ARTICLE III

BILL OF RIGHTS
(Section 8. The right of people, including those employed in the public and private
sectors, to form unions, associations, or societies for purposes not contrary to law shall
not be abridged.)

( FREE TERTIARY EDUCATION ACT )

WILHEM A. ORTIZ JR.

BSED English II-C
 Who controls Huawei? Here’s an explainer on its ownership structure

A research paper questioning the independence of Huawei Technologies put the world’s
biggest telecom network gear maker back on the offensive last week as it held a press
conference to rebut the paper’s central assertion that it may ultimately be controlled by the
government.

The paper, jointly written by Donald Clarke of George Washington University and
Christopher Balding of Fulbright University Vietnam, said that Huawei’s controlling holding
company – 99% of which is held by an entity called a “trade union committee” – could mean
Huawei is owned and controlled by the government if the committee functions like similar
organizations in China.

Huawei dismissed the claim at a press conference in Shenzhen on Thursday, saying the
trade union committee had been established to meet legal requirements and that it only had
oversight of after-hour staff activities such as badminton and hiking.

The latest spat over ownership and control marks another twist in the road as Huawei
seeks to fight off US accusations that its gear poses a national security risk and that countries
should reconsider including the Chinese giant in their 5G network infrastructure plans.

Here’s what you need to know about Huawei’s trade union committee and ownership
structure.

Why does the research paper take issue with Huawei’s relationship to the trade union
committee? The research paper finds that Huawei Investment & Holding Co., the parent
company of Huawei Technologies and its other subsidiaries, is 98.99% owned by Huawei’s trade
union committee and 1.01% owned by Huawei’s founder and chief executive Ren Zhengfei.

In China, company trade unions report up into more senior trade union organizations,
theoretically all the way up to the All-China Federation of Trade Unions, which is controlled by
the Communist Party of China. Therefore, the paper deems the telecom equipment giant could
be considered as owned and controlled by the government.

Huawei’s relationship with the Chinese government has been a crucial point of
contention amid US efforts to persuade its allies to ban the use of Huawei equipment in next-
generation telecoms network infrastructure on the grounds that the Chinese company could be
manipulated by China’s Communist government to spy on other countries and disrupt critical
communications.

Huawei has repeatedly and vehemently denied these assertions. Although Ren joined the
People’s Liberation Army in his youth and the ruling Chinese Communist Party, he has also said
he would “never do anything to harm any other nation.”
 Last week, UK newspaper The Times reported that the CIA had told spy chiefs that
Huawei has taken money from the People’s Liberation Army, China’s National Security
Commission, and a third branch of the nation’s state intelligence network, citing an anonymous
UK source. Huawei described the report’s claims as completely groundless.

What role does Huawei’s trade union play in the company? China’s Trade Union Law
forms the legal basis for trade union organization in the country and it requires that a company
with 25 or more employees forms an Enterprise Trade Union, with the aim of protecting the
legal rights and interests of employees.

Huawei’s trade union is an organization registered under Shenzhen’s Federation of Trade

Unions. Its trade union committee consists of seven members, none of whom are on the board
of directors. The committee members are elected by the members of the trade union in
accordance with China’s Trade Union Law, rather than appointed by the administratively
superior trade union, according to the company.

Huawei said that it makes certain payments to its superior union association in
Shenzhen, as required, but does not discuss or disclose any of its business operations with the
more senior union entity.

As with other trade unions in the country, one of the main tasks of Huawei’s trade union
is to organize after-work activities that promote their health and well-being. Jiang Xisheng, chief
secretary of Huawei’s board of directors, told international media during Thursday’s briefing that
the union is not involved in any decisions connected to Huawei’s business and operations.

Why does Huawei’s trade union own nearly 99% of shares in the company? Unlike many
large-scale enterprises in China, Huawei has long promoted itself as a company owned by its
current and former employees only.

Huawei employees own the company through an Employee Stock Ownership Program
(ESOP) that has been in place since the company’s early days. As of 2018, there were 96,768
employee shareholders, and no one can own a share of the company without working there, the
company insists.

Huawei is not able to register the hundreds of thousands of employee shareholders due
to limits on shareholder numbers. A limited liability company in China can have up to 50
registered shareholders, while a non-listed stock corporation can have up to 200 registered
shareholders, according to China’s Company Law. Privately owned Huawei is a limited liability
company and as such, its trade union has acted as a platform through which employees can
hold shares, according to the company.

Registering a trade union as a shareholder is not rare as the Provisions of Shenzhen City
on Employee Stock Option Plans, released by the Shenzhen Municipal Government in 2001,
allows the shares of employees to be registered and held in the name of its trade union.
 Shenzhen-based enterprises, including Ping An and Vanke, both adopted similar plans in
their early days.

Who really controls Huawei? Unlike Huawei’s trade union, which has no say in day-to-
day operations, Huawei’s Representatives’ Commission – formed to exercise shareholder rights
on behalf of employee shareholders – is the ultimate authority in the company.

Members of the Commission are elected by employee shareholders on a one-vote-per-

share basis. The Commission currently has 115 members, and it is involved in a range of
business decisions including implementing the employee shareholding scheme and fulfilling
shareholder responsibilities. The Commission also elects the 17-member board of directors
through one person, one vote.

Apart from the 1.01% of shares directly owned by Ren, he also owns 0.13% of shares via
the company’s employee stock ownership program – meaning he has an overall shareholding of
1.14%, making him the largest individual shareholder in the company.

Jiang explained at the press conference that Huawei’s Articles of Governance give Ren
the power to exercise his veto authority, which has been limited to certain areas. These include
increases in capital, adjustments to capital structure, amendments to the company’s major
governance regulations and documents, as well as the nomination of candidates to the board of
directors and the supervisory board. Jiang also added that Ren would not use his veto authority
unless he has to.