the Internet. Steve Jobs, with his iPhone, basically changed the entire world. I think the Internet took off because the iPhone made wireless networks a reality. After 5G, I think the biggest opportunity will be centered on artificial intelligence (AI). What our society will look like is still something we cannot imagine at this point in time.
You’ve already had a tour of our production line. It is just a little intelligent. AI is only used in several steps along the production line. Yet still, you don’t see many people. In the future, there will be even fewer people after AI is more widely deployed.
We have hired many mathematicians and doctorate degree holders for our production systems. Because of their efforts, we’ve seen great progress in the way we approach process and quality management, and planning and scheduling. Now, scheduling takes place in the IT system to ensure production activities are non-stop, 24/7. We also have robots delivering materials to specific locations at given times to ensure that we can keep feeding the production line. This is constant production. That is the change we are seeing in our own environment. But we still don’t know what society will look like 10 years down the road.
Currently, AI is used to its utmost in chip production. Right now, the US is still the most advanced when it comes to scale or the level of sophistication for chip fabrication.
If other industries follow suit and introduce AI to production, productivity will significantly increase. Industries that can use AI for their production will be relocated to Western countries whereas other industries will seek to operate in countries with lower labor costs. Therefore, to adapt to future society, the most important job of every country is to improve the level of education.
Matt Murray: Because workers will be displaced by AI, Mr. Ren?
Ren: Yes. Or they will not be skilled or knowledgeable enough to manage AI systems.
Matt Murray: Mr. Ren, thank you very much for your generosity and for taking all our questions. I want to thank your entire team for their hospitality and all they’ve done. I also want to commend the interpreter who is going to have a bad hand cramp. But thank you very much for hosting us.
Ren: I would welcome you back again the same time next year to see whether we are safe and sound. You’re welcome anytime.