Ren Zhengfei's Interview with The Washington Post

December 10, 2019

Shenzhen, China

Ren: It's a great pleasure to meet you both. Welcome and thank you for coming such a long way to visit us. As Anna Fifield is based in Beijing, you can visit us more often, so we can talk more about your specific areas of interest.

01 Jeanne Whalen, Global Business Reporter, Washington Bureau, The Washington Post: I want to ask you a bit about the entity listing in the US, what the overall effect has been on Huawei, and I have some specific questions about it as well. What has been the overall effect of the US entity listing would you say?

Ren: Overall, the entity listing has had a pretty big impact on Huawei. We may need to work harder for two or three years to get out of its shadow. Based on the current situation, I think there is no problem for us to survive.

US chips are more advanced than ours, but we can still use our own chips. But when it comes to the structural design of 5G systems, we are leading the world. Even though we are using our own alternatives to US chips, there is no major difference in the performance of system equipment.

As you may see, we have stripped US chips from many of our printed circuit boards. Carriers from around the world have taken these boards for testing and found they work very well. Despite this, we would still like to have continued supply of components from US suppliers.

Jeanne Whalen: By the system equipment, you mean the 5G network equipment, right? That means telecom network equipment, I assume?

Ren: Yes.

02 Jeanne Whalen: One chip that an analyst in the US told me was quite important to 5G equipment is Xilinx's FPGA chip and I wonder how you manage to replace it. A: Did you replace it very soon? If the answer is yes, and B: How did you manage to do that and to do the work as well as Xilinx's chips?

Ren: Xilinx provides the best FPGA chips in the world. We have also designed our own FPGA chips, though not to their level of performance. Despite this, we managed to come up with algorithms for our own FPGA chips, so that they are as good as Xilinx's in real-world scenarios.

Jeanne Whalen: And have you had feedback yet from your customers who have bought 5G network equipment using your chips instead of Xilinx's chips? What did they say about the performance?

Ren: They have given us pretty positive feedback.

Jeanne Whalen: Can you say which carriers? Which telecommunications carriers have received such equipment from you?

Ren: Over 40 carriers have received 5G equipment using our own FPGA chips.

Jeanne Whalen: Any in Europe?

Ren: Yes.

Jeanne Whalen: Can you name any specific ones?

Ren: There should be many.

Jeanne Whalen: You can't name any? I would like to ask them how it works and if it does work well, perhaps you can name a company, and I can call them.

Ren: Go ask any carrier in Europe. They are well aware of our equipment's performance.

Jeanne Whalen: If we could go back to the FPGA chips, how did Huawei design its own chip to replace the Xilinx chip? Can you talk a little about which team did that? Was it here in Shenzhen or another part of the country? How long did that take? How much did that cost?

Ren: We don't have to put all our people in the same place. Our scientists are working in different locations, and they work together remotely. Our annual R&D budget is around 15 billion US dollars. This number will gradually increase to 20 billion US dollars. About 30% of this budget goes to research, including the design of FPGA chips. I do not have specific numbers for the amount of money we have spent on specific projects.

Jeanne Whalen: Was that a very big project for you though? Can you give any detail at all about how long it took to come up with your replacement for the Xilinx chip?

Ren: I think the development of CPUs is an even bigger project. Our own Kunpeng CPUs are more powerful than Intel's CPUs in some aspects. We also have GPUs and NPUs for graphics and neural processing, respectively. We have many similar projects.

Jeanne Whalen: So you can't give us much detail? We're just looking for a little bit of color about what it took for Huawei to replace some of the most important parts. Was it something that took a couple of weeks of engineers working all night? Did it take several months? Maybe just a little more detail about how you managed to reengineer some of these US parts.

Ren: I don't think it has been that quick. It has taken us eight to ten years to develop our own components. I have no details about this though.

Jeanne Whalen: But if it's years, how did you manage to do it since May? Have you been working on your own version of CPU and FPGA since several years ago?

Ren: Of course. We have been working on them for more than a decade.

03 Jeanne Whalen: On your phones, The Wall Street Journal had an interesting story about a week ago where they asked someone to take apart a Mate 30 phone and found that it did not have any US components. I wonder if you could talk a little about what you managed to reengineer. How did you actually eliminate US parts from your handsets, from your phones? How big of an effort was that and what exactly were you able to eliminate?

Ren: I would say that Huawei should not have had to put in place our Plan B. Not long ago, the US was the only country in the world that could develop CPUs. So you can imagine how difficult it is to develop a CPU. However, we decided to develop our own CPUs because we were concerned that we would not have continued access to CPUs from the US.

More than 10 years ago, Huawei was a very poor company. We had to use US components to develop our products. At the same time, we had to put in place a Plan B, developing our own CPUs and other components. As I just said, Huawei was pretty poor back then. If we had only walked down one path, the cost would have been relatively low. However, we were forced to walk down two paths, which made our costs much higher.

We did this because we didn't feel safe. If the US had made us feel safe, there would have been no need for us to come up with a Plan B. If Huawei's current situation continues and the US government does not stop their sanctions against Huawei very soon, many other companies will also be concerned about possible sanctions from the US, and some may end up developing their own Plan B, which would be a bad thing for the US.

It seems to me that when the US government added Huawei to their Entity List, their goal was not very clear. Some say that they are targeting Huawei's 5G, but I find that this has not been the case. It seems that they are targeting everything that Huawei needs from external suppliers.

Huawei has been using many low-end chips manufactured in the US. Those chips are not as complicated as CPUs. If US companies are not allowed to supply them to Huawei, it's pretty easy for us to find alternatives from other countries. And even if we couldn't find alternative suppliers in other countries, it would only take several months for us to develop those chips on our own.

So we may find alternatives from other countries or develop these chips on our own, but either way, what then? Who would those small US companies then sell their low-end chips to? Therefore, the US's addition of Huawei to the Entity List hurts both Huawei and many small US companies.

04 Anna Fifield, Beijing Bureau Chief, The Washington Post: Mr. Ren, officials in the Trump Administration talk about wanting to decouple from the Chinese economy, but many analysts say this is impossible. But it sounds like what you're describing is Huawei decoupling itself from the United States. Would you agree with that characterization?

Ren: No, I wouldn't. Economic globalization was first proposed by Western countries, primarily the US. Globalization was hard won through decades of efforts. So I don't think it's realistic for us to go back and divide the world into two.

We are now in the Internet era, where information travels incredibly fast and papers written by scientists can go viral online soon after being published.

In addition, US companies have developed many great products. If they don't want to sell these products to other countries, how would they survive?

The approach we are currently taking is not of our own choice, let alone being the company's long-term goal. We will not be so narrow-minded as to pursue self-reliance and independent innovation. We are just taking a makeshift approach in order to survive the Entity List.

Anna Fifield: So then you are at odds with President Xi Jinping who continually talks about the need for self-reliance in China?

Ren: I don't think self-reliance and openness are contradictory. I am an advocate of self-reliance as a kind of spirit, but not as a kind of system. If self-reliance is referred to as a kind of system, there will be defects. A huge amount in costs would be saved if China is able to use great products made by the US, and vice versa.

05 Anna Fifield: The Chinese government has obviously publically given you a lot of support during this period where you've come under fire from the United States. What have they been doing privately to help Huawei weather this storm?

Ren: Nothing. Like any other Chinese company, we pay taxes and we don't receive special subsidies from the government. We rarely take loans from banks; 90% of our working capital comes from ourselves and we used to borrow the other 10% from foreign banks. We have not taken loans from Chinese banks until recently.

Anna Fifield: Has the China Development Bank extended you a bigger direct line of credit?

Ren: I don't think so. Because the China Development Bank mainly lends to infrastructure projects, while Huawei takes commercial loans as our working capital. We used to borrow from international banks, which asked for relatively low interest rates, and we have only recently begun issuing bonds to Chinese banks. Our financial statements are audited by KPMG, and I can show you our annual reports over the past decade.

Anna Fifield: Which international banks are giving you credit or helping you these days?

Ren: Few at the moment, because they are all afraid of the Entity List.

Anna Fifield: So, you're saying that this year international banks have cut off funding or lines of credit for Huawei because of American pressure? To clarify?

Ren: Not exactly. They are not actually using the word "cut off", but are being very vague in their position towards Huawei. They just don't lend and we don't borrow. The average interest rate of China's bank loans is 2% higher than that of international banks.

06 Jeanne Whalen: There is a long running perception in the US that Huawei has received subsidies from the Chinese government over the years. Have you ever received government subsidies that helped you lower your cost and charge less in the international market?

Ren: The subsidies we received from the government are for basic research. The total research funding we received over the years adds up to less than 0.2% of our revenue.

Catherine Chen: All these R&D projects supported by the government are public projects that are open to all companies, including foreign companies.

Jeanne Whalen: Can you clarify what sort of subsidy that is? Sorry, I don't understand.

Ren: The country may set up some workgroups for basic research. At times, we acted as a workgroup leader for some of them, and the government distributed some funds to us. We worked with other workgroup members to do research and publish papers, and many of these research papers were not for commercial use. In addition, we have also worked together to draft standards and convene conferences.

Catherine Chen: I would like to add that these R&D projects supported by the Chinese government are in nature the same as projects initiated by other governments such as those in the EU and Canada. For example, the EU's well-known and well-funded Horizon 2020 project. Both Chinese companies like Huawei and foreign companies like Ericsson and Nokia have participated in these projects and received subsidies.

Ren: I would like to address a common misperception. Huawei's products are expensive; our prices are higher than Ericsson's, but a bit lower than Apple's. We've earned a lot of profits, but we didn't eat them up and get fat. Instead, we have invested them into strategic research.

Jeanne Whalen: So your products today are more expensive than Ericsson's. Is that what you mean? What about in the past? We have always heard that Huawei's products were considerably cheaper than Ericsson's or Nokia's in the network.

Ren: Our products were also expensive in the past, or we wouldn't have become what we are today. However, compared to other vendors, we provide many more functions and features in the same system. So after using our products, customers conclude that our products are cheap considering everything they get out of them.

Jeanne Whalen: For example, I recently wrote about a rural carrier in the US in Oklahoma that bought Huawei's equipment about five or six years ago, and they said they did so specifically because Huawei was significantly cheaper and had good quality products as well. But the main consideration for them was the price, which was a lot less. And we've heard that repeatedly over time. So, it's strange to me to hear that your products have always been more expensive.

Ren: Our products are priced high in many countries and regions such as Europe, the Middle East, China, Japan, and South Korea. For the US, the biggest problem is that many vendors who are used to working with large carriers are reluctant to provide services to small carriers in remote areas, so they usually charge high prices. Therefore, small carriers in the US find that the equipment used by large carriers is expensive. Our consumer devices, however, are priced lower than Apple's; about 5% lower.

07 Anna Fifield: How often do you talk to Chinese leaders like Xi Jinping, Li Keqiang, and Liu He? How often do you meet with them in person or talk to them on the phone or WeChat?

Ren: I hope you can give me their phone numbers, because I don't have them. Perhaps you can introduce us to them one day, because we don't know where we can meet those Chinese leaders. We believe Huawei has the capacity to deal with the impact of the Entity List. We don't need help from the Chinese government. The Entity List is about components, so it's a matter of technology and only scientists can help us with that. Whether or not these political leaders place their confidence in us, it won't turn the tide of the battle. It's ultimately a technical issue and we need to address it through technological means. Politics is not the solution to our problem with the US.

08 Anna Fifield: As you know, there's a presidential election coming up in the United States and the campaign has already started. Across the board, Democrat or Republican, China is almost a unifying issue. Everyone has taken a hardline position on China and how to deal with China's competitiveness. President Trump has obviously also taken a hardline and has put that into action against Huawei in particular. But a few Chinese political scientists that I've talked to say they hope President Trump is re-elected because he's a known quantity and he is somebody who is seen as very transactional, somebody who is willing to cut a deal on issues. We have seen that with regards to your daughter and Hong Kong. He's put all these issues on the table as something that can be bargained in terms of a trade deal. So I'm wondering how you view President Trump. Do you think he is somebody that you would like to see re-elected, because you have gotten to know him for better or worse over the last couple of years and you can predict how he will operate?

Ren: I used to think President Trump was a great president, because he reduced taxes so quickly in a democracy like the US. That is quite an accomplishment. But he also messed up with one thing: trying to crush businesses and intimidate countries around the world. The idea behind his slogan "America First" is also wrong.

It's like looking at a big family. If the eldest brother is unselfish and willing to share things with his little brothers, then the brothers will follow him faithfully. But, if the eldest is selfish and thinks "Me First", then the little brothers will go their own ways. Similarly, what Trump has been doing will also harm the US's allies.

This isn't just an issue about Huawei. In a lot of ways, the US government is scaring off many investors. So how are they going to make up for the lost tax revenue? The purpose of the tax cuts was to attract investment, but attracting investment is only one side of the equation. On the other side, the US government is using a big stick to scare the whole world. No one is daring to invest in the US. People are even becoming less willing to travel to the US.

Just now, you described Trump's style as transactional. That means he wants to get things done. I see from the news that both China and the US want to mitigate the current situation so that each country can overcome their own challenges. Each time the two countries seemed to be on the verge of a deal, the US suddenly raised additional requirements, and as a result, no deal has been reached so far. As a matter of fact, many issues can be dealt with phase by phase. This is just like walking upstairs – you can take one step at a time. I saw on the news that Trump has said he wants a fundamental solution to the current issue. It's very difficult to climb all the way to the top with just one big step. In fact, China is facing some economic difficulties. And as I see it, China is ready to make a phased compromise. If both China and the US back off a little bit and then aim to reach a deal for the future, it will work better.

Trump has done a great thing, which is cutting taxes to attract investment. But he has also made a big mistake: He has made the US an enemy of so many countries and so many companies around the world, and as a result, no one dares to invest in the US. Take Huawei, for example. We are now on the blacklist, but our US subsidiary is on the whitelist. We cannot engage with each other. If we cannot even manage our US subsidiary, then what's the point of increasing our investment in the US? So if the US wants to develop its economy and address its difficulties, they should be trying to attract large amounts of foreign investment into the US.

Luckily, right now it's only Huawei that is subject to the US campaign. US companies should sell their components to other Chinese companies as fast as they can. In that way, the market that we currently don't have access to can be filled by other companies, and there will be still a large market in China for US components. The US should also try to attract companies from around the world to invest in their country. In the US, natural gas, electricity, land, all kinds of housing from apartments to mansions, and commodities in supermarkets are all quite cheap, and taxes are lower. There may be only one challenge in the US, which is the high cost of labor. However, with AI being adopted in many factories, businesses don't need as many people as they did in the past. So why not make full use of the US resources to boost the economy?

Why do entrepreneurs hesitate to invest in the US, despite the attractive conditions there? Because they are concerned that they might one day be arrested by the US government. Huawei is probably one of the companies that best comply with the laws and regulations wherever we operate. And yet, we still have to experience so many difficulties. Looking at what is happening to Huawei, companies that have a poor compliance record will certainly think twice before making investments in the US.

Anna Fifield: Mr. Ren, if you hopped into an elevator and President Trump was there, you had 30 seconds with him. What would you say to him?

Ren: I want you to time me to make sure that I don't speak for longer than 30 seconds. I think collaboration for shared success is a global trend. The US is the most powerful country in the world. They should have the confidence to play a leading role in globalization. Right now the US chooses not to sell their great products to other countries, so how can they cut their fiscal deficit? The US has no low-end products. They only have high-end products. So they need to collaborate with others for shared success.

Anna Fifield: 32 seconds. That was pretty good.

09 Jeanne Whalen: President Trump obviously has taken a tough stance against China and Huawei. But actually it's a very bipartisan feeling at the moment in the United States. It's quite rare to find something so bipartisan as the sense in the US right now that China has treated the United States unfairly. Where do you think that comes from? Can it be entirely the misperception of people in the United States that China has played unfairly? Or has China made some mistakes over the years in its dealings with the West and the United States?

Ren: First of all, I'm not a politician, so I am not in a position to analyze politics. However, I can give you my inexpert understanding of the situation. I could understand if the US was scared of China 40 or 50 years ago, because the ideology China followed back then was so radically different than the US's. At that time, China was a very weak country. Since then, China has undergone tremendous changes. If I saw you on the street 30 or 40 years ago, I would turn around and walk away as fast as possible. I wouldn't even dare to walk past you, in case someone reported to the authorities that I had been near a foreigner. If that happened, they would start asking what I had said to you. That would have put me in a very dangerous position back then. But now, we can sit here together for as long as we want and talk as much as we like. You can tour our campus and take whatever photos you want. When the Associated Press came here, they filmed our exhibition halls and took pictures of our circuit boards. All of this shows how open China is now and how much progress China has made over the past few decades.

From your point of view, China should be even more open. But in our opinion, we need to keep moving down this path step by step. China is making progress by opening itself up gradually. The US should acknowledge the changes China has made.

The US always says that they keep ending up on the losing side in trade deals with China, but I don't know whether it is true or not. The recent China International Import Expo in Shanghai has explicitly shown that China would like to purchase from other countries. The US didn't attend the Expo though. Does the US really want to do business with China? The US seems constantly worried that China will replace it as a world leader, but I don't think that will be possible any time during the next 50 or 60 years. The US is a great country, but even it hasn't been able to solve the problems in the Middle East. The former Soviet Union couldn't either. Can other nations solve the problems there? In truth, the US's position as a world leader remains unchanged. It is all a lot of worry about nothing.

Because of this, I think the US should sell its great products to the whole world and earn money to grow its economy. This is in its best interest.

10 Jeanne Whalen: Where do you think the deep mistrust and anger at China comes from in the US then? As I said, it is very bipartisan at the moment. Where does that come from?

Ren: The US made significant sacrifices 70 or 80 years ago during World War II. People around the world began to put a lot of trust in the US, and the world's financial hub was moved from the UK to the US. The US has greatly helped maintain the world order and facilitated the world's peaceful development. But the US didn't suffer losses throughout this process, as the US dollar was used as a settlement currency worldwide.

Over the last several decades, however, the US has been at war in many countries around the world. The US itself has destroyed the very international order that it established, and the US dollar-centric economic order is being destroyed as well.

Without a stable macro environment or a stable financial instrument for transactions, the world economy is certainly heading for a recession. No one in the world can replace the US in maintaining world order. No one is trying to take the US's place at the table. I think the US needs to reflect on the mistakes it has been making these past years and rebuild international trust.

Jeanne Whalen: But that didn't really answer the question though, I'm sorry. Why is there mistrust of China in the US right now?

Ren: I think it's the US's own problem. I still put a lot of trust in the US at this point. A large number of Americans do not understand Huawei very well, so I think we need to engage more with them to understand each other better.

11 Anna Fifield: Mr. Ren, how many times have you visited the United States?

Ren: Countless times.

Anna Fifield: When was the last time you went?

Ren: I don't remember exactly. But each time was for business, so I mostly went to big cities. I regret that I've never been to many of the beautiful scenic spots in the US.

Anna Fifield: Do you feel you cannot go to the United States now?

Ren: I don't feel the need to go there.

Anna Fifield: Can you please explain? You're concerned that Trump will have you arrested if you go to the United States?

Ren: Not like that. What would be the point of me going to the US? Huawei has been blacklisted by the US, and we cannot engage with any American individual or business. So, what's the point of going?

After Huawei is removed from the Entity List, I will rethink whether or not it is worth it to go to the US.

Anna Fifield: Has the arrest of your daughter affected your own personal travel schedule, like you deliberately not going to countries with extradition treaties with the United States?

Ren: No, because there is no reason for the US to arrest me.

Anna Fifield: Have you been to see your daughter in Vancouver?

Ren: That would need Trump's approval.

Anna Fifield: So it has affected your travel schedule?

Ren: No, there's no need for me to be physically there to see my daughter. I think making a phone call is the same as seeing her in person.

12 Anna Fifield: Your daughter Meng Wanzhou is under house arrest in Vancouver. She's been away for a year now. But during that period, she has been able to live in a fancy mansion, take phone calls from you, see her husband and her daughter, consult with lawyers, do her painting, go to restaurants, and whatever else. There is a transparent legal process going on in relation to your daughter. Whereas exactly one year ago from today, two Canadian men Michael Spavor and Michael Kovrig were arrested and detained here in China. They were held for the first six months in solitary confinement with the lights on 24 hours a day, and for the second six months in a prison cell. They have no access to lawyers, and no access to their families. There is no transparent legal process for them. What do you say about that? Is it unfair for them to be treated in this way? Shouldn't they be accorded the same judicial rights that your own daughter is enjoying in Canada?

Ren: Unfortunately, I don't know anything specific about this incident, so I cannot answer this question.

Anna Fifield: That's my point. Nobody knows any specifics. The process is not transparent. They have not appeared in court. They have not seen lawyers. There have not been any public details about the charges against them.

Ren: I don't really know anything about this either. You may know their names, but I don't.

Anna Fifield: You don't know their names?

Ren: I don't, because I'm not concerned with this and it has nothing to do with me. What I care about is patching up the holes in Huawei's "bullet-riddled aircraft", so we can land safely despite the US's attacks.

Anna Fifield: Their names are Michael Spavor and Michael Kovrig. I actually know both of them personally through my work. I have professional relationships with them. I know through their representatives that they both claim their innocence in the same way that your daughter does. So I'm just interested to know since you think that China is a developed country. As you have been saying that China has been through many reforms and has opened up, do you think it's fair for China to treat anybody in this way, when your daughter is not being treated in this way?

Ren: I'm just a businessman, and I'm really not familiar with many social issues, so I have no knowledge of this matter.

Anna Fifield: So you think it's just a coincidence that they were arrested 10 days after Canada detained your daughter?

Ren: I don't know.

13 Anna Fifield: Chinese people will not be able to read our interview with you on the Internet because The Washington Post along with most other foreign media outlets are blocked in China. You talked about China's reform and opening up. In October this year, we saw the amazing celebration of the 70th anniversary of the founding of the People's Republic of China and all of the things China has achieved. Do you think it's right for a country like China to have this Great Firewall and cut off the Internet? Can Chinese people not be trusted to read the open Internet?

Ren: Huawei is neither a media outlet nor an Internet company, so we are not sure how the things you mentioned should be dealt with. You'd be better off asking an Internet company.

Anna Fifield: You're a tech company, though. You can't put The Washington Post app on your phones. Your phones can't use Facebook. This is something that concerns you as the founder of a huge telecom company.

Jeanne Whalen: Would you like Chinese people to be able to use Facebook and read The Washington Post app on your phones?

Ren: Just like the US is keeping Huawei out of its market, China has shut you out of the Chinese market. This is a two-way street, isn't it? Huawei has no ideological issues, but the US still pressured and blocked Huawei. It's like the US is hitting us with a stick. What China has done to The Washington Post is not as bad as that.

Anna Fifield: But take Germany as an example. It is open to Huawei and Chancellor Angela Merkel has said Huawei will not be blocked. But German media are also blocked in China. My point is, should Chinese people be able to access the open Internet and make up their own minds?

Ren: You should ask Trump if Huawei should be allowed in the US, and ask Chinese media authorities if your stuff should be allowed in China. By throwing the question at me, you are asking the wrong person – someone who has been wronged and banned from the US market and whose family member has been arrested at the request of the US on unfounded allegations. How can I answer a question about whether or not the US was treated fairly?

Anna Fifield: This is not a question about the United States. This is a question about domestic China. The Chinese government deliberately stops Chinese citizens from accessing any website they want, no matter what country, including Chinese websites. As a founder of a tech company and as a leader in China, how do you view this? Should Chinese people not be able to choose for themselves what they read on your devices?

Ren: I want to ask the US a similar question. Why have they shut Huawei out? I want an explanation for this. The US is not just shutting us out of their market, but also imposing harsh restrictions on us.

Anna Fifield: So then I can conclude that you support the Great Firewall of China?

Ren: We didn't build the Great Firewall. We offer connectivity to the world. So my point is, for any questions about the US, you would need to ask Trump; for questions about China, you should ask the relevant Chinese authorities. Openness should be mutual. The US was the one that closed its door first and launched a campaign that aimed to crush Huawei. They even banned Huawei's access to minor components. So how can the US prove they are a great country?

Anna Fifield: The Great Firewall went out many years before Trump was elected.

Ren: Huawei has been denied access to the US market for many years. This has not only been an issue since May 16 this year when Huawei was added to the Entity List. Since the US is such a great, open country, why should they resist advanced technologies?

Anna Fifield: Okay. I think that's our questions. Is there anything you would like to tell us?

Ren: I have nothing to add. I would just like to welcome you back to visit often. Not just you yourself but feel free to bring your friends as well. I think this is important to enhance our mutual understanding.