Category: China

History of Huawei (II)

by philg

A second post about the core topic within House of Huawei: The Secret History of China’s Most Powerful Company …

How does hiring and firing work in a company that isn’t passionate about DEI?

On January 28, 1996, Ren Zhengfei held Huawei’s first “mass-resignation ceremony.” Each head of a regional sales office was told to prepare two reports: a work summary and a written resignation. “I will only sign one of the reports,” Ren said. “Dear Chairman,” the resignation letter said, “I have fought for the company’s sales development and sacrificed my youth. But in the few years that I’ve worked on the sales front lines, my technical and business ability may not have kept up…. If through the process of examination and selection, the company identifies a more suitable person for sales work, I will sincerely resign from my current position.” Huawei had started out in rural markets, and many of its early sales managers were provincial in their experience and network of contacts. As Ren sought to go national and international, he decided to make the entire sales staff resign and reapply for their jobs. “The mountain goat must outrun the lion to not be eaten,” he had told them ahead of the event. “All departments and sections must optimize and eat the lazy goats, the goats that do not learn or progress, and the goats with no sense of responsibility.” Now Ren took the podium. “Being an executive at Huawei should be understood as a responsibility, a choice to sacrifice personal happiness,” he said. The resigning sales managers were allowed to speak in turn, some choking back tears. “As a Huawei person, I’m willing to be a paving stone,” one said. “If I can’t keep up with the pace of the company’s development, I’m willing to let new people, and higher-level people, take over my job,” another offered. “My youth and ability are limited, and Huawei’s future is long,” a third said. “I can’t hold back the company because of me.”

Maybe sales will be one of the few jobs left to humans after Elon Musk gets Optimus to do everything?

Ren had grown up in the Mao years, when there was no such thing as private-sector sales. Now he presented sales to his young followers in rousing terms, almost as a mystical vocation. “Sales work is special, complex, and noble,” he told them. “You need the intelligence of a scientist, the insight of a philosopher, the eloquence of an orator, the ambition of a social reformer, and the optimism and persistent spirit of a religious man.”

Polite protocol for a business dinner involved breaking out the baijiu, a clear sorghum spirit that has an eye-watering 120-proof kick, and pouring out round after round of shots over a rotating parade of exquisite dishes. The protocol also involved getting drunker than your clients to show your respect for them. One early Huawei executive wrote about having to excuse himself for a vomit break while entertaining customers—not an uncommon occurrence. Others developed stomach or liver ailments. This seemed to happen particularly often in the far northeast, which had a reputation for heavy drinking. “The key staffer for this account is currently suffering hepatitis but refuses to come back to Shenzhen for medical treatment and insists on fighting on the front line through the ice and snow,” Ren said in 1995 about a Huawei salesperson based in Yichun, close to the northeastern border with Russia.

The story of Huawei is definitely not as simple as “it was a planned economy and the planners picked Huawei”:

Despite the interest that Huawei had received from government officials, it was only one among many contenders, and not even the most favored one. In 1995, officials had set up a state-owned switchmaking champion called China Great Dragon Telecommunication in an effort to combat the foreign switchmakers. Great Dragon was built around the military engineer Wu Jiangxing’s breakthrough 04 switch and had been formed by merging eight smaller telecom companies. The government was pouring some $2.2 billion a year into the venture. Also in 1995, the Xi’an Datang Telephone Co.—a venture set up by a state-run research institute and several Chinese graduates from US universities—began mass production of its new switch, the SP30. And across town in Shenzhen, the Zhongxing Telecommunications Equipment Company—which would later be known as ZTE—had developed its ZXJ10 switch. People called them the Big Four of China’s domestic switchmaking, and they made quick work of eating into the foreign vendors’ market share. Within a few years, the price of telephone switches in China had dropped from $300 per line to $70 per line. With so many contenders, and such thin margins, companies were always flaming out. In early 1996, a dozen of Great Dragon’s 04 switches abruptly failed due to a software problem. The company never recovered.

Huawei had started out as an underdog compared with its state-owned rivals. Now it was emerging as the frontrunner, so much so that the state-owned companies were crying foul. “They sell cheaply to get market share,” an executive at Datang complained. Great Dragon’s Wu Jiangxing griped to Shenzhen’s Science and Technology Bureau that the local government shouldn’t just support privately owned companies.

Despite the shortage of PhDs in DEI in China and overt sexist sentiments, women are able to rise to top executive positions.

The executive who rose the highest was Sun Yafang, who was elevated from marketing and sales president to Huawei’s vice-chairwoman in 1994. She was an intense woman of around forty, with a hawkish nose and a stately bearing. She had overseen Huawei’s “marriage” to the state through the joint ventures with provincial telecom bureaus and had led the mass resignation of the sales managers. People whispered that Madam Sun had worked for the Ministry of State Security, or the MSS, China’s powerful civilian intelligence agency, before joining the company. Perhaps that had something to do with her rapid rise through Huawei’s ranks, or perhaps not.

Sun ran a tight ship, cracking down on excessive golfing among the managers. “Huawei’s sales staffers all know that if Madam Sun sees you without a tie on a convention floor, your fate will be a miserable one,” a member of her team wrote about her. “Not to mention her fiery temper. The hurricane of her criticism will leave you with no possible hope to find an escape.”

Ren had proved willing to promote capable female executives, even as he sometimes expressed old-fashioned views on women in the workplace. “Many companies don’t like hiring female employees, because female employees are inefficient and can’t achieve the goals when they do things,” Ren said in a speech to Huawei’s secretaries around this time. “Female employees have a big shortcoming, which is they like to gossip and nag, which undermines unity. Originally, the purpose of hiring female employees was to add a lubricant to the management team. The main characteristic of male employees is their rigidity, and they are prone to producing sparks when they collide. With a layer of elastic sponge in between, there won’t be sparks.”

A lot of Huawei’s management and corporate practices were modeled on IBM’s and with IBM consultants’ help:

IBM’s consultants started arriving at Huawei’s headquarters in August 1998. They would remain in residence for a decade. Gary Garner, one of the early IBM consultants, recalled that his first impression of Huawei was that it was a vibrant but undisciplined company where things were sometimes just scrawled on sticky notes instead of being filed properly. “President Ren had a whole bunch of bright young PhDs,” he said, “but it was disorganized. It wasn’t ready to go to the international market.” Some of Huawei’s managers protested the new systems, which they found burdensome. Ren insisted they follow the IBM way. If the shoes didn’t fit, Ren told them, they had to “cut their feet to fit the shoes.” IBM’s output was fifty-five times Huawei’s that first year, 1998. Ren set a goal of shrinking the difference to thirty-five to forty times greater by 1999. “We are making big strides forward,” he told his staff. “We’re narrowing the gap.”

One place that Huawei didn’t follow IBM was onto a public stock exchange. The company remains privately owned, mostly by employees, to this day.

Imagine if U.S. politicians would follow Ren’s example of voluntary semi-retirement at age 67:

In December 2011, Ren, sixty-seven, announced he was stepping back to allow younger hands to steer the company. “I increasingly don’t understand the technology, increasingly don’t understand finance, and only half understand management,” he told his staff. “If I can’t treat our group kindly and democratically, and fully unleash the talents of all our heroes, I will have achieved nothing.”

Much of the rest of the book is about Huawei’s entries into various foreign markets and tussles with the U.S. and other Western intelligence agencies that either (1) wanted a back door to tap into communications, or (2) were worried that their Chinese counterparts had a back door into Huawei’s gear. I won’t cover that here because it is too involved, but I will have another post about this House of Huawei: The Secret History of China’s Most Powerful Company.

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History of Huawei book

by philg

I promised more about House of Huawei: The Secret History of China’s Most Powerful Company (see Unprovoked genocide against the Uyghurs) and here it is…

The book covers the modern history of China as well as the history of Huawei. The book should be inspiring to us older folks because the founder of Huawei was born in 1944 and, at age 81, is still involved in corporate management:

In Guizhou, Ren Moxun met a seventeen-year-old named Cheng Yuanzhao. With big brown eyes,[15] round cheeks, and a broad smile, she was also bright and good with numbers. They married, and Cheng Yuanzhao soon became pregnant. Their son was born in October 1944, and they named him Ren Zhengfei. It was an ambiguous name. Zheng meant “correct,” and fei meant “not.” “Right or wrong” would be a fair translation.

We are reminded that China is a multi-ethnic empire:

Mao’s officials believed they were extending a civilizing influence to the nation’s frontiers—Guizhou in the south, Inner Mongolia in the north, Tibet and Xinjiang in the west. The residents didn’t necessarily see it that way. They had lived for centuries with their own languages and customs, and they were now being compelled to assimilate. There were those who did not like Ren Moxun and his school either. After someone threatened to kill him with a hand grenade—the precise reasons are unclear—the school was issued four rifles to protect the staff and students. One of Ren Moxun’s objectives was to inculcate his students with the right beliefs. “Principal Ren, your guiding ideology must be clear,” a visiting official instructed him. “You must make clear who the enemies are, who we are, who are our friends.” Ren Moxun organized rallies for the students to denounce their enemies. The enemies at home were the oppressive landlords. The enemies abroad were the Americans, who were waging war against North Korea, one of China’s allies. Ren Moxun reported that the “scoundrels” hidden among the teachers were successfully caught through these criticism sessions, which were often intense, with students bursting into tears. In the anti-America sessions, students offered up secondhand accounts of atrocities committed by US troops in the area, presumably when they had passed through during World War II. One student said a US soldier had shot a farmer for sport near the Yellow Fruit Waterfall. Another said a classmate’s sister had been dragged into a jeep and raped. It was hard to say what, exactly, had happened years ago with US soldiers, but the resentment against America was certainly real.

and that the Cultural Revolution wasn’t a great time to be an educator or a student who wanted to learn

Ren Moxun was hauled onto a platform in the school cafeteria, his hands tied, his face smeared with black ink, the tall hat of shame denoting a counterrevolutionary placed on his head. “Studying is useless!” people shouted. “The more knowledge you possess, the more reactionary you are!”

One of Ren Moxun’s students demanded the principal admit that he’d instilled feudalist thinking in the students, such as by quoting Confucius. According to a recollective essay by Feng Jugao, a different student, when Ren Moxun tried to deny the accusation, the accuser rushed forward with a wooden stick and beat him until the stick broke.[53] “I can’t say if the wooden stick was weak, or if Principal Ren’s backbone was strong,” Feng wrote. “But the wooden stick broke in two across Principal Ren’s back.” Feng recalled his mother being aghast, saying that the students who beat the principal would get their karmic punishment.

Universities nationwide were banned from matriculating any new students between 1966 and 1976. Ren Zhengfei’s younger siblings were shut out, but through the random luck of his birth year, he’d been able to eke out a college education. In 1968, Ren graduated with a major in heating, gas supply, and ventilation engineering.

At age 42, Ren started Huawei:

Shenzhen legalized the establishment of “minjian” (unofficial or, more literally, “among the people”) private technology companies in February 1987 under a pilot program. Applicants poured in from across the country—professors and engineers from Beijing to Kunming. The idea of running your own company in the SEZ was exciting—and risky. Seventy-five percent of the first batch of entrepreneurs asked their state employers for temporary unpaid leave, with the option of reprising their old jobs if their startups didn’t work out. Ren founded Huawei as a minjian company on September 15, 1987, with twenty-one thousand yuan pooled between himself and five investors.

Wuhan was the source for more than SARS-CoV-2 and coronapanic:

Ren arrived in the inland city of Wuhan in the spring of 1988 in search of engineers. Dubbed “the Chicago of China,” Wuhan was a bustling industrial city on the Yangtze River. The Huazhong Institute of Technology had been founded here in the 1950s, and three decades later, conditions at the university were still spare: Students bunked six to a room in the dorms and took cold-water showers.[38] There was no air-conditioning or heat. But there was a professor who was knowledgeable about telephone switching, and Ren hoped he could help Huawei build a switch.

The book covers the 1989 protests and power struggles, then returns to the early days of Huawei:

Ren’s team had been making simple analog switches that could handle forty, eighty, or, at most, a couple hundred phone calls at once. Their early attempt at a more complex one-thousand-line switch was a failure, suffering from serious cross talk, dropped calls, and a tendency to catch fire from lightning strikes. Now, in 1993, they were trying to build a digital switch that could handle ten thousand telephone calls at once. This would catapult them into the big leagues. They would no longer be selling to hotels and small offices; they would be selling directly to the telephone switching centers for entire cities.

Ren had rented the third floor of an industrial building on Shenzhen’s outskirts for his fledgling R&D team. There was no air-conditioning, only electric fans, and they took cold showers to try to keep cool. They rigged up nets to try to escape the ferocious mosquitoes. A dozen cots lined the wall. The engineers worked day and night, flopping down on mattresses to sleep for a few hours when they reached exhaustion, which led to the saying that Huawei had a “mattress culture.”[9] One engineer worked so hard that his cornea detached, requiring emergency surgery.

It wasn’t as simple as going to the state’s web site and forming a corporation or LLC:

By 1991, Huawei had ten million yuan in fixed assets and was churning out eighty million yuan worth of switches a year. It had 105 employees, the majority of whom were shareholders. That year, Huawei’s shareholders did something curious: after proudly launching themselves in 1987 as one of Shenzhen’s first wave of “minjian” private tech companies, they voted unanimously to stop being one. From 1992 to 1997, Huawei would be a jitisuoyouzhi, or a “collectively owned enterprise,” something that was neither “private” nor “state-owned” in the modern senses of the words. Indeed, such companies were most similar in spirit to the Mao-era communes: Beijing defined them as “socialist economic organizations whose property is collectively owned by the working people, who practice joint labor, and whose distribution method is based on distribution according to labor.” While collectively owned businesses had been used in the countryside to mixed success, China’s national government had, in 1991, just formalized guidelines for urban collective companies. Putting on the “red hat” of a collective was popular among startups then as a way to obtain political protection. The Stone Group—hailed as “China’s IBM” in the 1980s—had been a trailblazer in this regard, successfully switching to a “collectively owned enterprise” in 1986. The 1991 national guidelines stipulated that collectively owned enterprises could enjoy preferential treatment in national policies and apply for loans from specialized banks. The guidelines also ordered government authorities nationwide to incorporate the companies into their economic plans in order to ensure the success of the urban collective economy. It remains unclear why Ren and his team decided to switch to a jitisuoyouzhi, though it’s likely that the broader financing opportunities were attractive.

Like Jeff Bezos, who married a secretary at D.E. Shaw while he was a VP (Wokipedia says that MacKenzie Scott had “an administrative role” at D.E. Shaw, implying that she might have been a top manager; the New York Times says that she held the job of “administrative assistant” (i.e., secretary)), Ren might have married his secretary:

While the precise timeline is unclear, Ren Zhengfei had remarried at some point and was building a new family in Shenzhen. This second marriage may have taken place around 1994, according to a speech Ren gave in January 2009, in which he praised his second wife, Yao Ling, for “fifteen years of silent devotion to the family.” Yao Ling was a petite and graceful young woman, much younger than Ren, with almond-shaped eyes and a winsome smile. Some news reports referred to her as Ren’s former secretary, though this has not been confirmed by the company. Ren had called Meng Jun “very tough”; he called Yao Ling “gentle and capable.”

The company prospers partly because the Chinese government imposed a “Buy Chinese” mandate similar to the U.S.’s “Buy American” mandates:

Since Ren’s meeting with Jiang in 1994, much more government support had been pledged. At the end of 1994, Zhang told Ren that in the next five-year economic plan, half of telecom operators’ switch purchases would be reserved for purely domestic companies like Huawei. “The way I look at it,” Zhang said, “it’s not that important what type of ownership structure a company has. The important thing is if it’s Chinese. So we at the Electronics Ministry want to support a business like yours.” China would have 84 million telephone lines’ worth of switches in operation by 1995, and officials planned to more than double that to 174 million lines’ worth by 2000.

I’ll close here and pick up in another post. Meanwhile, if you’re interested, read House of Huawei: The Secret History of China’s Most Powerful Company.

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If a declining population is a disaster, shouldn’t the world’s best places to live be those with a young and growing population?

by philg

Today is the first day of the bleak northern winter. Let’s celebrate by considering a bleak forecast. Our smartest minds say that China is heading for disaster because the Chinese aren’t having enough children and, also, the Chinese refuse to convert to the Church of Open Borders (they wouldn’t have welcomed Rahmanullah Lakanwal as we did, for example). Here’s one from RAND:

Population well-being (structural security) implications include broad strain on government finances; increasing costs of social insurance programs, including pensions and health care; varied but generally negative economic effects; high youth unemployment and disengagement from competitive labor markets in a slowing economy; and mixed effects on innovation capacity.

(There will be “high youth unemployment” with a reduction in the supply of youths?)

The “decline in fertility” that is described will result in China’s median age going up from its current 40 maybe to Switzerland’s 44 or Taiwan’s 45 (they’re so old that all they can do is make 2nm semiconductors for NVIDIA and Intel) or, in a true nightmare scenario, to Japan’s 50. China could become a hellscape like Japan, in other words.

If low fertility and a high median age is something that a society should try to avoid that must mean that the world’s nicest countries are ones with high fertility and a low median age, right? The CIA list highlights some paradises:

  • Afghanistan: median age 20
  • Sudan: median age 19
  • Mozambique: median age 17
  • Niger: median age 15 (population growth rate of 3.66%, higher even than what the Palestinians have achieved while fueled by unlimited housing, food, health care, and education funded by US and EU taxpayers through UNRWA)

How can our smartest people predict that China will become bad through low fertility if the nations with the highest fertility aren’t great places to live? A simpler formulation of the above: Africa has a larger population than China and Africa’s population is growing robustly (more than 2 percent per year); if the fertility doomers are right why isn’t Africa a better place to live than China?

Folks also fret about potential gradual population decline in the U.S. In other words, we’ll be farther up the list of countries ranked by median age and, thus, farther away from the fertility champs cited above. Why would it be bad to have 300 million Americans instead of 343 (or maybe 370?) if the 300 million never get stuck in traffic, enjoy decluttered National Parks, and are surrounded by AI and robotics any time that something productive needs to be done?

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Unprovoked genocide against the Uyghurs

by philg

I’m reading House of Huawei: The Secret History of China’s Most Powerful Company. I’ll try to cover the book’s main subject in a later post, but this one is about the use of propaganda.

The author:

Eva Dou covers technology policy for The Washington Post. A Detroit native, she previously spent around a decade covering international politics and technology for the Post and the Wall Street Journal in Beijing, Seoul and Taipei. She is currently based in Washington D.C.

In other words, the author is embedded in U.S. corporate media. What does she have to say about our rivals in China?

By late 2017, there were growing signs that something was very wrong in China’s far-west Xinjiang region. Guards with machine guns manned checkpoints in and out of cities; travelers had to have their faces scanned and walk through full-body scanners. On the streets, pedestrians were stopped by police at random to have their phones checked for illegal political or religious content. Gas stations were barricaded and ringed with razor wire as a precaution against bombings. Officials warned that even modest expressions of Islamic faith, such as growing a beard or wearing a headscarf, would be scrutinized as potential signs of extremism. And a growing number of people—especially members of the Uyghur ethnic minority—were being hauled off without trial to prisonlike sites called “reeducation centers.” Estimates of how many people were detained (in either short-term or long-term detention) ranged from the hundreds of thousands to more than a million. Reports of torture, abuse, and deaths trickled out. Under the banner of counterterrorism, Xinjiang had become the world’s most repressive high-tech surveillance state. And Huawei had helped build it. The company’s next-generation fast networks, facial-recognition algorithms, and high-definition cameras had all combined to build an invisible net of enormous scale. Huawei was not the only tech company to sell surveillance gear into Xinjiang. But it was certainly among the major suppliers. In Xinjiang, and across the nation, Huawei was hawking a fulsome portfolio of advanced surveillance technologies, built in cooperation with hundreds of startups and other partner companies. There were smart glasses that police could wear on patrol to scan crowds for faces on a watch list. There were high-definition police body cams that streamed live to a big screen back at the command center. There was a listening device that could monitor and analyze conversations within a ten-meter radius outdoors, day and night. There were biometric scanners that picked up iris patterns in the eyes, which could be used to identify a person, similarly to fingerprints. There was a voiceprint database to match voices on audio recordings against known individuals. These gadgets were often marketed under the brands of Huawei’s partner companies, with Huawei satisfied to take a low-key role.

The Chinese, in other words, engaged in unprovoked aggression against the Uyghurs purely because of prejudice against “Islamic faith” and “ethnic minorities”. This was done “under the banner of counterterrorism”, but the author doesn’t mention any terrorist incidents in which Uyghurs might have been involved. What does American-produced AI have to say?

Various incidents described by Chinese authorities as terrorist attacks or riots by Uyghur separatists have occurred in China, particularly in the Xinjiang region, over the past few decades. 

“Major incidents often cited include:

  • July 2009 Ürümqi riots: Ethnic violence in the capital of Xinjiang resulted in the deaths of nearly 200 people, mostly Han Chinese civilians.
  • March 2014 Kunming railway station attack: A group of knife-wielding assailants attacked civilians, killing 31 people and injuring 141 others. This attack occurred outside of the Xinjiang region.
  • April 2014 Ürümqi train station attack: A knife attack and suicide bombing killed three people and injured 79.
  • May 2014 Ürümqi street market attack: Two vehicles were driven into a market and explosives thrown at shoppers, resulting in 43 deaths and over 90 injuries, making it one of the deadliest attacks in the conflict.

The Chinese government has consistently attributed these events to Uyghur separatist and extremist groups, notably the East Turkistan Islamic Movement (ETIM), also known as the Turkistan Islamic Party (TIP).”

I find it interesting how the official “Chinese bad; Islam is the Religion of Peace” line can be subtly supported even by a book about a telco supplier. (Note that the above passage, read by a skeptical person, actually calls into doubt the Biden administration’s “genocide” accusation. If the Chinese government were simply killing most or all Uyghurs they wouldn’t need to bother with high tech surveillance.)

(Of course, the Chinese response to jihad was quite different from what the U.S. has done, e.g., the deaths on 9/11 motivated us to open the borders to a vastly larger group of Muslim immigrants, the 2016 jihad of second-generation Afghan-American Omar Mateen motivated us to bring in Rahmanullah Lakanwal, one of his wives, and four of his kids.)

Related:

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Apple in China book: what China can do with everything it has learned from Tesla and Apple

by philg

A third post about Apple in China: The Capture of the World’s Greatest Company by Patrick McGee… (see Apple in China book, Intro and Apple in China, the rise of iPod)

The book’s big theme is that Apple taught the Chinese everything that they now know about making high-end electronics. The author says that Tesla did something similar:

As The Economist later put it: “For all its manufacturing might, China never mastered internal-combustion engines, which have hundreds of moving parts and are tricky to assemble.” Electric vehicles changed the game. But more specifically, Tesla did. China’s ambition in electric vehicles goes back to around 2001, and with hefty government incentives, EVs became embedded in the public transportation system about a decade later. The sector had been so awash in incentives and subsidies that Shenzhen alone had 17,000 electric buses at a time when all of Europe and North America had practically none. Consumers who purchased EVs were often able to get a free license plate, which are otherwise tightly controlled and sold at auction. Despite all this support, EVs and plug-in hybrids together accounted for just 4.8 percent of the new car market in 2019. Tesla broke ground on the Shanghai Gigafactory in December 2018; by late 2019 China-made Model 3 vehicles were coming off the production line. Immediately they were a massive hit, and the Tesla Model 3 was China’s bestselling EV in 2020. Chinese consumers “didn’t want to buy anything being manufactured by Chinese brands; they all wanted Tesla,” says Parikh. “As soon as Tesla came, there was a paradigm shift from consumers, and that’s something the Chinese government saw. This was an opportunity to have the entire EV industry in China compete with, and learn from, Tesla.”

Tesla’s investment in China has worked out brilliantly for China’s EV sector, with quality improving across the board. The share of EVs and plug-ins soared from under 5 percent in 2019 to 38 percent in 2023. And the investment has certainly worked out well for Tesla: Shanghai now accounts for half of the company’s global production. But there are longer-term uncertainties and unanswered questions. “In this game, one American company—Tesla in cars and Apple in phones—gets to win,” says another former Tesla executive. “They don’t care if all their US competitors lose. It’s actually better for them. But on the other side, all the Chinese companies win. They all get to step up and create a massive market where none previously existed.”

What’s the potential downside?

Over the coming year, the onslaught from Huawei would be intense. China’s national champion increased its share of the local market from 20 percent in the first half of 2019 to 27 percent in the second half, and then to 29 percent in early 2020. It began outselling the iPhone three to one in China, particularly threatening because it was taking a bite out of Apple’s luxury dominance. In China’s “premium market”—phones priced between $600 and $800—Huawei share soared from 10 percent in early 2018 to 48 percent a year later, causing Apple’s share to fall from 82 percent to 37 percent. Apple’s hold in the “super premium” market—phones priced above $800—was still impressive, at 74 percent, but it had fallen from 90 percent a year earlier. If Huawei’s success had been confined to China, the damage would’ve been limited. But in 2019 the Chinese brand overtook Apple sales globally. It shipped 238.5 million phones—more phones than Apple had shipped even in its peak year of 2015. The student, as they say, had become the master.

Chinese brands had accounted for just 23 percent of global smartphone shipments in 2013, the year of Apple’s political awakening. But their share surpassed 50 percent in 2020. Brands led by Huawei, Xiaomi, and Vivo gave Chinese companies, in 2022, a cumulative market share in both China and Russia of 79 percent; in Indonesia, 73 percent; in India, 66 percent, per Counterpoint Research. In fact, Samsung and Apple were the only two sizable non-Chinese companies still making smartphones. Taiwan’s HTC, Korea’s LG, Canada’s BlackBerry, and Finland’s Nokia were all basically gone; Motorola was now owned by China’s Lenovo; and global sales of Google Pixel were so low as to be subsumed into the “other” category.

Who saved Apple and its 2SLGBTQQIA+ CEO? A purported threat to the 2SLGBTQQIA+ community:

How Apple got out of this mess was a surprising twist, the stuff of novels. Donald Trump had ascended to the US presidency threatening Apple; instead, he saved it. In May 2019 the Trump administration alleged Huawei was a security threat, citing alleged ties with the Chinese government and the potential for its communications equipment to be used for espionage or cyberattacks. It soon imposed unprecedented sanctions, depriving Huawei of Google services, including the Play Store, Gmail, YouTube, and other Android tools—a crippling blow for Huawei phones distributed outside of China. Washington also disallowed American companies from shipping fifth-generation cellular chips to the group.

Apple was suddenly the only game in town for premium 5G phones. Huawei’s share of the Chinese market plummeted from a peak of 29 percent to just 7 percent; Apple filled the void, its China share near doubling from 9 percent to 17 percent.

The book notes how helpful Apple has been to the Chinese government in maintaining the Great Firewall. It also describes how Tim Cook, a brave warrior in U.S. politics (see Guy with a “Whites Only” sign in his conference room tells others not to discriminate from 2015, for example) knows when to say nothing:

Tim Cook’s mind in early December 2022 when he was confronted by a reporter on Capitol Hill, en route to meeting privately with senior lawmakers. “Do you support the Chinese people’s right to protest? Do you have any reaction to the factory workers that were beaten and detained for protesting COVID lockdowns?” asked Hillary Vaughn of Fox News as Cook walked through the building. “Do you think it’s problematic to do business with the Communist Chinese Party when they suppress human rights?” Cook ignored Vaughn, eyes cast downward as he changed direction to avoid her. One supply chain executive characterized the confrontation as “the worst forty-five seconds of Cook’s career.” But his biggest, most astute critic might have been… himself. In 2017, explaining why corporate executives should be more up-front about their values and “lead accordingly,” Cook had told journalist Megan Murphy that “silence is the ultimate consent.” He went on: “If you see something going on that’s not right, the most powerful form of consent is to say nothing. And I think that’s not acceptable to your company, to the team that works so hard for your company, for your customers, or for your country. Or for each country that you happen to be operating in.” The forty-five-second clip of Cook ignoring questions about China played repeatedly on US cable news. Cook’s silence—his ultimate consent—was highly indicative of just how beholden America’s most valuable company had become to an authoritarian state.

When in 2019 the company rolled out Apple TV+, its Netflix-style streaming service, software and services head Eddy Cue issued just two directives to Apple’s content partners: no hard-core nudity and “avoid portraying China in a poor light.” … Apple TV+ isn’t even available in China, but Cupertino understands the country well enough to know when and how to self-censor.

With Tim Cook and Apple doing whatever China wants, what risks remain for the company? According to the author, Huawei’s innovations in hardware and in building its own operating system (HarmonyOS) may enable Huawei to wipe out Apple in what is currently a huge and lucrative Chinese market.

This will be my last post about Apple in China: The Capture of the World’s Greatest Company. I’ve left out a huge section regarding the rise of Apple’s business in China, e.g., the Apple Stores that it opened. It’s worth reading, but China is so different from the rest of the world that I can’t think of any practical value for knowing this history.

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Apple in China book, Intro

by philg

I recently finished Apple in China: The Capture of the World’s Greatest Company by Patrick McGee, a former reporter for the Wall Street Journal and Financial Times. What’s the scale of what Apple does in China?

The CHIPS and Science Act, which is designed to stimulate computer chip fabrication in America, will cost the US government $52 billion over four years—$3 billion shy of what Apple invested annually in China nearly a decade earlier. Let me underscore this point: Apple’s investments in China, every year for the past decade, are at least quadruple the amount the US commerce secretary considered a once-in-a-generation investment.

What’s the scale of Apple?

The number of Apple devices in active use surpassed 2.35 billion in 2025, led by 1.4 billion iPhone users who spend more than four hours a day immersed in their glowing screens. These users represent the richest quintile of people in the world, and Apple can advertise or promote features to them—wireless payment, television shows, music streaming, fitness offerings—for free. In fact, Google pays Apple close to $20 billion a year just to be the default search engine on the iPhone. The control Apple has over its ecosystem is extraordinary: When in 2021 Apple changed how third parties like Instagram and Facebook could “track users”—ostensibly a move to protect the privacy of iPhone owners—Meta estimated the new policy diminished its annual earnings by $10 billion. Meanwhile, revenue from Apple’s own privacy-first ad business was on a path to grow from $1 billion in 2020 to $30 billion by 2026. One advertising executive characterized the change as going “from playing in the minor leagues to winning the World Series in the span of half a year.” On average, Apple’s Services business earns margins north of 70 percent, double that of its hardware, and the business has been growing at nearly 20 percent a year for six years—all before potentially being supercharged by new artificial intelligence features. In short, the notion that Apple is at its peak is patent nonsense. But there is one Achilles’ heel: The fate of all the company’s hardware production relies on the good graces of America’s largest rival.

Don’t take the tech reporting here as gospel. The author has fallen in love with his subject:

The second force was the advanced nature of the Macintosh operating system (OS). It really was a decade ahead of its time when, in 1984, a boyish and handsome Steve Jobs, then just twenty-eight, unveiled the Mac with dramatic flair to a packed auditorium. When Jobs clicked the mouse—itself a novelty at the time—the computer took the air out of the room by speaking.

(The mouse, of course, was 16 years old in 1984. The graphical user interface, as embodied in the Xerox Alto, was 11 years old.)

The seeds of the App Store, in which Apple would take a cut of all sales, were sown circa 1980:

By the end of 1983, the Apple II “had the largest library of programs of any microcomputer on the market—just over two thousand—meaning that its users could interact with the fullest range of possibilities in the microcomputing world.” But Jobs resented third-party developers as freeloaders. In early 1980, he had a conversation with Mike Markkula, Apple’s chairman, where the two expressed their frustration at the rise of hardware and software groups building businesses around the Apple II. They asked each other: “Why should we allow people to make money off of us? Off of our innovations?” An attendee of the meeting would recount, years later, that Apple began to “fight” all third-party development.

The book is strong on recounting the rise of contract manufacturing in the 1980s and 1990s and on the history of Foxconn:

Foxconn had the humblest of origins. In 1974, two years before Apple was started out of a garage, twenty-three-year-old Terry Gou founded Hon Hai Plastics out of a shed. Gou, who’d just completed his duty in the Taiwanese army, founded the company with $7,500.

As the PC revolution took off in the early 1980s, Gou got in on the ground floor and created a name for himself making reliable sockets and connectors—small components that facilitate communication between different parts of a computer. The conn in Foxconn—Hon Hai’s international name—refers to connectors. “Fox” is just an animal he likes.

Employees were given a Little Red Book featuring the sayings of Terry Gou, some of which were also plastered on the otherwise bare walls. The aphorisms ranged from inspirational to threatening. “Work hard on the job today or work hard to find a job tomorrow,” said one.

In 1999, it was a company with $1.8 billion of revenue, far smaller than Solectron, SCI, or Flextronics, its US rivals. By 2010, Foxconn revenues were $98 billion, more than those of its five biggest competitors combined. And Foxconn’s extraordinary growth in those eleven years is the consequence of one client more than any other: Apple.

How much did China grow along with Foxconn?

By the time Mao died in 1976, China was poorer than sub-Saharan Africa. … In just twenty-five years, Shenzhen’s population grew a hundredfold.

Europe is poor compared to the U.S. Why not assemble stuff in Europe?

Once the Shenzhen line for iMacs was up and running, Foxconn established sites on two other continents. In Europe, Foxconn executive Jim Chang found a Soviet-era electronics site in Pardubice, a city of 100,000 people sixty miles east of Prague. The site had previously been run by a state-owned company called Tesla, whose specialty was radar systems and whose biggest client had been the government of Iran. The site had an eerie feel to it, like it had been hit by a neutron bomb. Forklifts stood motionless on the floor and cups of tea, their contents long gone cold, had been left on the tables. In May 2000, Foxconn was able to buy the plant for just 102 million CSK (2.9 million), a fire-sale price because it was bringing in jobs. Foxconn also won from the government a ten-year tax holiday.

The experience in the Czech Republic was an important proving ground for Foxconn and its hub model, but what it really demonstrated was that producing hardware in China was cheaper, more efficient, and less subject to media scrutiny. In China, assembly got done at incredible speed and with few complaints. Workers did twelve-hour shifts and lived nearby in dorms. At the Czech site, workers put in fewer hours and were represented by a trade union; they protested conditions and spoke to the press. Plans to build dormitories met local criticism and were abandoned. Over the course of a decade, Foxconn expanded its work in the Czech Republic, continuing to build for Apple, adding another location, and taking on production for Hewlett-Packard, Sony, and Cisco.

At one point, according to an ex-worker named Andrea, workers making Apple products didn’t receive an annual bonus as they were promised, so they threatened a “strike emergency” just before the ramp-up ahead of Christmas. “Afraid,” the Foxconn managers deposited the bonuses within a week. The incident triggered an audit by Apple, which interviewed workers about their experience. Apple, Andrea said, advocated for better conditions, but “instead Foxconn closed the division within half a year and 330 people were dismissed.” Around the same time, in August 2009, Foxconn shut its Fullerton site, too. How Foxconn laid the Czech workers off is worth highlighting. Mass dismissals—defined as laying off more than thirty people—need to be reported to the Labor Office, but it was important for Foxconn to avoid scrutiny. “What Foxconn did is they dismissed twenty-nine workers every month,” Andrea said. “Each month, regularly, they fired twenty-nine people.” The threat of a single strike ended all large-scale Apple assembly in Europe.

China ended up being the only answer for Apple and pretty much everyone else in the electronics world.

… by 2005, Jobs grasped that there was no going back. That year, a subordinate suggested that a certain project be done in the United States, and Jobs responded curtly. “I tried it. It didn’t work.” The results—in volume, efficiency, and price—were unmatched.

I’ll write more about this book in subsequent posts (e.g., Apple in China, the rise of iPod).

Reminder of what was considered attractive at the time Apple moved manufacturing offshore (source):

Next: Apple in China, the rise of iPod

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Checking up on my 2003 Chinese-made car price prediction

by philg

From 2003, The Chinese car:

Within 10 to 20 years the Chinese will be able to sell a car that is very similar to today’s rental car: 4 doors, 4 seats, air conditioner, radio, new but not fancy. It will cost between $2000 and $3000 in today’s dollars. With cars that cheap it will be unthinkable to manufacture in the U.S. Consumers won’t bother to finance a $2000 purchase separately (maybe they’ll add it to their credit card debt).

Among the large range of my failed predictions, this one would appear to have been an unusually spectacular failure. Very few Chinese-made cars are available in the U.S. and they cost $40,000-70,000, not $3,000. Maybe there is some hope for salvaging my reputation as a prophet. “What a $15,000 Electric SUV Says About U.S.-China Car Rivalry” (Wall Street Journal, May 3, 2025):

For an American used to a $50,000 gasoline-powered SUV as the standard family choice, the Chinese market is hardly recognizable. … Chinese car buyers no longer need to debate whether an EV can be made affordable, not when a decent starter model costs $10,000 and a luxury seven-seater with reclining massage chairs can be had for $50,000. … Toyota said its bZ3X—the recently introduced model that starts at $15,000—was designed in China by the company’s engineers in the country, who worked with a local joint-venture partner. It is made in Guangzhou with Chinese batteries and driver-assistance software from Momenta, a Chinese leader in that field.

I was off by a factor of more than 3X, then? What if we adjust for the inflation that the government assures us doesn’t exist? Adjusted for official CPI, $3,000 in 2003 is equivalent to about $5,250 today. So I was off by only a factor of two! What if we try to adjust for inflation as experienced by Americans who buy houses? (official CPI excludes the cost of buying and living in a house in favor of a hypothetical “owner equivalent rent”) The Case-Shiller Index has gone from 133 to 324:

If we adjust the $3,000 number from 2003 with the growth in house prices, we get $7,300. My prediction was of a $7,300 car, then, in today’s money and the WSJ says that $10,000 now buys a reasonably good car (denied to Americans, but available in the world’s largest market for cars).

Related:

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Climate change is an existential threat, but China is a bigger threat

by philg

Joe Biden, 2023 (whitehouse.gov):

You know, I’ve seen firsthand what the reports made clear: the devastating toll of climate change and its existential threat to all of us. And it is the ultimate threat to humanity: climate change.

“Biden to Quadruple Tariffs on Chinese EVs” (Wall Street Journal, May 10, 2024):

The Biden administration is preparing to raise tariffs on clean-energy goods from China in the coming days, with the levy on Chinese electric vehicles set to roughly quadruple, according to people familiar with the matter. … signs that China was ramping up exports of clean-energy goods prompted concern in Washington, where officials are trying to protect a nascent American clean-energy industry from China.

Officials are particularly focused on electric vehicles, and they are expected to raise the tariff rate to roughly 100% from 25%, according to the people. An additional 2.5% duty applies to all automobiles imported into the U.S. The existing 25% tariff on Chinese electric vehicles has so far effectively barred those models, often cheaper than Western-made cars, from the U.S. market. Biden administration officials, automakers and some lawmakers worry that wouldn’t be enough given the scale of Chinese manufacturing.

In other words, it is better for all humans to be killed by climate change (the “existential threat” turning out to be real) than it is to drive a Chinese car or use any other “clean-energy good” from China.

One might think that the cognitive dissonance would start to become apparent even to climate change alarmists themselves. Greta Thunberg has switched to pro-Hamas activism (e.g., protesting against the 20-year-old Eden Golan singing in the Eurovision contest; this reminds me to wonder if there will be a sequel to the Will Ferrell movie). Even if we accept that Palestinians are the world’s most noble people, how is the status of their war against the Israelis more important than the impending death of all humans that she previously warned us about? Of course, there are the climate change alarmists who use private jets. And we have the Biden administration, which says that climate change is on track to kill all humans and also keeps the border open so that millions of migrants from low-carbon societies can become high-carbon-output residents of the U.S. (the quickest method of accelerating CO2 emissions imaginable). Finally, we now have these huge tariffs to discourage Americans from adopting what we’ve been informed are planet-saving/humanity-saving technologies.

Separately… the YANGWANG U9 from BYD, with the 1 horsepower that is required for moving at Miami Beach traffic speed and 1,299 hp in reserve.

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Why are we afraid of TikTok?

by philg

“China says it ‘firmly opposes’ a potential forced sale of TikTok” (CNN):

China said it would “firmly oppose” any forced sale of TikTok, in its first direct response to demands by the Biden administration that the app’s Chinese owners sell their share of the company or face a ban in its most important market.

The comments came as TikTok CEO Shou Chew testified in front of US lawmakers amid mounting scrutiny over the app’s ties to Beijing.

China’s commerce ministry said Thursday that a forced sale of TikTok would “seriously damage” global investors’ confidence in the United States.

Why is TikTok more of a security concern than apps from other countries, which might or might not be backed by China ultimately? TikTok is, at least, obviously prominent and can be monitored carefully. I would think the worst computer security problems are the unknown unknowns.

Separately, is the deeper problem with social media apps that they are addictive, especially for young people? Instead of forcing a TikTok sale, would it be smarter to require all of the social media apps to set a 30-minute daily limit per user? (of course, some addicts could get around this by creating multiple accounts, but those would seem to be edge cases)

I’m not a TikTok user, but I logged in with my Google credentials and gave the app my birthdate (Jurassic!). The algorithm is purportedly awesome, but I didn’t find any videos that I wanted to watch on the default home screen. A search for COVID doesn’t yield anything as brilliant as Adley’s April 20, 2020 explanation of Faucism. A search for “Robinson R44” does not yield better content than on YouTube:

I’m following one friend on TikTok, but he keeps his likes private (and maybe there is no way to share them just with me?) so I can’t use his favorite videos as a gateway into the service.

Readers:

  1. What’s great about TikTok?
  2. Should we force a sale due to TikTok’s Chinese connections?
  3. Should we use regulation to protect ourselves from ourselves via a 30-minute limit on each social media platform?
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Is the Chinese balloon in U.S. airspace?

by philg

The U.S. government is talking about shooting down a Chinese balloon that is reportedly high above the mainland U.S… “Suspected Chinese spy balloon drifting over U.S. has surveillance part as big as multiple school buses” (CBS):

The balloon was flying at an altitude of about 66,000 feet, according to a U.S. official. It can be maneuvered but it is also subject to the jet stream, which could eventually push it out of U.S. airspace, the official said.

The balloon is not going to run out of fuel, since it has solar panels. The official also said that the balloon steers by rudder and is corkscrewing around to slow its progress over land, but the jet stream continues to move it on a trajectory across the U.S. The Pentagon is still considering ways to “dispose” of it but has “grave concerns” about the damage it would cause if it fell to Earth.

It’s laterally above the U.S. so it is in our airspace so we can shoot it down if we want to? Let’s check “The Vertical Limit of State Sovereignty” (Journal of Air Law and Commerce, 2007):

Because there is no agreed delineation between a state’s territory and free outer space, the vertical limit of state sovereignty is unsettled and each state is left to define the limits of its vertical sovereignty. However, no state has explicitly done this.

U.S. Secretary of State John Foster Dulles said “the question of the ownership of upper air is a disputable question…. What the legal position is, I wouldn’t feel in a position to answer because I do not believe that the legal position has even been codified ….”, Later in the same news conference, Secretary Dulles answered a question by saying, “Yes, I think that we feel [that the United States has the right to send balloons at a certain height anywhere around the globe], although .. .there is no clear international law on the subject.””

Conclusion

There is no international agreement on the vertical limit of state sovereignty.

State sovereignty should be limited to a low altitude–I recommend 12 nm [73,000′]

In other words, at 66,000′ it is an open question whether this balloon is in U.S. airspace. The limit of controlled airspace, in which it is possible to get a clearance from U.S. Air Traffic Control, is 60,000′ (the Davos crowd may be found at 51,000′ in their various late-model Gulfstreams).

From Twitter:

And from a Facebook aviation group:

FOR SALE: 2023 China Aviation Industry Corporation II non rigid ballistic helium ballon, like new and low time with only 380 hours TTAF, no damage history. Equipment includes GPS, NAV/COM, extra large gas storage, and weather equipment similar to XM. Military designed but only for civilian use, honestly. Has complete logs. The aircraft is still in use so flight times will change. No special type rating or endorsement needed. Fly wherever you want, whenever you want. Be advised that interest in this unique ballon is at an all time high, so act fast as this one won’t last!

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