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Huawei is built on the American dream
Western countries have played an extraordinary role in creating a corporate titan that's viewed as a model for China's future

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Saturday, December 15, 2018 – Page B2

BEIJING -- When Ren Zhengfei came to the United States for the first time a quarter century ago, he had already decided that America would not just be a source of customers and competition for Huawei, the small telecommunications company he was building.

It would be his inspiration, and his target.

"Every vein in my body pulsed with the shock of what I saw," he wrote, after gaping at the sprawling headquarters of Texas Instruments Inc. and IBM Corp.

Huawei was a speck of a company in 1992, with barely 100 employees. But it would, Mr. Ren determined, "be able to catch up with America."

Not even the most visionary founder, however, could have imagined that Huawei would, in the breakneck years that followed, come to embody the ambitions of his entire country. Nor could he have foreseen that his own daughter would become embroiled in what China perceives to be a far-reaching effort by Washington and its allies to scrutinize the company and foil its expansion - an effort that many in Beijing now see as a campaign to hold back China itself.

Under President Donald Trump, the United States has openly labelled China as a competitor, dispensing with the notion of economic co-operation, while in Canada the head of the Canadian Security Intelligence Service, David Vigneault, recently warrned about risks to Canada from state-sponsored activities, a clear reference to China. Among the areas of greatest concern, he said, is 5G, the next-generation cellular technology in which Huawei is a major player.

The revolt against Huawei constitutes a dramatic reversal, after decades in which Western countries, and the United States in particular, have played an extraordinary role in the creation of a corporate titan now celebrated in China not only as the country's biggest private firm, but as a model for its future.

"This is not just an attempt against a single company," said He Weiwen, deputy director of the Center for China and Globalization.

Rather, he said, "the malicious actions against Huawei mark a new historical high in a U.S.-led containment campaign, one that continues to escalate. It's not just about the economy. They are also concerned with China's technological, military and manufacturing expansion." He sees the United States as intent on suppressing "all aspects of national development."

"This is wrong," he said. "There is nothing right about it, from any perspective."

Now, with the arrest of Mr.

Ren's daughter, Meng Wanzhou, Canada has been thrust into the midst of a worsening dispute between its closest ally and an increasingly powerful authoritarian country willing to exact revenge by seizing people, as it did this week with Canadians Michael Kovrig and Michael Spavor - whose detention was cheered by many Chinese people as just reprisal. Both men have been accused of endangering Chinese state security.

In Canada, authorities acted at the request of U.S. prosecutors who want Ms. Meng extradited to face fraud charges related to violation of sanctions against Iran, and Canada has argued that it conducts law enforcement separate from political considerations. There is nothing political about the case against her, they have said.

But it's a criminal case with sweeping geopolitical importance.

In China, Ms. Meng's arrest has become a focal point for simmering unhappiness over the increasingly hostile international reception to Chinese practices and global expansion - from duelling tariffs with the United States to rejected Chinese investments to warnings that China's overseas infrastructure construction amounts to a dangerous form of debt-trap diplomacy.

"It's hard to get ordinary people too upset with trade statistics," said Mr. He, a former Chinese diplomat to the United States.

"But now something real is happening. A person has been arrested. It's the kind of incident that makes the whole thing more understandable."

Before he founded Huawei, Ren Zhengfei worked as a technologist in the People's Liberation Army. His military background has sculpted Huawei as a company that employs the language of warfare internally, often uses military concepts in its corporate strategy and subjects new hires to boot-camp-like training.

But when Mr. Ren struck out into China's nascent private sector in the late 1980s, it wasn't Chinese military principles that he wanted them to study. He recommended instead a book on West Point Academy, according to an account in The Huawei Way: Lessons from an International Tech Giant on Driving Growth by Focusing on Never-Ending Innovation.

And in 1992, only five years after founding Huawei as a tiny importer of Hong Kong-made telephone switches, he took his first trip to the United States, piling into a rented van with a few trusted corporate lieutenants for a road trip through Dallas, New York and Santa Clara, covering costs with US$30,000 in cash stuffed into a briefcase.

He couldn't shake the thought of the disparities between the innovative corporate giants he had seen, and the relative backwardness of his own country. His concern for China, he wrote at the time, lay "like a shadow over my heart."

The experience crystallized a belief for Mr. Ren that Huawei would learn everything it could from the United States. He returned to the country many times, including in 1997 when he wrote an essay that has become part of company lore: What can we learn from the Americans?

But he also resolved that his own products would one day eclipse those he saw in the United States. He invested in research and development, seeking to match the best tools made by Western giants such as Ericsson and Nokia Corp. He spent prodigiously on foreign consultants paying IBM alone at least US$1.6billion between 1997 and 2012, according to a study by China's Zhejiang University and the University of St. Gallen in Switzerland and hired outside talent to augment the ranks of his own company, which today boasts a work force of 180,000.

His was a vision of Chinese ambition that would propel the extraordinary expansion of Huawei. By 2008, it had joined Businessweek's ranks of the world's most influential companies alongside companies such as Apple Inc. and Toyota Motor Corp.

Four years later, it became the world's largest seller of telecommunications equipment, with offices around the world, including in Canada, where Huawei does significant portions of its 5G research. Last year, it became the first Chinese company to top the list of patent filings in Europe. It boasts that 46 per cent of its employees do research-and-development work. This year, it surpassed Apple to become the world's second-largest smartphone maker. Fully half of its revenues comes from outside China.

Internationally, companies such as Alibaba Group Holding Ltd. are better known. Domestically, Huawei is the company many tech entrepreneurs and startups aspire to be.

"Huawei is a role model for Chinese companies and Chinese business leaders," said Huang Can, who leads the department of innovation, entrepreneurship and strategy at Zhejiang University. He spent three years studying the firm, and co-authored an extensive report on its international development.

It "is the first company in China to really do research and development," he said. "It's the first company in China that has really internationalized so successfully."

Huawei owes at least some of its rise to the favour of its political masters, by making itself what Ayush Sharma, a former senior vice-president with the company, calls "the pride of China." Stateowned Chinese Internet and mobile firms have spent heavily on Huawei equipment, providing stability and profit. Abroad, meanwhile, Chinese bank financing has underpinned the installation of networks that used Huawei technology.

"And that cannot happen without the involvement or support of the government," Mr.

Sharma said.

It also hasn't hurt that Huawei is almost perfectly aligned with the determination by President Xi Jinping to build China into an innovation powerhouse and global leader.

But Mr. Ren's own vision is not merely of a successful company, it is of a corporation vibrant enough to help usher in an Asian century.

"When he was 50 years old, he had already begun to think about how to make Huawei last another 100 years, even after his death," said Sun Jianmin, a scholar who was among a team of six from Renmin University hired by Huawei as consultants in 1996. They spent two years helping the company build a foundation for its growth into a global firm. Its equipment has now been installed in more than 170 countries and regions.

Mr. Sun is not convinced that Huawei as a corporation is terribly important to China. But rising nationalism "makes people want to find a company, an image to represent China, to show that we are strong," he said.

"The reason they have chosen Huawei is because other Chinese companies are just not capable of winning glory for our country."

And Mr. Ren's skillful blending of a Chinese work ethic with management lessons gleaned from the West have made Huawei "become almost invincible," Prof.

Huang said.

"But when you become so good, you also become an enemy."

Indeed, no number of corporate denials has succeeded in shaking foreign doubts that Mr.

Ren remains an asset to the military he once served, and that Huawei's technology, which by some estimates handles a third of the Internet, can be used surreptitiously for Chinese intelligence gathering.

In the past six months, Huawei has been the target of a concerted campaign by the United States and its allies, who have raised the alarm that the spread of the company's technology is creating a global network of vulnerability to Chinese spying. Huawei's 5G cellular technology has been effectively blocked from entering Australia, New Zealand and the United States. Its 4G equipment will be ripped out of critical parts of BT's network in Britain. Japan is taking similar measures and the Canadian government is contemplating calls to do the same.

Then, in the midst of this reckoning, came the Dec. 1 arrest of Ms. Meng at the Vancouver International Airport, and the extraordinary circumstances that have followed.

It has all come at a moment when, after decades of playing catchup in high tech, China "has become a global contender to the U.S. In 5G and in some segments of artificial intelligence, it has reached parity with the U.S.," said Paul G. Clifford, a non-resident senior fellow at Harvard Kennedy School and author of The China Paradox: At the Front Line of Economic Transformation.

Mr. Ren's vision, in other words, is being made real.

And Mr. Clifford isn't convinced that it's possible to halt that, not even with fearsome warnings from spymasters or the potent investigative powers of U.S. prosecutors.

The United State and its allies may be "willing to play the dangerous and unsustainable game of trying to stifle China's rise," Mr.

Clifford said. But Huawei has fallback markets that span the globe, from Europe to Africa and the Middle East, while China, though its own economic growth is slowing, continues to expand its global reach.

"Contrary to some views being expressed, China is in a good position to weather this storm," Mr.

Clifford said.

Huawei, for its part, has continued to invest even in the United States, the place it has been least welcome, a patient approach that has defined not only the company but in many ways China itself.

Even the company's critics express admiration. The Globe and Mail spoke with one former senior Huawei executive who left on such poor terms that he spoke on condition of anonymity, citing a lawyer's advice.

Huawei's struggles may be intense, he said. But the company is "not focused on short-term gains.

They are persistent in the face of defeat."

With reports from Alexandra Li

Associated Graphic

Ren Zhengfei appears at the World Economic Forum in Switzerland in early 2015. Mr. Ren, who was in the People's Liberation Army of China before founding Huawei, had an ambitious vision that helped propel his company's expansion. JEAN-CHRISTOPHE BOTT/AP/KEYSTONE

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