Eric Xu's interview with German media outlets

25 January 2019

Transcript of the German media interview with Eric Xu, Huawei Deputy Chairman

Journalist (Der Spiegel): What do you think is the real motive behind America's security concerns about Huawei?

Eric Xu: I don't know what their intention is. We virtually have no equipment that is running in US networks. No matter it's AT&T, Verizon, T-Mobile or Sprint, none of them is using Huawei equipment. In the US, we do have several base stations that are being used by telecom operators, but those are very small rural telecom operators. The US is essentially not using Huawei's equipment, so what kind of a security threat we can possibly pose to the US? Since Huawei's equipment is not used in the US networks, is the US having the most secure networks in the world? I don't think so. Based on what we see right now, cyber security is no longer a technical issue, because technical issues can always be resolved through the right solutions. Therefore, we think cyber security is a political issue. And maybe an ideological issue.

It seems the US government is not only interested in the cyber security of itself. They're also interested in the cyber security of other countries. I don't believe that if Huawei shuts itself down, selling nothing to the world, then all the networks in the world would be secure.

If someone can prove that if Huawei does not exist and then people would not have to worry about cyber security and networks in the world would be secure, then probably shutting down Huawei would be a good option.

Journalist (DPA): How do you connect with the US and show them that it's secure, and convince them that they can use it, or are they not listening?

Eric Xu: We do not have communication channels with the US right now. We tried in the past. But now we do not have access of communication. And currently we do not have a willingness to further communicate with the US government. Rather, we would focus our time and effort to engage and communicate with governments and customers that are willing to engage with Huawei.

Journalist (Die Welt): I would like you to tell me a little bit about what the situation is for Huawei at the moment when it is coming under such enormous pressure. Before, I understood that Huawei is going to develop the 5G technology, but now I listened to what your CEO Mr. Ren has said to Chinese journalists, that 5G is much too early, it could be a bubble, and he was very critical on the 5G development. And just adding to this, you know the magazine Caixin, which is a very famous Chinese magazine, so very believable, just reported today that Mr. Ren had a talk inside Huawei saying that with so much headwind that he is even calculating to get down to the employment on the question of 5G and that some of the people have to go. So what is the situation of Huawei now in your eyes and could you just address these questions?

Eric Xu: Even though there have been so many different types of media stories, in fact these voices still come from a very few number of countries. For Huawei, all of our business operations are normal. Our revenue in 2018 reached US$108.5 billion. That was 20%+ increase compared to the previous year. We anticipate continued growth for 2019 at a rate of over 10% to reach US$125 billion in annual revenue.

Talking about 5G, different executives within Huawei indeed have different viewpoints. Mr. Ren has his own opinion, I have mine, and some other executives may have other opinions as well. However, all the teams within Huawei that are focused on 5G development or 5G productization have a full confidence about 5G. They want to see better growth for our 5G business. I think this is totally understandable, because 5G is like their "son". They want their "son" to be good. If you talk with those people, I think essentially what they say will be all positive. They will say 5G is coming soon, and demand for 5G is enormous.

Mr. Ren, our founder and CEO, primarily approaches 5G from the use case or application point of view, as he does not see a real application that truly requires 5G to support. That's probably why he is not as optimistic on 5G.

I'm kind of in the middle. I look at the situation based on the requirements in different geographies worldwide when I arrive at my own viewpoint on 5G. I think there are three different types of markets in the world. And the three different types have different requirements for 5G.

The first type of market includes China, Japan, South Korea, and GCC countries in the Middle East, where data traffic consumption is growing very fast and there is real need for 5G. In those markets, I believe 5G will grow faster and the user demand for 5G will be greater than in other markets.

The second type of market is Europe, where real demand for 5G has not come yet. Even 4G is not very developed in this market. Therefore, European countries would still go for 5G deployment, but the scale would not be very significant. One of the primary considerations for 5G deployment is for marketing and branding purpose. In yesterday's meeting, our chief expert Mr. Dang Wenshuan mentioned that the number of the 4G base stations in China accounts for 55% of the world total. And I can share with you another number: The number of 4G base stations across the entire France is smaller than the number of 4G stations deployed by China Mobile in Shenzhen, a city in China.

The third type of market is where 4G has not started in a big way. 5G would be pretty far away for those markets.

I haven't seen the report of the Caixin magazine. Mr. Ren has always been kind of pessimistic. That's his way of motivating Huawei employees to press forward. But Mr. Ren is very positive about the situation Huawei is in right now and Huawei's future. I hope you will watch a TV interview with Mr. Ren by China's CCTV News Channel. The TV program is called One on One.

Individual viewpoints on 5G are very diversified within Huawei. However, as a company, we have a unified position on 5G. That's the result of balancing different voices within our company. Huawei supports diversity of opinions. You can never expect all people to have one same position or viewpoint.

Journalist (Handelsblatt): How important is Germany for Huawei? Huawei has recently opened up quite a lot and invited the media over for interviews and allow them to go to research labs that weren't accessible to the public before. What are the reasons behind it?

Eric Xu: Germany is certainly very important to Huawei. It's not only about having Huawei products and solutions to serve telecom operators and non-telecom enterprises in Germany. Together with Deutsche Telekom, Vodafone Germany, and Telefonica Germany, Huawei is serving the majority of the German population. Germany is also an important country for Huawei from an R&D investment point of view. Germany also hosts Huawei's facilities for precision manufacturing.

Right now, Huawei has more than 2,500 employees in Germany, including over 500 R&D people. We have R&D centers in Munich, Nuremberg, Berlin, and Darmstadt. We have also built a joint innovation center with Leica. Our annual R&D investment in Germany exceeds 100 million euros.

Huawei is also working with a lot of German companies. Siemens is a notable example. Siemens is our primary partner that provides manufacturing equipment. They are also a primary partner for our smart factory initiative. DHL is also a major partner that supports our global logistics operations. Our business growth is closely connected to the support of business community and industries in Germany.

Looking into the future, I believe the partnerships between Huawei and Germany will grow even closer and unleash more potential for business growth.

Almost all Chinese consumers are familiar with German carmakers like Mercedes Benz, BMW, Audi, and Volkswagen. The Chinese market accounts for close to 40% of revenue of German car OEMs. As we all know, the automobile industry is undergoing disruptive changes. Four major trends are driving this disruption: electrification, intelligence, connectivity, and sharing. Along all the four directions, ICT technologies are all part of it. ICT technologies are also the area that Huawei has been working on and building our strengths for several decades. In that context, I think it's very possible for Huawei and the German car OEMs to forge even closer partnerships so that together we can make cars in the China market that will have greater leadership in industry. That's also the reason that we "fall in love" with Audi. Of course, there are several other car OEMs, with whom we haven't really come into a "love relationship" and are "dating" with them.

The partnerships that Huawei has with German players are very broad. We have partnerships with telecom operators. We sell smart devices to German consumers. We provide digital solutions to German enterprises. On top of that, we also work closely with the German car OEMs for the Chinese market. Therefore, I believe Germany is very important to Huawei and Huawei is quite important to Germany as well.

Regarding your second question: Why is Huawei more open today? I think Mr. Ren has already made this point very clear. Huawei executives are quite different from executives in western companies in the sense that we don't enjoy engaging with the media. Some of our executives even believe this is kind of a burden. I joked with Mr. Ren, saying, "At the age of 75, you did what you are supposed to do in the past several decades in terms of media engagement, within one to two weeks". For example, one-on-one televised interview, one-to-many TV interview, group interview with multiple media outlets, and one-on-one exclusive interview.

In light of significant media reports we have been seeing about Huawei recently, our PR department is asking Huawei executives to speak up about who we really are and what we do. So here we are, even though we are not sure whether this can really work or not.

Then for those labs you mentioned just now, in the past they were indeed not accessible to external visitors because our scientists work there. They should focus on their research activities instead of receiving external visitors. The President of Huawei's Public Affairs and Communication Department called me, saying, "You have to make some compromise. We need to open some of the lab facilities only to media outlets that I have approved". But still, I believe our scientists working in those labs should focus on their own job, on scientific research. Because it is their mission to work on the world-class or difficult problems that the world faces. It is their mission to resolve the challenges of our customers and to meet the needs of our customers.

Journalist (Handelsblatt): Some people said that you open up too late

Eric Xu: I admit we might be late in terms of being more open as some of you have expected, but we are making progress, right?

Journalist (DPA): I have three questions. First, do you suspect political motives behind the detention in Canada and the expedition requests? Second, do you ask Canada to release her? Third, how do you address the accusation of bank fraud in connection with violation of sanctions against Iran?

Eric Xu: I think I may not give you a satisfactory answer to those questions, because as you must be aware, there are legal proceedings going on with this case. I am not in a position to provide much information about it. We believe that the legal systems in Canada and in the United States would be open and fair. We believe we can address this issue through legal means.

Journalist (DPA): Maybe one follow-up: there are some people saying that in rehabilitation of this detention, these two Canadian experts have been detained here in China. Do you have any comments on this?

Eric Xu: I don't know. And I don't see that the two cases are closely connected.

Journalist (FAZ): How do you want to convince the world, like the German government, that there's no link between Huawei and the Chinese government if the Chinese government is acting like at the moment on behalf of Huawei; for example, the Chinese government has warned Canada in recent days if they would exclude Huawei from the building of the 5G network that Canada would regret it? How do you want to convince that there's no link between Huawei and the government?

Eric Xu: As a private Chinese company, Huawei falls under the jurisdiction of the Chinese government, so there must be some kind of link. But any suspicion, any guess, would at its very best, remain a suspicion and a guess. Mr. Ren also mentioned that as a privately owned enterprise in China, if we want to pursue commercial success, we must follow our own business ethics. We will never harm the interests of any customer or nation.

China's Ministry of Foreign Affairs has already clarified that no law in China requires companies to install mandatory backdoors in their equipment. Up until now, Huawei has never received any such requests.

We have made a lot of efforts in order for relevant stakeholders in the UK, Canada, Germany, and other European countries to understand this fact. In these regions, we have tried different types of approaches so that the related parties can get access to Huawei's source code under the condition that Huawei's intellectual property is protected, so that they can see with their own eyes whether there are things that they suspect would be there. After so many years, we don't have the things that some people might believe would be there. That's one of the approaches we have taken to ensure our business presence in Europe for so many years.

The Chinese government definitely cannot act on behalf of Huawei, but Huawei is a Chinese company. I think it is quite natural for the Chinese government to express concerns and support of any of Chinese companies.

To answer your second question, China's Foreign Ministry Spokesperson Hua Chunying further clarified on the matter. You can refer to her response.

[Reference: Hua Chunying's response at the regular press conference

Journalist: China's Ambassador to Canada Lu Shaye said last week in an interview that if Canada blocks Huawei's 5G technology, there will be consequences for Canada. What is your comment? Why would China warn about consequences for a decision made by another government in this respect?
Hua Chunying:
Did you read Ambassador Lu Shaye's interview carefully? To my understanding, he did not mean that China intends to interfere in the decision-making of the Canadian government. We all know that Huawei is a leading supplier in the 5G technology, so losses are inevitable if Huawei is not chosen as a cooperation partner.]

Journalist (Die Welt): There are serious negotiations coming up at the end of this month between China and the United States on the trade dispute. And Mr. Trump, the president, has already said if the talks are going well, then also he can help with the question of Huawei, especially with the question of Ms. Meng. So what are you expecting for the trade discussions and do you hope that Huawei will be an item of those discussions?

Eric Xu: It has always been Huawei's position that we do not want to become one of the items on the negotiation agenda between China and the US. Because Huawei is too small compared with China and the United States. As Mr. Ren put it, we're just like a sesame. Definitely the national interests of two big powers cannot be affected because of one single company. Therefore, our position is very clear. We would resort to legal means to address this situation. We believe the legal systems of Canada and the United States are open and fair.

Of course we look forward to positive outcomes from the trade negotiations between China and the United States. Because after such a long period of time, I believe both countries have seen the level of interdependence between the two sides. No party can live without the other. I think this interdependence is also there between China and Germany. So neither China nor Germany can live without the other.

Journalist (DPA): On this note, in Germany there's new discussion also about security concerns with Huawei products. How do you address these concerns? Or how do you address the critics in Germany to convince them that Huawei products are safe to use?

Eric Xu: Cyber security, first and foremost, should be a technical issue; it should not become a political issue. If cyber security is escalated into something related to politics or ideology, I think it will be impossible to find a solution. If it is a technical issue, as it is, we can find a solution to address it.

Whether Huawei participates in the 5G deployment in Germany or not has no necessary connection with the security of telecom networks in Germany. Just like what I mentioned earlier, Huawei is not present in the US telecom networks. Then, would you say that they have the most secure telecom networks in the world? Connecting these two things would be misleading to the public.

Telecom networks in Germany are built primarily by three telecom operators: Deutsche Telekom, Vodafone Germany, and Telefónica Germany. Their equipment and components come from dozens of equipment vendors. Huawei only provides part of the products. Huawei does not own or operate those networks. We only provide technical support as needed and those technical support is provided always under the supervision of telecom operators.

Telecom operators take the primary responsibility for the security of telecom networks. The chief security officer of Deutsche Telekom, Thomas Tschersich, already clarified and explained to the public how Deutsche Telekom managed cyber security, and how they operated their networks. Deutsche Telekom has built very strong capabilities around cyber security. Each of Huawei's products is thoroughly tested before being deployed into their networks. According to Europe's GDPR, telecom operators are the controllers of information. Huawei's role is to provide equipment which helps telecom operators to process those information. We do not have direct access to those information.

How can we address cyber security concerns? I think we have to rely on agreed standards on cyber security.

Personally, I very much appreciate GDPR in Europe. Because GDPR puts in place transparent, open and fair rules that apply equally to all participating vendors. As long as you comply with the rules, that's okay. If you do not follow those rules, then you get punished.

We have been engaging with BSI in Germany to explore and define agreed standards for cyber security that are needed for the future. That's also one of the purposes for Huawei to establish a cyber security innovation lab in Bonn to engage with different stakeholders, including BSI, industries and telecom operators, to find agreed standards similar to GDPR that are transparent, open, fair, and applicable to all participating vendors.

The German government has taken a very pragmatic attitude, trying to put in place clear rules so that the issues and concerns can be well addressed. If they can establish cyber security standards that are similar to the GDPR, which are transparent, clear and fair to all participating companies, the issues you mentioned just now could be well addressed. And I believe once we have agreed standards, it will also play an exemplary role across the entire industry.

Journalist (Der Spiegel): One more short question that was already earmarked to you. How big is the number in percentage? Can you quantify how many of the components Huawei is using come physically from the United States? And if the trade war between China and the US is deteriorating the situation, could Huawei withstand a complete stop of the import of American components to Huawei?

Eric Xu: First, I don't have a number of how many of our components come from US sources. Because I have never done such statistics before. In our industry, all players in the supply chain are interdependent. Personally, I don't believe that the US would completely stop their export of components to Huawei.

Second, Huawei follows all applicable laws and regulations of the countries where we operate, including export control laws from the United Nations, United States, and European Union.

Third, we are definitely not unprepared for that situation. We have been investing very heavily in R&D over the years for things that would not be expected. For such a large company, business continuity management is something we have been working on. The very objective of business continuity management is to well address the situation that you described.

Journalist (Die Welt): You just mentioned cyber security and that you are eager to discuss some sort of standards together with Germany and with all the people in the business. So coming to 5G, have you had any discussions with German regulators and stakeholders on 5G?

Eric Xu: At this point of time, the industry does not have a complete standard for 5G yet. And of course, in this process, Huawei has been making our own proposals along the way. In order to make 5G more secure than previous generations of technologies, 2G, 3G, and 4G, the whole industry has come together, making tremendous efforts. You can talk to experts with the GSMA or 3GPP.

I think you will come to a very clear conclusion that 5G is much more secure from technology and standardization points of view, compared with 2G, 3G, and 4G. 5G addresses many of the security issues with 2G, 3G, or 4G.

If you look at 5G equipment, it's just like a pipeline. What runs through it is information. And the transmitted information can be encrypted. 5G uses 256-bit encryption for those transmitted data. What does 256-bit encryption mean? It means any person who wants to crack this information would have to use quantum computers and it will take hundreds of years.

While the 5G standard was established, many security enhancement measures have been taken. I think this conclusion can be easily verified if you talk to experts from GSMA or 3GPP. Or alternatively, we can share with you the articles written by 3GPP experts. You can take a look.

Journalist (DPA): I have a question. Maybe two points. I hear the argument that if operators in Germany will not use Huawei products that it would be more expensive to build the network. Let me leave it there.

Eric Xu: Huawei has established an absolute leadership position in the area of communications. Using Huawei equipment for networks would allow telecom operators to provide a better experience to their users and get a higher return on investment.

I don't know whether you've heard about a third-party agency called P3 in Europe, which tests the performance of networks provided by all telecom operators and ranks them. The mobile networks built with Huawei equipment typically are among the best performers in those P3 tests, so that operators using Huawei equipment can be more competitive in their market and get more customers and more revenue.

From this point of view, Huawei's participation can help telecom operators become more competitive and earn more customers and revenue. They can also get a higher ROI

Journalist (Handelsblatt): A year ago, you said that US has an antiquated image of China. Do you think the US has caught on to what China actually/really is or do you think they're operating under wrong assumptions?

Eric Xu: I was not criticizing the United States but those two specific congressmen. I was not targeting all US people. For clarity purposes, I can send you my article on that for your reference.
[Eric Xu's byline article @ Financial Times]

Journalist (FAZ): One follow-up question to this. Mr. Ren said in an interview that Donald Trump is a great president. Would you agree?

Eric Xu: When Mr. Ren said this, he was talking about Donald Trump's efforts in substantial tax cut. In this sense, he is indeed a great president. And I agree.

But he also said something else in his interview. A tax cut is supposed to help attract investment. It is like digging a trench in the ground, which makes it easy for water to flow into that trench. But you also have to treat countries and companies well so they will be motivated to invest and those investments will yield benefits, which can compensate for the tax reduction. If countries or companies get frightened by, say, arbitrary detention of individuals, they would not invest in the US. So this favorable environment with tax cut would not be very meaningful.