Ren Zhengfei's Interview with the Los Angeles Times

November 18, 2019

Shenzhen, China

01 Norman Pearlstine, Executive Editor, Los Angeles Times: It is energizing to be able to speak with you again. I can't think of anything more important right now than what I hope we can talk about. And if you don't mind, I'd like to just say that I have thought about our previous meeting a number of times, and my thoughts have also been with your family and your business. I've also thought a lot about what has changed since then. I'm told, Huawei has already hosted 3,000 media visitors from both China and abroad this year. And I thought if you were willing, perhaps you could just tell us about how you're feeling and about how life has changed. Do you feel that this has been a good use of your time and could you talk about what it has meant for both you and your company?

Ren: The year started off with dark clouds of public opinion forming over us. US sanctions have dragged Huawei into a crisis, where we are fighting for survival. The majority of the public held a negative opinion of us. Even those who wished us well didn't believe that Huawei would survive. The West had very little understanding of Huawei in years past, and we had not refuted the misrepresentations made by some biased politicians, so some people actually had even more misunderstandings about us than before.

In the past, we always believed that we should win customers' trust, create true value for them, and let them know they need Huawei. Then the misunderstandings held by the media and public would gradually disappear. That's why we would never spend any time fighting against politicians. It was OK if some media outlets didn't understand us.

Over the past few months, especially after the US added Huawei to the Entity List, we have been the center of a major dispute. Therefore, we felt it necessary to tell the world who we really are. I think these clarifications are meaningful. For some people and some areas, Huawei's image has somehow improved. We have gotten to welcome so many journalists from around the world recently, and they have given us many opportunities to explain ourselves. We should be grateful for that. Their visits here will help them see what a company we truly are and deepen communications and understanding from both sides. To us, these visits won't address any problems, but they're an opportunity to build mutual understanding and increase transparency.

02 Norman Pearlstine: How has it affected the company itself in terms of both morale and feelings about working at Huawei? And even more importantly, how has it affected Huawei in terms of how it has changed business practices or business focus, perhaps in different areas than before?

Ren: The US adding us to the Entity List did us a favor because it created a crisis for our employees. There is a fable called The Boy Who Cried Wolf where a shepherd boy cries wolf to trick the other villagers. When a wolf did come, the villagers thought his cry was another false alarm. Complacency was bred in the process. The same is true for Huawei. With what's going on now, our people feel a fire under them because they realize they'll go down with Huawei if they don't work hard. This great effort by all our employees has driven up our business results. That's a big change we are seeing right now.

Norman Pearlstine: We have the same saying in the United States where we talk about when someone is always predicting a big threat or something, we say, "They are crying wolf." So I think that is something that is well understood.

03 Norman Pearlstine: I have been reading a number of the interviews that you've given recently, and I was thinking back to our meeting in March when you said that you were worried that Huawei people may have gotten too rich or become too self-satisfied or materialistic, and that you thought if, in fact, things got harder, it would make people go back to sort of the way they were in the early days of Huawei. I've subsequently heard you say, "Yes, business has gone quite well compared to what people were worried about," but I've also heard you say that 2020 is a year when your destiny will be determined and when there is your greatest risk. And I wonder if you could talk a little bit about how you've done better this year, but that you are still so worried about next year. And what is it about next year that has you so concerned?

Ren: There's nothing to worry about when it comes to how we will perform in 2020. In fact, we believe we will keep growing. We will be subject to US sanctions throughout the year, but still be showing the world that Huawei can survive and thrive regardless of the pressure from the US.

We welcome media representatives to come and check up on us again next year to see if we are still surviving. According to our forecasts, we will continue to grow in 2020, but the growth rate will not be significant. Our growth for this October slowed to 17%, and we expect the growth to be around 10% in 2020. That's the slowest growth rate we could expect. The actual growth might be higher.

In my opinion, we will start to scale our growth in 2021, but others on our senior management team do not think our scaled growth will resume until 2022. As you can see, their views differ from mine. But their forecasts are probably more prudent, so I recently signed a document that used their estimates.

04 Norman Pearlstine: Has there been a significant change in the sources of your business? And are there ways in which by 2022 Huawei will be a materially different company from what it was, say, last year? For example, will the focus be much more on domestic growth or will the growth come from Huawei being even less dependent on any kind of supplies from the US that are now, you know, not for sale and so forth? I'm just trying to understand what will cause the bounce-back, and will it be the same Huawei or a somewhat different version?

Ren: The estimation I just said is based on the assumption that Huawei will remain on the Entity List. We are prepared to remain on this List indefinitely. With this, our growth will be built on a more solid foundation.

Actually we have never planned to grow this fast, but the US sanctions have forced us to fight back and prove ourselves. Before the Entity List incident, our strong business performance had made many employees just want to kick back, buy a house, and live comfortable lives. This sort of thinking was gaining momentum at Huawei. We had been trying to suppress it, but were losing that particular battle. However, the US adding Huawei to the Entity List has inspired passion across our entire organization and motivated our employees to work harder, because they are keenly aware that if they don't work hard, Huawei will collapse.

In the past, Huawei's annual R&D budget was about 15 to 20 billion US dollars, which was too big to be prepared by just our headquarters. It was done on multiple levels. Our middle-level teams and teams on the ground tended to be speculative when coming up with the budget, and they snuck in some smaller products that were outside our strategic focus.

They claimed they were already leading the world in their field, yet in reality these small products did not sell well and did not create much value. In addition, a significant portion of our company's headcount was assigned to work on these products.

However, if we took a more centralized approach, where HQ directly allocated our R&D budget, it would have been a bureaucratic nightmare, and would have hurt the company more than if we delegated authority to lower levels.

So this was a huge internal challenge we faced and were not able to resolve over the years. If we tightened control, we couldn't grow, but if we loosened up too much, the company would have devolved into chaos. Trump's attack on us was a wake-up call for the whole company. We have managed to cut the number of R&D departments by 48%, and stopped 46% of the research work that we deemed unnecessary.

Norman Pearlstine: What does that mean? A flatter management structure or peeling off non-productive operations? Forgive me for the interruption, but I am trying to understand the 48%.

Ren: The number of R&D departments is down 48% and the number of unnecessary product development projects is down 46% as a result of organizational restructuring. We have assigned engineers that were made redundant to work on products that are within the scope of our strategic focus. This improves our R&D capabilities in relation to these products, making them more competitive, globally. As our organization gets leaner, red tape is less of a problem.

05 Norman Pearlstine: Does Huawei remain a global multinational company? You now are in, I think, 177 or 180 countries and regions. Or does this action by the US make Huawei more focused on domestic opportunities?

Ren: Trump's attack on us has made the company famous worldwide. As a result, many more people around the world are now actively buying products from us. We will always be a globalized company and will always be able to compete around the world. We will never give up on globalization.

We firmly embrace globalization in terms of the supply chain. If US companies are willing to sell their components to us, we will do our best to use them in our systems. If we don't use them, it will not help the world form a globalized resource allocation system. We will not be so narrow-minded as to pursue self-reliance and independent innovation, and we will not retreat to the domestic market like cowards.

06 Norman Pearlstine: I know, for instance, our secretary of state and our… I guess I can call him, our secretary of commerce, have quite frequently gone around the world, trying to pressure Japan, Australia, New Zealand, and even Britain. How do you feel about that? That effort has been effective? Has it curtailed your opportunities? Or do you think that people are coming to understand that this President and this administration are, in many ways, not doing things in the interests of other countries except their own?

Ren: The US secretary of state is very busy. He has made banning Huawei one of his diplomatic priorities and has been helping us promote our products all over the world. 5G may not be that useful, but as the US seems to be so afraid of it, others might think it must be very useful indeed. This will surely make people more actively buy 5G products.

Huawei is just a small company. Are our products really worth the attention of a secretary of state from such a superpower as the US? What matters most is that the pressure the secretary of state has put on other countries hasn't created any impact. Is the US focusing its diplomatic efforts on Huawei? The secretary of state must be very tired.

Norman Pearlstine: So in some small way, I know you're not thanking President Trump for his decisions, but you do see ways in which it makes you stronger?

Ren: Yes, objectively speaking, he has helped drive our transformation across the entire company. Those who have been negatively impacted by this transformation may dislike Trump.

07 Norman Pearlstine: Some of the industry analysts in the United States who write for much narrower publications specializing in business intelligence, have suggested that the most difficult areas for Huawei to respond to the restrictions are around specialized chips that are difficult to manufacture, and around building a world-class group of app developers who are willing to take on a new operating system beyond the Android system that in some parts has been denied to Huawei.

Is that a fair analysis? Are those the two things that you most need to overcome? Or are there other product implications that are also a challenge for you?

Ren: I think the analysis is rather fair and accurate. These are the challenges we need to address. No problem cannot be solved. Tens of thousands of years ago, our ancestors were still living in the wilderness. They could not even walk upright back then and might have had tails. Humans today, however, have no tails and dress in suits. Nature and history tell us that nothing remains immutable. The world will surely move towards collaboration so we can share success. Without collaboration, people will be forced to find alternatives, which ultimately will harm those who refuse collaboration.

08 Norman Pearlstine: Have you had a chance to look at or listen to any of the Democratic candidates who are trying to run against President Trump? And do you have concerns that, in some respects, President Trump has made the whole country seem more nationalist and more anti-Chinese? When I listen to Elizabeth Warren, Bernie Sanders, or even Joe Biden, so much of the conversation is about kind of nationalist ideas and kind of rejection of the globalization that has been a factor in global growth for the last 70 years.

Ren: The US has made remarkable progress since the 1980s. This progress can be attributed to globalization. China has also benefited greatly from globalization. However, many of the benefits brought to China by globalization might be bubbles. China needs to spend a lot of time and energy easing these bubbles, in order to develop at a steadier pace.

For the past 40 years, the US economy has shifted from the real economy to financial innovation. The value created by this financial innovation has greatly outweighed the value created by the real economy. However, the world is facing a supply surplus and a demand deficiency. How can the US financial sector create value in this case? The US and China need to collaborate to complement each other's shortcomings. A US-China decoupling will harm both the US and China's interests.

09 Norman Pearlstine: Just to come back to this question about Trump's opponents. It's hard enough for those of us working and living in the US to make predictions, but do you see any real differences between the two political parties? Or is it really just a difference of style? Is this a nationalist trend that may continue no matter who the President is? And will it expand to other countries?

Ren: Which of the two parties wins the presidential election might matter to Americans, but it won't change anything regarding China or Huawei. I've noticed that the US Congress has unanimously agreed on a bill to contain China. Therefore, we must discard any fantasies. Whoever becomes the next US president won't change anything on our part. I don't really care much about the US election.

10 Norman Pearlstine: Now that you have had the benefit of some more time, say, since we spoke in March or even since a few years before that, do you have any further evidence or beliefs about what is behind the efforts to hurt Huawei, to demonize Huawei, to attack Huawei? In some respects, America has always had rivals that it would try to unite people against: Toshiba, Hitachi, Samsung, and so forth. But I have never seen anything as orchestrated or as critical as the attitudes toward Huawei. And I wonder if you feel that you are kind of a symbol or a scapegoat for fear of China itself or whether there is some other force at work here that we have not identified?

Ren: In the face of US sanctions, we don't have that much time to analyze the US's motives or their continued campaign against us. We have spent most of our time thinking about how to do what we should be doing well given the current situation. We can't change the way the world works and we can't change the external environment. But we can change the mechanisms we adopt to help us achieve success within the current external environment. We will focus on achieving success on our side. It's extremely difficult to change established institutions or the external environment.

11 Norman Pearlstine: How significant is 5G and the realization in the US that this is the first example, in a very long time, of a technology of true significance where the leadership has passed from the United States to China? I'm sure there have been other examples, but I'm hard-pressed to think of one in the last few decades. This makes me wonder if that's true, whether it is a fear of that loss of leadership or something specific about what it means to be in such a leadership position. I ask that with the understanding that the follow-up question would be about your remarkable offer in September to license 5G to any US company that might want to acquire it.

Ren: In fact, 5G is not as important as some have imagined. Politicians have exaggerated its role, and as a result of all their publicity, 5G was adopted earlier than expected. Our initial estimation was that 5G would attract attention and be put into trial use in 2020. It's now 2019, and 5G has already been widely adopted across the world.

When it comes to other technologies, the US will continue to lead for a long time to come. This will not change. The US Secretary of Commerce Wilbur Ross said in India that the US would catch up and overtake Huawei in two or three years. I have full confidence in what he said. The relevant export control regulations don't apply to US companies. They can fully utilize the technological innovations of the US. They are also exposed to the US's climate of theoretical innovation. They can even gain inspiration from what they hear others saying when having a cup of coffee. This is because talent is everywhere in the US. We don't have such a climate. US companies don't have to worry about the possible cut-off of supplies by the US government. And they don't need to invest a lot of resources and manpower into a backup plan. They can just focus on their core business areas. So, I think it is totally possible for US companies to catch up quickly.

For Huawei, however, things are quite different. We have to follow all applicable export control regulations, and observe the restrictions on the use of sensitive components. Now we even face restrictions on the use of low-end components and software, forcing us to produce them on our own. So, how could Huawei possibly win this battle against the US as a nation?

So my concern is not around whether Huawei will survive under the current US campaigns, but rather if we will be able to maintain our leadership position in three to five years. If we still want to stay in the lead, you can just imagine how difficult it is going to be. We might not even have time for a cup of coffee.

12 Norman Pearlstine: I think sitting in the US, the fear is, in fact, that these companies cannot catch up, that there is no national policy that is pushing for innovation. It does raise the question of whether, in fact, it is the fear of Huawei that has led to these restrictions, or whether it is a bigger fear of China. So when our President suggests, for example, that if he could get the trade deal he wants, he might include in that dropping, say, the extradition efforts against your daughter, it makes me question the US government's motives.

Ren: These statements show that Meng Wanzhou's case is not based on any crime. It has become more like something to be traded. If the US government threw its weight into supporting R&D, it would be practicing a form of state capitalism rather than laissez-faire capitalism, which doesn't match the US's standard political rhetoric. The US has clung hard to laissez-faire capitalism throughout its development. Why would it turn to another ideology? Let's not turn technological competition into a competition between development paths or ideologies, because science and technology has nothing to do with development paths or ideologies.

KPMG's audits on Huawei's finances over the past 10-plus years clearly show we have not received any funding from the Chinese government. In fact, our tax burden is even heavier than that placed on US companies. So this is not a competition between social systems. The most important factor in our success has always been the amount of effort we have put into our work.

Norman Pearlstine: And maybe you got to where you are by being a capitalist yourself?

Ren: We live in a socialist society, but inside the company, we have adopted what I call ''employee capitalism''. This way, we can leverage the driving force provided by capitalism within the company while also benefiting from a balanced socialist environment outside. We comply with and adapt ourselves to the laws and regulations in all countries and regions where we operate. By doing this, we are able to succeed.

13 David Pierson, Southeast Asia Correspondent, Los Angeles Times: Mr. Ren, how much would you say Huawei being placed on the Entity List has accelerated the timeline to fully develop your own semiconductors and software ecosystem for your mobile platform?

Ren: It has facilitated our independent development of these things, but we are not sure to what extent.

David Pierson: Can you talk about your strategy with the chips? I mean, it's been said you've been hoarding chips in order to deliver handsets. Can you talk about your current supply for chips and how you plan to continue delivering growth regarding handsets?

Ren: Can people work on chipsets also work on software? I've never heard of this. We have never halted our chip development, nor have we changed our path. We are always moving forward in measured steps. Phone operating systems and ecosystems are all about software. However, when we improve our software capabilities, we don't say that we will reduce our capacity for hardware.

David Pierson: My question was more about whether you were actually hoarding chips from your suppliers before the Entity List. With the difficulty of being put on the List, were you able to secure enough supply of semiconductors to last you some time?

Ren: Huawei has generated huge sales revenue this year. So hoarding chips to ensure our supply would require tens of billions of dollars. Does Huawei have that much money to hoard chips? I don't think so. Also, suppliers won't sell that many chips to us. Therefore, we don't hoard chips to fuel our development. That's not our approach.

The problem we face today is that our supplies are insufficient to meet market demands. That's why our customers are rushing to buy our products. Apart from that, the supply of chips to us is also insufficient. Particularly, TSMC doesn't have sufficient production capacity to meet huge demands. Therefore, it is impossible for us to hoard chips. Even if we could hoard chips, what happens when the chips we hoard become outdated? Hoarding goods is still a traditional way of thinking.

14 Norman Pearlstine: Do you see Harmony becoming a global alternative to Android or to Apple?

Ren: The HarmonyOS was originally designed for the Internet of Things. What matters most for IoT are high bandwidth and low latency. Both autonomous driving and automated production require low latency. At this point in time, we are still not sure whether we will be able to turn the HarmonyOS into a mobile operating system or make it open source, when we cannot source from our partners.

15 Norman Pearlstine: You've had, over the years, very long and often very fruitful relationships with different US companies. You have previously spoken of your admiration of IBM. I know you've had long relationships with Qualcomm and that, even within Google, there are many people who have had close relationships with you over the years. And I'm wondering whether you hear from any of these friends in the business with any advice as to how to deal with our government or any explanation that helps you better understand the dynamics behind this unprecedented attack on such a large, successful company?

Ren: It might be very difficult for Huawei to sort out its relationship with the US. We don't know to whom we could approach to even start addressing this issue. We don't know whether that specific individual would be available to come and see us. We would particularly like to welcome people like Mr. Marco Rubio and other Congressmen who seem to oppose Huawei to visit the company.

Mutual understanding is the foundation for sorting out the issue. US politicians don't have a very deep understanding of Huawei, and I hope the media can play a role in this regard.

Norman Pearlstine: As you know, these days the media comes under almost as much attack as Huawei, and we find that many politicians have trouble understanding us as well.

16 David Pierson: Has anyone taken you up on your offer for 5G licensing yet?

Ren: We are sincere when we offer to license our 5G technologies, but no company has contacted us to discuss this yet. This is actually a huge project, and we are also thinking about how a US company could take us up on our offer. One of our corporate executives said that unless Huawei could send a large number of employees to work with such a company, they wouldn't realistically be able to accept this offer. But it is now very difficult to mobilize our employees to work with a US company. The situation has changed drastically compared with what it was many years ago. Back then, all our employees were very willing to work with US companies but now they are reluctant to go to the US even for business trips. Therefore, it will be very difficult for us to mobilize a large number of employees to work with a US company. The specific US company also needs to consider whether they can possibly take us up on our offer for 5G licensing. I think they are considering this carefully, so we are waiting for their decision.

Norman Pearlstine: We just learned at lunch that a European company just got a big 5G contract in China. Was it Nokia? Does that suggest that maybe it's not a US company, but maybe a European or a North Asian company that might be the first one to take you up on this offer?

Ren: European companies have their own 5G technologies, and we have cross-licensing agreements with them, so they don't need additional licenses. As far as North Asian companies are concerned, since their market sizes are relatively small, they don't have a strong base to make profits, and may face many challenges to ensure long-term survival. Therefore, after analysis, we believe that only the US has this demand.

17 Norman Pearlstine: You've been very generous with your time. So, if I could just move onto one last area, it seems that over the last year or so, you've had to become an expert in many different parts of the US legal system, from the law of extradition to the law of contracts, to the ways in which different courts behave differently. And similarly, some of us have had to learn much more about Chinese laws with regard to the obligations of a Chinese company to the state. You have, in the past, talked about your reverence for the rule of law as you had understood it prior to these difficulties. And I wonder if your thoughts about both the US and Chinese legal systems have changed as a result of these last couple of years?

Ren: Former President of the UN Security Council Kishore Mahbubani once gave a speech on China's legal system. He looked at how China's legal system has changed over time and thinks that China has made huge progress. We can send you the video if you are interested.

In the past, China's legal system was problematic, and there were many restrictions on personal freedoms. But a lot has changed over the past few decades, and China's legal system has progressed in leaps and bounds.

If you compare the US's and China's legal systems, then ours still needs some work. But Chinese people today feel that the country's legal system is making progress. The Chinese government has publicized its commitment to upholding the rule of law as well as market-oriented approaches. Our country has been opening itself up little by little and gradually changing. In China, we are happy with the progress that has already been made.

The US has been improving its legal system for centuries. If we compare the two countries' systems, there are still many things that may be considered unsatisfactory in our system. These are differences between the views of the two sides though.

Norman Pearlstine: Do you feel the US legal system is less fair and worse than you once thought? Or has it gotten worse as China has gotten better?

Ren: Overall, I'd say the US has a strong legal system. For example, their emphasis on protecting intellectual property has laid the foundation for explosive growth in innovation. What matters most about a law is not its text, but its enforcement. We believe the US has a strong legal system, and that is why we had the courage to file lawsuits in the US. If their legal system was unfair and ineffective, we would be losing many court battles.

Norman Pearlstine: I cannot help but finish by asking if you hear from your daughter. How is she doing? Are you able to speak to her? And do you think there will be a resolution of her issues in Canada anytime soon?

Ren: Her mother and her husband are now with her in Canada, and she is doing well right now, emotionally. She knows the difficulty of the case ahead of her, but she also trusts in the fairness, justice, and transparency of the legal system of Canada.

Norman Pearlstine: You've been very generous with your time. Again, we're grateful for the opportunity to see you. We hope that the coming months and years will allow us to resolve so many of these difficult issues that you're living with, we're living with, and which we continue to try to understand. I wish you a prosperous 2020. It will be an eventful year, I think, for much of the world.

Ren: I'd like to invite you back for a visit this time next year, or whenever you have time.