(FILES) In this file photo taken on January 22, 2015 Huawei Founder and CEO Ren Zhengfei gestures as he attends a session of the World Economic Forum (WEF) annual meeting in Davos. - Zhengfei, whose group has become the pet peeve of the United States and who is asking for the extradition of his daughter, described on April 17, 2019 in the German press Donald Trump as
Founder and chief executive Ren Zhengfei holds veto power over important decisions in Huawei © AFP

China’s biggest telecoms equipment provider Huawei has said a trade union that holds a majority stake in the company is merely a legal convenience and the group is really controlled by its employees. 

In a press conference on Thursday responding to speculation about Chinese government control of the group, which the US has accused of spying, Huawei said about half of its 180,000-odd employees own “virtual shares” that pay dividends and give them voting rights at company-wide elections.

But because Chinese laws restrict the number of shareholders in a business, Huawei’s holding company uses a structure that places 99 per cent of its shares under the control of a “Trade Union Committee” rather than the employees themselves.

The TUC ownership had led academics to question whether Huawei was indirectly government-controlled, because all official trade unions in China are supervised by the All-China Federation of Trade Unions, a Communist party body.

Speaking to the media on Thursday, Jiang Xisheng, board secretary, said Huawei had to pay a fee every year to the Shenzhen municipal trade union, which conducts an inspection of Huawei’s trade union and renews its licence. But otherwise the union served little other purpose except to organise badminton tournaments and hikes. 

“We don’t have any other relationships with them [the Shenzhen municipal trade union]. We don’t need to report our business operations. They won’t come to ask for anything either,” said Mr Jiang.

The heightened international interest in Huawei’s ownership structure follows US efforts to block the equipment provider from participating in 5G networks around the world because of concerns the Chinese government might use these for espionage.

The Times of the UK reported this week that the CIA had told spy chiefs that Huawei has taken money from military and state security sources, citing an unnamed UK source.

Mr Jiang denied allegations that the company had received military funding, saying: “Most of what the US government says, as we all know, is not true.”

“There is no government capital in Huawei,” said Mr Jiang. 

Asked what would happen if Chinese security bodies offered funds, he replied: “Even if they offered, we wouldn’t want it, because you never get something without an obligation attached.”

The TUC was named as a majority shareholder because this was a common way of structuring employee ownership in China, said Mr Jiang. 

Huawei’s charter cedes control of the company to the Representatives’ Committee, a 115-person body that is mostly elected by the 86,514 employees who hold virtual shares.

However, the involvement of Huawei’s employees in the multi-step selection process is limited to selecting 101 representatives from a list of 109, which, in turn, is selected by departmental nomination teams. Founder Ren Zhengfei has spoken of his veto power over the company, although Mr Jiang clarified this was limited to major decisions only.

The charter is kept in a glass case in a room designed for the purpose and not allowed to be removed, raising the question of how employees can read it and exercise oversight.

The employees’ shares are “virtual limited shares”, which are “not in any legal sense stocks, equity or shares”, Huawei’s charter says. They give the employees dividends and one vote per share, meaning senior executives such as Mr Ren have more votes than recent joiners.

“It’s a very normal structure and an outcome of state-owned enterprise reforms in the 1990s and 2000s,” said Sun Jun, partner at Allbright Law Offices in Jinan, referring to government policies that allowed companies to privatise and be owned by their employees rather than by the state.

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The company’s registry shows that as of early 2019, Mr Ren held 33.9m of the TUC’s total of 22.3bn virtual shares. In addition, he also holds a 1 per cent share directly in the holding company.

Despite the employees’ shares being virtual, they were kept in paper form in a special repository in Huawei’s headquarters. Mr Jiang said this was because employees were sometimes involved in legal cases — such as divorce proceedings — in which courts requested paper evidence of employees’ assets.

Mr Jiang also denied any government ownership of Huawei’s debt. “Huawei’s bonds are mostly in Hong Kong and overseas capital markets. We so far have not issued bonds on the mainland. Our bank loans, the majority are overseas, around 70 per cent,” he added.

With additional reporting by Nian Liu in Beijing

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