Huawei should IPO in America. Not London, Hong Kong, Tokyo, Frankfurt, or Toronto, but New York -- the heart of America’s capital market.
In fact, Huawei should file its S1 paperwork as soon as the Holding Foreign Companies Accountable Act (HFCAA) passes Congress and becomes law. The bill already passed the Senate, appears to be swiftly making its way through the House of Representatives, and will likely land on President Trump’s desk by the end of this summer.
Isn’t now the worst time for a Chinese tech company to go public in America?
Not if you are Huawei -- already the most despised Chinese tech company in America and the pinata of the US-China trade and technology cold war. Becoming a public company and being subjected to the SEC’s Public Company Accounting Oversight Board (PCAOB) is perhaps the company’s best way forward.
What’s the HFCAA?
The major purpose of the HFCAA, as it currently stands, is to strengthen the enforcement of the PCAOB’s oversight power. The PCAOB is designed to be the neutral third party that verifies the work of the accounting firms that audit public companies’ financials -- the auditor of the auditors. It was born out of America’s own accounting scandals in the early 2000s, namely Enron and Worldcom. Among other things, this bill would require all companies publicly listed in the U.S. to be certified that they are not under the control of a foreign government. This status must be verified by the PCAOB via its own independent audit of the company’s ownership structure and financial information for the last three straight years.
All publicly-listed American companies and foreign, non-Chinese companies already abide by the PCAOB’s oversight. Chinese companies have been the exception to this standard for the last decade. Because of China’s economic hypergrowth, Chinese companies’ public listing has been a big source of business for Wall Street -- keeping the hordes of underwriters, bankers, hedge funds, lawyers, and accountants handsomely paid. Thus, the financial service industry lobbied the SEC to compromise on its requirements with regard to Chinese companies. This compromise, combined with a series of actions by the Chinese government to stonewall the PCAOB access to the necessary financial documents to do its auditing, led to where we are today.
Why Should Huawei Bother?
The list of controversies and allegations surrounding Huawei is long: corporate espionage, intellectual property theft, national security threats, backdoors for the Chinese government, to name just a few. Becoming a public company won’t clear up all these controversies, but it will help bring transparency to what I believe is the root cause of many of Huawei’s problems: ownership.
Nobody knows exactly who or what owns Huawei. Without that knowledge, it’s impossible to discern and trust Huawei’s actions and motivations. It’s a private Chinese LLC. It’s famously employee-owned, with 98.99% of company shares controlled by its employees via a “trade union committee”. Allegedly, this committee pays dues to more senior trade unions in an opaque bureaucracy that ultimately leads to the All-China Federation of Trade Unions, which is controlled by the Chinese Communist Party (thus all the controversy). Yet, all this committee is apparently responsible for is organizing after-work activities, i.e. lots of badminton tournaments and hiking excursions. What runs the company’s day-to-day business operations is something called the “Representatives’ Commission”. Meanwhile, the remaining 1.01% of shares are owned by Huawei’s founder and CEO, Ren Zhengfei. He also has veto power. His daughter Meng Wanzhou, who is still house-arrested in Canada awaiting extradition, is the CFO, making the whole shop look more like a family business than an employee-owned tech company.
Sounds confusing? I agree.
Every time an allegation pops up against Huawei, including ownership-related issues, its playbook is vehement denial through a PR campaign. It also spends millions of dollars on Washington lobbyists, the latest being a $1.6 million gig for two months in mid-2019 for Michael Esposito, a prominent Trump reelection fundraiser, to soften the stance of the Bureau of Industry and Security. Two weeks ago, the same Bureau of Industry and Security, in charge of export control and the “entity list”, issued new restrictions on Huawei’s ability to use U.S. technology and software to design and manufacture semiconductors.
Obviously, all this PR and lobbying spending didn’t buy Huawei much. I wonder if Huawei’s “trade union committee” or “Representatives’ Commission” would find this a good use of money. I would rather spend that money prepping for an S1.
With the HFCAA upping the ante, there’s no better time for Huawei to clear its name, if all of its denials are indeed true. If there’s nothing to hide, there's nothing to lose, but much integrity to gain. Going public is also a clear signal that Chinese tech companies are willing to abide by American laws when doing business in America -- the same way that the Chinese government would expect American tech companies to behave when doing business in China.
When we peel away the emotions, conspiracies, and political opportunism surrounding all the US-China tension, the core problem is lack of reciprocity, which erodes trust over time. By going public on the NYSE or NASDAQ with PCAOB oversight, Huawei can begin this long, hard, but necessary journey of building mutual trust, avoiding further tension, and replenishing some much-needed reciprocity between the US and China.
Chinese Version Below
也许对其他公司是，对华为不是。华为已经是美国最讨厌的中国科技公司了，也是中美贸易和科技冷战的焦点。成为一家美国上市公司，接受美国证券交易委员会（SEC）的上市公司会计监督委员会（Public Company Accounting Oversight Board，PCAOB）的监管，或许是华为前进的最佳途径。
每次有关于华为的争议，包括与所有权有关的问题，它的一贯行为是通过公关活动给予强烈否认。华为同时还在华府游说团上花了数百万美元。最近一次是在2019年年中花了160万美元雇了Michael Esposito两个月去游说美国商务部的工业安全局（Bureau of Industry and Security）。Esposito是协助特朗普连任的主筹款人之一。而两周前，这个负责出口管制和“实体名单”的工业安全局对华为使用美国技术和软件设计来制造半导体的能力出台了新的限制和制约。