House of Huawei, the new book by Washington Post reporter @evadou, has to be one of the most important books on China and industrial policy in recent years.
I’m still reading through it and will share parts I found striking in this ongoing thread:
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1/ An executive from Canada’s Nortel called China’s telecom market a “gold mine” in the 1980s because China was completely reliant on foreign equipment.
A Canadian ambassador said that Canadian companies would sell old technology to China and always stay a step ahead.
2/ Huawei had a hard time getting financing in the early days. State banks didn’t want to take a risk on them.
So Huawei set up a separate joint venture that brought in provincial & city telecom bureaus as investors. These local governments were also some of the first customers.
3/ Huawei’s founder Ren Zhengfei famously said: “A country without its own program-controlled switches is like one without an army.”
He also said this equipment was “related to national security” and “its software must held in the hands of the Chinese government.”
4/ From early on, China’s top leaders recognized Huawei’s critical role in helping to build China’s semiconductor industry.
“In 1996, Huawei was one of eight companies selected by Beijing for a $1 billion national semiconductor development program.”
5/ In the 1990s, Beijing was already helping Huawei sell telecom equipment to other countries.
“On a 1995 trip to eastern Europe, Vice-Premier Li brought along Huawei C&C08 switches as diplomatic gifts.”
6/ Founder Ren Zhengfei was afraid that Huawei would eventually be nationalized due to its national importance. He feared Huawei would become a lumbering state-owned enterprise, and he even turned down some state loans to prevent this.
7/ Premier Li Peng once asked Huawei’s Ren Zhengfei if Huawei equipment could be used to trace calls for national security purposes. Ren said that when a call was placed, they knew about it immediately. But they never said publicly whether these surveillance tools were developed.
8/ Huawei referred to its hard-charging sales team as a “wolf pack.”
CEO Ren Zhengfei held “mass resignation” events where salespeople had to write a work summary and a resignation letter and Ren would only sign one of them. (I bet Elon Musk would admire this approach.)
9/ In the 1990s, Huawei was actually only one of four major Chinese telecom equipment makers.
The favored national champion back then was a state-owned enterprise called Great Dragon built on China’s first breakthrough in telecom switches made by a military engineer.
10/ What happened to Great Dragon?
“In early 1996, a dozen of Great Dragon’s 04 switches abruptly failed due to a software problem. The company never recovered.”
China wisely didn’t put all its eggs in one basket but rather tried to foster competition among a set of players.
11/ Bribing Chinese officials was common and done not just by Huawei but also foreign telecom equipment companies. Nortel gave bottles of Johnny Walker. Ericsson admitted to the US Justice Department to offering Caribbean cruises.
12/ When Huawei was first expanding abroad, it faced well-established foreign competitors. So it began by expanding in rogue states—countries under Western sanctions or in conflict zones. This annoyed the NSA because it removed their ability to monitor these countries.
13/ Huawei and ZTE have a long and bitter rivalry, suing each other over intellectual property in countries around the world and going after each other’s customers.
ZTE is also based in Shenzhen but is mostly state-owned, which made foreign customers distrust it.
14/ In the 1990s, Chinese tech entrepreneurs looked up to IBM, including Huawei’s Ren Zhengfei. Huawei hired IBM consultants for a decade to help improve its operations.
15/ When Cisco sued Huawei for copying, Huawei found a clever counter-strategy: they partnered with Cisco’s longstanding rival 3Com. Huawei used 3Com’s patents as a shield, and 3Com got a low-cost manufacturing partner and access to China’s market.
16/ Cisco faced a difficult decision over whether to sue Huawei for copying. It was the top seller of routers in China and even sent a team of executives to Beijing before the lawsuit.
This delicate balance is one that many foreign companies have faced while working with China.
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