Huawei’s business damaged by US sanctions despite success at home

Chinese telecoms giant Huawei has admitted that sanctions imposed on it by the US in 2019 have had a major impact on its mobile phone business.

The US took action amid claims that the company posed a security risk and last July, the UK said it would exclude the company from building its 5G network.

Growth elsewhere in the company meant that it did make a profit overall.

But chairman Ken Hu, referring to the impact of the sanctions, told the BBC: "It has caused a lot of damage to us."

Mr Hu, speaking at the launch of Huawei's 2020 report, called for a review of the global supply chain of critical technology.

Huawei has also tried to explain more about its ownership structure arguing that it will not allow interference from the Chinese state.

Mr Hu described 2020 as a year of challenges, with a significant hit to the mobile phone business and slowing revenue growth.

"Life was not easy for us," he said.

Chinese strength

Strength in other sectors and in the Chinese market meant overall revenue was up 3.8% at $136.7bn (£99.3bn) and profits up by 3.2% at $9.9bn.

Mr Hu said restrictions had hurt US suppliers and global consumers as well as Huawei. "We think this is a very unfair situation," he told the BBC at a press conference.

In response, the company has stockpiled chips, invested in research and development, and diversified its supplies.

It has also reportedly been developing its own chip production within China. Building domestic capacity for the most-advanced chips is currently a high priority for China.

There is currently a worldwide shortage of chips, and Mr Hu called for a "rethinking" and a "review" of the globalised semi-conductor supply chain.

US authorities have argued that using Huawei's 5G equipment opens up countries to the possibilities of data being accessed by the Chinese state, or becoming vulnerable to being switched off.

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Huawei has defended its independence from the Chinese state by trying to explain its unusual model of ownership.

Jiang Xisheng, chief secretary of the board at Huawei, told the BBC that its employee-shareholders "will not allow external interference into the company's operations".

The company gave the BBC a remote video tour of the vault where more than 30 large cabinets contain records of the employees who own shares, listing when each individual bought them and for how much.

Critics have said the system is opaque, and is more of a profit-sharing scheme than a mechanism of real control.

Mr Jiang compared the model to the partnership model of UK department store John Lewis, arguing it means the interests of employees are closely bound up with those of the company and it shares in its success.

Ownership questions

Technically there are two owners of Huawei's holding company - its founder Ren Zhengfei, who owns 0.9%, and a trade union body which owns the rest.

The company says the union is the platform for the more than 121,000 employees who own shares. These are not like normal shares, however. Non-Chinese staff are not allowed to own them and the shares cannot be publicly traded or kept when someone leaves.

The records vault houses the shares records of more than 100,000 employees

Holding a share offers a chance to vote for the representative commission which is technically the highest authority in the company. Candidates come from within different sectors of the company, and staff can watch a recorded presentation before voting.

The process, Mr Jiang says, is competitive, although not as much as the US general election, he said when asked to compare it.

This commission selects the board of directors which report to it every year. Its reports have always been approved.

Mr Ren retains a veto over key issues, including candidates for the board of directors and a supervisory board. The model for this, Mr Jiang explains, is partly that of the British constitutional monarch. He says the veto is designed to be a "deterrent and constraint" rather than to be regularly exercised.

Mr Jiang joined the company in 1989, two years after it was founded, when it consisted of only about 40 staff.

He says the employee-ownership model came about to bring in capital as well as to attract and retain staff, and has allowed Huawei to focus on long-term research and development.

To try to emphasise the company's openness, Mr Jiang picked up his phone during the interview to explain that all employees have an app on which they can post comments and ideas. He says that before our interview, he had seen one post that criticised him.

Mr Jiang shows the BBC what he says is open criticism of him from within the company

Half of the 70 replies had backed the criticism and half had defended him, he said.

External critics, especially in the US, have argued that the representation committee is no more than a rubber-stamp and real power lies elsewhere, leaving the way open for hidden direction from the state.

That is an idea Mr Jiang seeks to dispel.

"For sure, we can say no to the state," he told the BBC. "Even if some individual government officials wanted to intervene in our company's operations we have the right to say no to that."