Huawei founder raises alarm in China with warning of ‘painful’ next decade | Huawei

The Huawei founder has issued a stark warning for the future of the tech company, setting off alarm bells with the candor of its assessment and what it points out to small businesses amid China’s economic woes and a global slowdown.

In a leaked internal memo, Ren Zhengfei told Huawei staff that “everyone will feel the cold” and that the company must focus on profits rather than cash flow and expansion if it is to survive the downturns. next three years, indicating further job cuts and divestments.

“The next decade will be a very painful historical period, as the global economy continues to decline,” Ren said, highlighting the pandemic as well as the impact of the war in Ukraine and a “continued blockade” by the United States. on some Chinese companies. .

“Huawei must reduce any overly optimistic expectation for the future and until 2023 or even 2025, we must make survival the most important guideline, and not just survive but survive with quality.”

China’s economy is under pressure from factors such as pandemic restrictions, a crisis in the real estate sector and the fall in international relations. The country is not expected to meet its economic growth target of 5.5% this year.

Huawei, regularly listed as China’s biggest company, is struggling to manage steep declines in revenue and profits. Revenue fell 14% in the first three months of 2022 and its net profit margin narrowed to 4.3% from 11.1% a year earlier, in the three months ending March.

It has been a flashpoint of US-China tensions, with Washington and other Western counterparts limiting Huawei to their markets for national security reasons. The company was also banned from buying foreign technology.

“In the past, we embraced the ideal of globalization and aspired to serve all mankind, so what is our ideal now?” writes Ren.

“Survive and earn some money where we can. From this point of view, we need to adjust the structure of the market and study what can be done and what should be abandoned.

Ren’s memo went viral on Chinese social media, shared and discussed by more than 100 million users, with some fearing what it would mean for ordinary people and small businesses if a company the size of Huawei sent such messages. warnings.

“The last person who said such things was Wang Shi from Vanke and real estate was in danger then,” said one commentator, referring to the general manager of a state-run real estate development company.

Many blamed the United States, with one commentator saying Huawei’s expansion “came to an abrupt end under frenzied US repression”.

Linghao Bao, an analyst at Trivium China, said the global economy was in bad shape and it was not unusual to cut costs during a recession. “The reason Ren Zhengfei’s words stood out is the way he said it. He looked like he was in panic mode,” he said.

“Plus, it’s a politically sensitive time right now. We are only a few months away from the 20th party congress. As you know, economic performance is linked to party legitimacy.

Professor Steve Tsang, director of the SOAS China Institute, said Ren enjoyed a status that could allow him to speak more freely than others and should be taken seriously.

“When someone like Ren admits how badly a national champion like Huawei can face as a result of US sanctions, it indicates that the wider Chinese economy is also vulnerable,” Tsang said. “But it is, as the saying goes, above his pay grade and it’s up to Xi Jinping to decide how to go about it. The question is whether Xi will have Ren’s pragmatism and vision. to come up with something that might be as effective as what Ren is offering Huawei.

The Chinese government this week announced additional stimulus funding of $146bn (£123bn) and 19 new measures to address the economic damage wrought by the pandemic and the country’s sweeping responses, as well as a crisis in the property development sector.

Widespread and unpredictable shutdowns have disrupted factory production, supply chains and general economic activity, especially among small businesses. The private sector provides a third of all jobs in China and creates 90% of new urban jobs, according to state media.

Youth unemployment hit a record high of 19.9% ​​in July and the general urban unemployment rate remained at a relatively high 5.4%. Unemployment insurance payments also hit a record high in June.

“Amid sporadic Covid-19 outbreaks in some regions since the beginning of this year, job demand in the market has declined and some recruitment campaigns have been canceled or delayed,” said Zhang Ying, director of the promotion of employment at the Ministry of Human Resources and Social Security, said Thursday at a press conference.

“Some young job seekers have encountered new difficulties.”

Additional reports from Xiaoqian Zhu and agencies

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