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get 20% off the annual subscription. September 9th, 1976. The day, Mao Zedong died, three decades after
founding the Peopleâs Republic of China. Few countries are so easily divided into two
distinct eras. With his death, the economic walls around
the Red Dragon slowly fell, allowing the largest population on earth access to the world economy. In 1978, there were, essentially zero private
companies. All were state-owned, with only a tiny 140,000
people, or 0.01% of its population, employed privately. Just three years later, thanks to Maoâs
successor, Deng Xiaoping, that number was already 16 times higher. China in the â80s and â90s was the golden
opportunity to start a company. Big, inefficient state-owned corporations
had left huge gaps in the economy, people were moving to the city, finally, with money
to spend, and the government was eager to encourage enterprise. Which is to say, Ren Zhengfei couldnât have
picked a better time than 1987 to start his company, called Huawei! A few years later, it won a contract with
the Peopleâs Liberation Army, which, although small in financial terms, was huge for winning
favor with the Communist Party, who then protected the company from competition. With this help, Huawei became, today, the
2nd largest phone company in the world, just ahead of Apple, and behind only Samsung. Up until just a few months ago, it was expected
to pass Samsung to become number one, lead the world in the spread of 5G and gain even
more market share than its current 29% of all telecommunications equipment on earth. Then, with one, swift signature, Huawei was
banned. Not only does this stop the company from selling
equipment in the U.S., but all Huawei products, everywhere are banned from working with American
companies, who supply Huawei with components like Intel chips, and software like the Google
Play Store. So, is Huawei, as the United States claims,
a real threat to national security? A trojan horse for the Chinese government? Or is the ban merely political? The problem with most answers to these questions
is that they focus only on the technology, the politics, or China. But to really understand Huawei, you have
to marry all three. Who really owns a company? Itâs a pretty reasonable question and should
have a pretty simple answer. You donât usually need to go around reading
Articles of Incorporation, just some common sense. A few decent clues are whoeverâs office
is on the 100th floor, or, maybe, whoeverâs business card is most expensive. But not always. Because, of course, the structure of a company
is not designed for our legibility, but, rather, to make more money or limit somebodyâs power. So, you see lots of weird subsidiaries, holding
companies without employees based in the Virgin Islands, deliberately confusing names, and
dual-class shares. Things can get⌠weird. Take John, for example, of Papa fame, who,
facing public pressure, resigned as the company chairman. A few weeks later, John decided actually,
heâd like to return to his pizza Papa position. The board said, âYeeeah⌠Hard pass!â and changed the companyâs
bylaws to block their own largest shareholder from taking over the company he founded. He then sued his own company. One time, a pharmaceutical company called
Rockwell Medical split into two legal corporations, each claiming to be the real, legitimate Rockwell
Medical Incorporated with the same address and same shareholders, leaving everyone wondering,
whoâs the real pope? The point is, itâs actually not that simple
of a question. And, thatâs before you add the whole Socialism
twist. If you do ask Huawei who owns the company,
theyâll happily take you to a special room in their Shenzhen headquarters, where a giant
blue book, because little and red were taken, sits behind glass. Exactly the way youâd expect a multi-billion
dollar tech company to keep its records. In it, Huawei says, is a list of every person
who owns shares in the company. And, as theyâll enthusiastically assure
you, none of these people are the Chinese government. Case⌠not closed, obviously. Hereâs what we know: Huawei Technology LLC is 100% owned by a holding
company called Huawei Investment & Holding, which is itself owned by two parties: Huaweiâs CEO owns about 1%, and the rest,
the Union of Huawei Investment & Holding. It says this is only for legal reasons, and,
Iâll remind you, convoluted ownership structures arenât at all unusual. For all practical purposes, Huawei claims,
the company is owned by its employees - the names in the blue book - who own stock in
the company. But, again, itâs not so simple. What Huawei calls stock is, actually, apologizes
in advance to non-business majors, Synthetic Equity, or, for maximum, put-it-in-the-parking-lot,
synergize, circle-back jargon-points, Restricted Phantom Shares. OoOooOoo⌠Phantom⌠spooky sounding! Itâs a lot like regular equity - shareholders,
in this case, Huawei employees, receive a share of the companyâs profits - a dividend. They stand to make money, so theyâre incentivized
to add value to the company. Except itâs âsyntheticâ - as in not
totally⌠real. It canât be sold or transferred, doesnât
give much say in the operations of the company, and, if an employee, for any reason, leaves
the company, he or she must also sell back their shares. As two American researchers summarize ââŚthis
virtual stock ownership has nothing to do with financing or control. It is purely a profit-sharing incentive scheme.â When we ask the question âWho owns Huawei?â,
what weâre really asking is who, if they really wanted the company to do something,
like, say, spy on foreign countries, has the power to do so. The answer, it seems, is the union, who owns
the holding company, who owns the company. So, who controls the union? This time the answer is much easier: Under
Chinese labor law, Unions are subject to their superior branch - local Unions answer to provincial
unions, all the way up through a winding python of hierarchy, ending at the chairman of the
All-China Federation of Trade Unions, who also sits on the National People's Congress. Unions in China are, therefore, largely an
extension of the Communist Party. Now, youâd be right to point out that this
alone shouldnât be enough to ban an entire company from doing business with an entire
country. After all, this logic applies to many Chinese
companies, not just Huawei. It would be ridiculous to ban all of them. To that, defenders of the ban would say, But
Huawei is no ordinary company; it has a long history of alleged misbehavior. Itâs CFO was, quite prominently, arrested
in Canada on the grounds of violating US sanctions on Iran. Cisco accused the company of copying their
manuals after finding the same typos in Huaweiâs, which its CEO said was just a coincidence. The CIA also claims it has evidence that Huawei
has taken money from Chinese intelligence services. And finally, in 2012, China gave the African
Union a new $200 million headquarters in Ethiopia. Then, last year, a French newspaper quoted
anonymous technicians in the building who claimed they caught Huawei equipment copying
and sending data to servers in Shanghai - which China and the African Union officially deny. On one hand, thereâs a lot of smoke here,
on the other, thereâs also a lot of people who have a strong interest in you believing
thereâs a fire. All of these incidents are alleged, and, neither
the UK nor the US has ever presented clear evidence of a backdoor in Huawei equipment,
despite having many years to investigate. Before the ban, before its phones were cut-off
from Google services, before it lost its relationship with ARM, before it was, indirectly, forced
to sell off its undersea cable business, Huawei was unstoppable. Experts tend to agree that itâs years ahead
of anyone else on 5G technology and that its equipment is, in general, significantly cheaper. Thatâs why, despite pressure from its allies,
Britain has continued buying Huawei equipment - doing so saves, at least, millions of dollars. It mirrors the predicament many countries
around the world face with Chinese investment: Even knowing the risk of dependence on China,
can they resist the economic benefits? Itâs no secret that, while this is going
on, the U.S. is in a trade war with China, and banning Huawei gives it both negotiating
leverage and protects American telecommunications companies from foreign competition, exactly
at its strongest. So, make no mistake: The ban is political. Itâs been strongly hinted as being on the
table for trade negotiations. And itâs quite possible the ban will soon
be reversed if a deal is made. But, itâs just as important to note that
just because something is strategically motivated, doesnât mean there arenât, other, perfectly
legitimate arguments. Much of the confusion around this issue is
centered around the fact that politicians can agree on the same policy for vastly different
reasons. The truth is you donât need to make a judgment
call on whether you trust Huawei or its CEO. You only need to recognize the most basic
feature of the Chinese system: everything is the concern of the state. From what is shown on TV, to who is allowed
to travel, even how long you can play Fornite, and certainly the movements of its largest
corporations, the Communist Party is everywhere, if not now, and quite possibly, not, in the
case of Huawei, eventually. Having an enemy is, unfortunately, useful
for American politicians, especially one as misunderstood as China, but so too is it crucial for a country to
keep its communications infrastructure, through which national secrets are shared and information
wars, increasingly fought, free from foreign influence. This is much bigger than any one company,
bigger than who controls 5G, bigger even than the trade-war. Itâs really about the Chinese system being
used against it. The story of Huawei is very much the story
of China - both only realized their full potential upon opening up to the worldâs markets,
where Huawei now makes the much of its revenue, and how China was turned into one of the most
powerful nations on earth. Huawei is what it is today to a significant
degree because of its close relationship with and subsequent protection by the Chinese government. Now, itâs a victim of that same closeness
- the other side of that very profitable coin, which, ironically, has long blocked many western
tech companies - Google, Facebook, Twitter, YouTube⌠- from operating in China on, you
guessed it⌠national security grounds. China would like the benefits of free, open
trade abroad, while closely protecting and controlling business domestically. But now itâs forced to chose. In a trade war like this one, each side is
trying to use game theory to interpret and outmaneuver their opponent, who may or may
not be lying. For example, say there are two types of people
- knights, who always tell the truth, and knaves, who always lie. You say âIf I asked if you were a knight,
what would you sayâ? and they respond âNoâ, which are they - knight or knave? To see the answer and solve other problems
like this one, check out the interactive logic, computer science, and math courses on Brilliant. You can even do them offline with their iOS
and Android apps. If you want something more bite-sized, Brilliant
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subscription, so you can view all Daily Challenges and unlock dozens of problem-solving courses. Thanks again to Brilliant and to you for watching
this video.
Really enjoyed it! I like the topics you choose a lot, this one in particular was really good!
This was really cool, where do you get your ideas from and why are you interested in china alot u/polymatter
You read the Chris Balding paper! Damn I knew you did your research but you really friggin do your research. Super impressed