Huawei’s internal governance has intrigued Western scholars. Operating within a conglomerate, the firm is a wholly-owned subsidiary of the parent company Huawei Investment & Holding Co., Ltd. What makes the parent firm unique is that its shareholders are predominantly Chinese employees whose shares are allocated according to work performance. Employees of Huawei’s operations outside China cannot acquire an interest in the shares. The shareholder employees collectively form the Union of Huawei Investment & Holding Co., Ltd. The other major shareholder is Mr Ren Zhengfei, the Chief Executive Officer of the parent firm. Mr Ren was formerly a military technologist in the information technology research unit of the People’s Liberation Army. The distinct employee shareholding structure in the parent firm may be an attempt to separate the conglomerate from its Chinese military root. The issue that has yet to be addressed, however, is the veto power held by Mr Ren over major decisions in the parent firm despite owning approximately 1.4 per cent of the total share capital.
The lack of information about the activities of Huawei’s Communist Party of China Organisation (CPC Organisation) is another cause for concerns. Like all firms operating in China, Huawei is required under China’s 2005 Company Law to set up an internal CPC Organisation. The legislation is silent on the roles of the CPC Organisation in a Chinese firm. In the case of a Chinese Central State-Owned Enterprise (Chinese Central SOEs), the CPC Organisation has considerable authority over business decisions of ‘significant importance’, as well as appointment of supervisors and directors. The same cannot be said of the CCP Organisation in Huawei, simply because the rules imposing the requirements are only applicable to Chinese Central SOEs. The real worry for some countries is that the activities of Huawei’s CPC Organisation are kept confidential.
More worrying for some nations is the potential application of the 2017 Chinese National Intelligence Law (CNIL) to Huawei’s overseas operations. Article 1 of the Act spells out the legislative objective, which is to strengthen national intelligence work and safeguard national security interests of China. Article 7 is the most contentious provision. It requires any Chinese ‘organisation or citizen’ to assist or cooperate with state intelligence work. In theory, the CNIL cannot apply to Huawei’s investment outside China. There is nonetheless concerns that the Chinese Government may, in practice, extend the application of Article 7 to the firm’s overseas investment.
The CNIL is not unique to socialist China. It bears some similarities to the British Intelligence Services Act 1994 (UK). Like the British Secret Intelligence Service, or M16, the Chinese National Intelligence Agency (CNIA) derives its power to gather intelligence outside China from the Chinese Government. Similar to M16, the CNIA must not abuse their power or their actions will be subject to internal review. In both jurisdictions, the results of the investigation are not appealable in the court of law. Both the British and Chinese models safeguard the interests of targeted individuals. Article 8 of the CNIL explicitly requires the CNIA to respect the legitimate rights and interests of targeted individuals. It has been argued that Article 8 demonstrates the Chinese Government’s commitment to striking a balance between national security and the interests of targeted individuals.
Moving forward, a number of safeguards could be implemented to grant Huawei full entry into the concerned countries’ 5G networks. One is to engage with the firm. The Huawei Cyber Security Evaluation Centre is an excellent example. It is a collaborative arrangement between Huawei Technologies (UK) Co., Ltd and the British Government to inform the latter about ways to address the security risks. In a similar vein, the German Government has proposed a ‘no spy’ clause on Huawei as a condition for entry. Another solution would be to compel Huawei to disclose the extent of Chinese Government influence over its overseas operations. Australia’s Security of Critical Infrastructure Act 2018 (Cth) provides this safeguard, albeit the Act only applies to foreign investors who own or operate Australian water, ports, electricity networks, or liquefied gas facilities. Further, a criminal penalty can be imposed for failure to disclose the information and for breach of security risk obligations. Implementing these safeguards is surely a better option to address the concerns than an outright ban or, the middle ground, a restricted access.
Joseph Lee is a PhD candidate at the Australian National University. He was a junior visiting student in the Commercial Law Centre at the University of Oxford during Hilary Term 2019. He is fluent in Mandarin.