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Ross S
mranderson
Huawei would need to shed its government ownership and operate transparently if ...
Yoshida in China: Going public would demystify Huawei
Junko Yoshida
10/11/2012 7:22 AM EDT
Military link?
It is widely known that Huawei’s founder Ren is an ex-People’s Liberation Army officer. While some view that fact alone as sufficient evidence to suspect a clear link between Huawei and the PLA, a larger question is who really "owns" Huawei. The company claims to be employee-owned.
A friend working for a Beijing semiconductor company explained to me over lunch: “Huawei hasn’t been able to go public because their financial book is such a mess.” We haven't been able to confirm that, but looming large is Huawei’s lack of transparency.
Since much of the evidence in the House Intelligence Committee's report on Huawei and ZTE is classified, it’s hard to blame the Chinese media for alleging U.S. protectionism. Still, it's not unreasonable for the U.S. to remain cautious. After all, as concerns mount about cyber warfare, why should you go out of your way to do business with companies who aren't even listed on the New York or London stock exchanges?
Wouldn't you rather work with a public company, especially on big telecom equipment deals for next-generation networks? Huawei has hired a slick U.S. spokesman to defend its reputation, but going public would do more to solve some of Huawei's transparency problems.
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It is widely known that Huawei’s founder Ren is an ex-People’s Liberation Army officer. While some view that fact alone as sufficient evidence to suspect a clear link between Huawei and the PLA, a larger question is who really "owns" Huawei. The company claims to be employee-owned.
A friend working for a Beijing semiconductor company explained to me over lunch: “Huawei hasn’t been able to go public because their financial book is such a mess.” We haven't been able to confirm that, but looming large is Huawei’s lack of transparency.
Since much of the evidence in the House Intelligence Committee's report on Huawei and ZTE is classified, it’s hard to blame the Chinese media for alleging U.S. protectionism. Still, it's not unreasonable for the U.S. to remain cautious. After all, as concerns mount about cyber warfare, why should you go out of your way to do business with companies who aren't even listed on the New York or London stock exchanges?
Wouldn't you rather work with a public company, especially on big telecom equipment deals for next-generation networks? Huawei has hired a slick U.S. spokesman to defend its reputation, but going public would do more to solve some of Huawei's transparency problems.
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DataMuncher
10/11/2012 12:01 PM EDT
Junko,
I like your thinking. Sometimes adequately regulated free markets are far more powerful than spies, guns, missiles and nukes... Just look at what happened to the Iron Curtain.
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DMcCunney
10/13/2012 11:08 PM EDT
The West is making a bet that the demands of a free market will force change upon China.
There's a fair likelihood it will. China is transitioning from a state run internal "command" economy where all aspects were planned and controlled by the government to a trading partner dealing with the rest of the world, which largely has to play by the existing world market rules if it wants to play at all.
The process of change will not be fast or easy, and in many cases various elements in China will be dragged kicking and screaming into the new world, but it will probably occur whether they like it or not.
Some years back, in an interview quoted in the Wall Street Journal, one of the then senior Chinese officials talked about the changes in the Chinese economy, and I thought of Humpty Dumpty's assertion in Alice in Wondeland that words meant what he wanted them to mean. China was transitioning from a Communist society to one that looked remarkably like Capitalism to someone from the West, and his comments were essentially "If it works, it's a triumph of the great People's Revolution", and what "it" might be was irrelevant. They would still be a "Communist" state, even if there *was* a thriving stock market in Beijing.
China's leadership seems to recognize the need to transition to a market based economy for China to achieve the economic growth they desire, but China is learning how to do it as it goes. There will be fumbles and mis-steps (like what is happening to their solar energy industry), and one question is how well they recognize tyhat such things are part of the process in a market economy and *will* occur.
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nosubject
10/11/2012 12:10 PM EDT
According to some news report, HW is working on the IPO, very likely will be in HongKong.
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george.leopold
10/11/2012 8:27 PM EDT
Hang Sang Exchange would be the place to start.
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sprite0022
10/11/2012 8:35 PM EDT
how about ZTE? which has listed in HK for x years.
what you suggest them to improve?
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junko.yoshida
10/12/2012 11:24 AM EDT
You are correct. ZTE did an IPO on the Shenzhen in 1997 and another on the Hong Kong in December, 2004. My argument for going public won't hold for ZTE.
However, the key focus of the U.S. Congressional intelligence report is still on Huawei.
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Mushroom in the dark
10/12/2012 11:22 AM EDT
Going public or not does not matter. Its just a matter of time. The Chinese are very good in the waiting game and have lots financial backing via their government...that will last them till the negative US impression fades. It the end it will boil down to their low cost products vs. expensive American brands of the same performance. The price difference of these products will be the deal breaker.
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vorange
10/12/2012 12:29 PM EDT
Australia, I understand, ousted them. What's our problem?
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me
10/12/2012 1:03 PM EDT
I am not sure who is on the side of free market in this case. We have Cisco, HP, Intel, Microsoft, all over there. Their kimono is wide open front and back.
We can count on them develop nothing of their own. But what if they start to shut Cisco there when they got Huawei, shut Dell there when they get Lenovo, and so on?
They are shutting Toyota now, gave the business to Ford. We will see how that plays out.
It at least gives you some time to sell Cisco stocks.
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Frank Eory
10/12/2012 3:53 PM EDT
I doubt that an IPO is going to allay the concerns.
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junko.yoshida
10/12/2012 6:59 PM EDT
Probably not. But at least, that's a start. Don't underestimate the power of being a public company. At least that will require the company to publicly disclose certain basic information, even though it's not perfect.
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DMcCunney
10/13/2012 10:50 PM EDT
The problem with an IPO from Huawei is how much credence to put in the underlying information.
It may "disclose certain basic information", but how does a prospective investor *verify* it? When large amounts of money are on the table, there's a powerful incentive to lie about your conditions and prospects, and there are reports on the financial pages over here frequently enough of suits filed by investors who claim they were lied to.
In the US, we at least have the potential safeguard of independent third-party auditors expected to examine the books and confirm that things are as the company states they are. (This is hardly foolproof - witness Arthur Anderson and Enron - but it does exist.)
What sort of independent verification do we have in the case of Hauwei? How do we independantly confirm the facts in any IPO are as they state? This is not a case where I would expect outside investors to take their word for it.
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mranderson
10/14/2012 10:45 AM EDT
Huawei would need to shed its government ownership and operate transparently if it wants access to the American market. It has not been willing to do that.
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Ross S
10/16/2012 5:01 PM EDT
Excellent analysis here:
http://www.economist.com/node/21559922
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