Economy

Up Close At Huawei, China’s Challenger To Smartphone Giants

A look inside Huawei’s HQ in Shenzen, the Silicon Valley of China, where plans are being laid to overtake Apple and Samsung.

A technician at Huawei HQ in Shenzhen
Bruno Ruffilli

SHENZHEN â€" Under the milky grey sky, Lin challenges the autumn heat in a white dress and black jacket, walking confidently in her high heels. “There are seven women for every man in Shenzhen,” she says.

Continuously chatting, replying to emails, and swiftly tapping the screen of her phone â€" a Huawei smartphone, of course â€" Lin makes a point of noting that employees aren’t prohibited from using competitors' phones and gadgets.

Shenzhen is home to the headquarters of Huawei, China’s largest smartphone producer and third in the global market behind Apple and Samsung. Its sprawling campus is a city within a city replete with 3,200 apartments for some 50,000 resident employees, roads, parks, and even a small lake with black swans brought in from Australia. “I live here and it’s a 20-minute walk to work," Lin says. "If I lived in the city it would take me at least an hour and a half.”

With employees from all over the world, both English and Chinese are spoken on the Huawei campus. It also boasts its own university, offering courses recognized by state universities.

From village to metropolis

Shenzhen, a massive city in southern Guangdong province home to almost 11 million people, rose to prominence as China’s Silicon Valley thanks to its role as a hub for startups eager to enter the market. Its population swells to 15 million in the autumn, when local factories hire workers from across the country to meet orders for the Christmas and New Year's season.

Just 30 years ago, it was a small fishing village.

Adjacent to the Huawei campus lies the enormous Foxconn complex, where iPhones, Playstations and a host of other gadgets are produced. Some 90% of China’s more than 3,000 smartphone producers have based their factories in Shenzhen. Most of them are small and medium-sized businesses making component parts on commission for other brands, attracted by Shenzhen’s abundance of qualified labor, excellent infrastructure and its port â€" the world’s third-largest by container traffic. The city was also one of China’s first Special Economic Zones (SEZs), designated as such in 1980, and its tax incentives and close proximity to Hong Kong made it an attractive investment destination.

Huawei’s campus is clean and efficient, with green spaces and an infinite supply of maintenance workers, gardeners, security guards and hostesses. “We have everything, there are also two medical centers and supermarkets where we can buy everything we need,” says another young employee. Of Shenzhen’s population, 88% is aged 15-59.

A fake city?

The company recently moved its smartphone and tablet factories 100 kilometers from its campus, near several lakes. Even its competitor Foxconn has moved production inland, and new Shenzhens are sure being born across China, with their own futuristic airports, skyscraper hotels and worker’s dormitories.

Shenzhen's futuristic new airport terminal â€" Photo: Livewireshock

Shenzhen’s streets empty early at night and you can often spot Rolls Royces and Ferraris in front of the most prominent bars. “Worker’s bikes” still exist, but they are outnumbered by mopeds. One of the city’s major tourist draws is the “Window of the World,” a miniature park with 130 representations of global monuments like the Eiffel Tower and the Colosseum. Then there’s the “Fake Market”, where you can find a copy of any original item. There are hundreds of counterfeit and imitation iPhone sellers in the city, and some of the highest quality fakes â€" externally identical to an iPhone, but running an Apple-like Android system â€" can cost as little as $75. They can even connect to a fake App Store and download imitation apps.

Huawei was founded in 1987 by Ren Zhengfei, a Chinese Army engineer, and began by producing telephone switchboards from parts of other technologies and then selling them at competitive prices. Eventually it began producing mobile phones in its own right. By 2015 it sold over 100 million units across the world, with its European market growing by 98% in one year.

“We want to become the number one smartphone producer in the world,” explains a senior manager. “We are pursuing quality over quantity: we had the highest number of patents in 2014, and we have opened research centers in Europe, the U.S., China, Japan and India.”

Most of Huawei’s profits still come from telecommunications infrastructure, where it is the global leader in the market. After the decline of Nokia, and the Sony-Ericsson split, Huawei is the sole firm that still produces both smartphones and the infrastructure necessary for them to operate, and its supremacy in the latter sector has worried some abroad â€" notably in the United States.


The U.S. government is wary that Huawei products could be used by the Chinese government to monitor communications in the United States. But in Shenzhen, no one seems worried about such controversies. “Our goal is to help the world communicate,” says another Huawei manager.

Shenzhen is the capital of the paradoxes of the new China: host to an innovative firm that expands thanks to free circulation of data on one side, and a prying government that censors the Internet and blocks social media websites, the New York Times, and even Google Maps, on the other.

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Economy

European Debt? The First Question For Merkel's Successor

Across southern Europe, all eyes are on the German elections, as they hope a change of government might bring about reforms to the EU Stability Pact.

Angela Merkel at a campaign event of CDU party, Stralsund, Sep 2021

Tobias Kaiser, Virginia Kirst, Martina Meister


-Analysis-

BERLIN — Finance Minister Olaf Scholz (SPD) is the front-runner, according to recent polls, to become Germany's next chancellor. Little wonder then that he's attracting attention not just within the country, but from neighbors across Europe who are watching and listening to his every word.

That was certainly the case this past weekend in Brdo, Slovenia, where the minister met with his European counterparts. And of particular interest for those in attendance is where Scholz stands on the issue of debt-rule reform for the eurozone, a subject that is expected to be hotly debated among EU members in the coming months.

France, which holds its own elections early next year, has already made its position clear. "When it comes to the Stability and Growth Pact, we need new rules," said Bruno Le Maire, France's minister of the economy and finance, at the meeting in Slovenia. "We need simpler rules that take the economic reality into account. That is what France will be arguing for in the coming weeks."

The economic reality for eurozone countries is an average national debt of 100% of GDP. Only Luxemburg is currently meeting the two central requirements of the Maastricht Treaty: That national debt must be less than 60% of GDP and the deficit should be no more than 3%. For the moment, these rules have been set aside due to the coronavirus crisis, but next year national leaders must decide how to go forward and whether the rules should be reinstated in 2023.

Europe's north-south divide lives on

The debate looks set to be intense. Fiscally conservative countries, above all Austria and the Netherlands, are against relaxing the rules as they recently made very clear in a joint position paper on the subject. In contrast, southern European countries that are dealing with high levels of national debt believe that now is the moment to relax the rules.

Those governments are calling for countries to be given more freedom over their levels of national debt so that the economy, which is recovering remarkably quickly thanks to coronavirus spending and the European Central Bank's relaxation of its fiscal policy, can continue to grow.

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive.

The rules must be "adapted to fit the new reality," said Spanish Finance Minister Nadia Calviño in Brdo. She says the eurozone needs "new rules that work." Her Belgian counterpart agreed. The national debts in both countries currently stand at over 100% of GDP. The same is true of France, Italy, Portugal, Greece and Cyprus.

Officials there will be keeping a close eye on the German elections — and the subsequent coalition negotiations. Along with France, Germany still sets the tone in the EU, and Berlin's stance on the brewing conflict will depend largely on what the coalition government looks like.

A key question is which party Germany's next finance minister comes from. In their election campaign, the Greens have called for the debt rules to be revised so that in the future they support rather than hinder public investment. The FDP, however, wants to reinstate the Maastricht Treaty rules exactly as they were and ensure they are more strictly enforced than before.

This demand is unlikely to gain traction at the EU level because too many countries would still be breaking the rules for years to come. There is already a consensus that they should be reformed; what is still at stake is how far these reforms should go.

Mario Draghi on stage in Bologna

Prime Minister Mario Draghi at an event in Bologna, Italy — Photo: Brancolini/ROPI/ZUMA

Time for Draghi to step up?

Despite its clear stance on the issue, Paris hasn't yet gone on the offensive. That having been said, starting in January, France will take over the presidency of the EU Council for a period that will coincide with its presidential election campaign. And it's likely that Macron's main rival, right-wing populist Marine Le Pen, will put the reforms front and center, especially since she has long argued against Germany and in favor of more freedom.

Rome is putting its faith in the negotiating skills of Prime Minister Mario Draghi, a former head of the European Central Bank. Draghi is a respected EU finance expert at the debating table and can be of great service to Italy precisely at a moment when Merkel's departure may see Germany represented by a politician with less experience at these kinds of drawn-out summits, where discussions go on long into the night.

The Stability and Growth pact may survive unscathed.

Regardless of how heated the debates turn out to be, the Stability and Growth Pact may well survive the conflict unscathed, as its symbolic value may make revising the agreement itself practically impossible. Instead, the aim will be to rewrite the rules that govern how the Pact should be interpreted: regulations, in other words, about how the deficit and national debt should be calculated.

One possible change would be to allow future borrowing for environmental investments to be discounted. France is not alone in calling for that. European Commissioner for Economy Paolo Gentiloni has also added his voice.

The European Commission is assuming that the debate may drag on for some time. The rules — set aside during the pandemic — are supposed to come into force again at the start of 2023.

The Commission is already preparing for the possibility that they could be reactivated without any reforms. They are investigating how the flexibility that has already been built into the debt laws could be used to ensure that a large swathe of eurozone countries don't automatically find themselves contravening them, representatives explained.

The Commission will present its recommendations for reforms, which will serve as a basis for the countries' negotiations, in December. By that point, the results of the German elections will be known, as well as possibly the coalition negotiations. And we might have a clearer idea of how intense the fight over Europe's debt rules could become — and whether the hopes of the southern countries could become reality.

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