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Huawei founder’s bleak memo about the future strikes a chord

A leaked internal memo by Ren Zhengfei, founder of Huawei Technologies Co., has gone viral on China’s social media, as his bleak outlook of the global economy strikes a chord in the country’s business and technology sectors.

The memo, which was first reported by Chinese media outlet Yicai on Tuesday, painted a gloomy picture of a world heading into economic recession. It called for employees to focus on the company’s survival and give up on wishful thinking.

Huawei declined to confirm or deny the memo, but sources told the Post that the text, which has been widely reported locally and shared on the internet, is authentic.

“The next 10 years will come down as a painful period in history, as the world economy goes into recession … Huawei needs to tone down on any over-optimistic forecast and make survival its most important creed in the next three years,” Ren wrote.

This is not the first time that Ren, 77, has reminded Huawei employees that the firm is navigating a business crisis. Huawei’s rotating chairman, Eric Xu Zhijun, also repeatedly said in 2020 and 2021 that the company’s goal was to survive US sanctions, which barred its access to US-origin technology, such as advanced smartphone chips.

However, Ren’s new warnings come amid fresh challenges, as Beijing carries on with draconian Covid-19 controls despite the Chinese economy being in its worst shape in decades.

China’s gross domestic product grew only 0.4 per cent in the second quarter, the worst since the first quarter of 2020, when the coronavirus shut down large swathes of the country, driving GDP down by 6.8 per cent.

Huawei saw its revenue shrink further in the first half of 2022, declining 5.9 per cent from a year ago to 301.6 billion yuan (US$44.7 billion), while its net profit margin fell to 5 per cent, compared with 9.8 per cent in the same period last year.

Ren’s memo has sparked heated discussions on Chinese social media because it offered a realistic reading of the country’s economic prospects and came up with a business strategy accordingly, in a display of honesty that is uncommon in the country, according to Ivan Lam, a senior analyst at Counterpoint Research.

“It’s rare for companies to point directly to the problem, and people have been waiting for an influential figure who is willing to [break the silence],” Lam said. “Many company executives have touched on the macro environment in their earnings calls, but they usually focused on their business performance and their optimism for an impending recovery. Apparently people didn’t think that was enough.”

Ren’s memo became a trending topic on microblogging platform Weibo on Tuesday, as some of his quotes, including his description of the memo’s purpose as “sending a chill to everyone”, drew wide attention.

“The economic downturn has imposed an unprecedented challenge on most ordinary people and private companies in China,” said one of the most popular comments on Weibo. “When a giant like Huawei is raising this issue, it speaks volumes about the severity of the problem.”

Amid rising Sino-US tensions, as well as tightening monetary policy by global central banks and the yuan’s depreciation, mainland stock markets plunged on Wednesday, with the benchmark Shanghai Composite Index tumbling 1.86 per cent and the Shenzhen Component Index losing 2.88 per cent.

Other internet users criticised Ren’s decision to cut the bonuses of employees whose teams fail to turn a profit. “Most workers didn’t get matching rewards when the company was doing well, so please don’t ‘send a chill’ to us,” one comment read.

Ren, who remains the undisputed leader of the world’s largest telecommunications equipment maker, joins a small number of Chinese tycoons who have spoken about their business struggles and views of the economy.

Pony Ma Huateng, the reticent founder of Chinese internet giant Tencent Holdings, sparked online discussion about the country’s economic difficulties under Beijing’s dynamic zero-Covid-19 policy in May, after he shared a viral article that touched on the Chinese tech industry’s struggles.

Lei Jun, founder of smartphone giant Xiaomi, gave a motivational speech earlier this month during a product launch event, in which he recounted his past struggles and encouraged people to face future challenges with resilience.

Wang Xing, founder of online delivery service platform Meituan, posted a widely quoted line on his social media account in late 2018, which said that year would be the worst of the previous decade but the best of the next decade.

However, the billionaire has remained silent since last summer, when he posted an ancient poem criticising the book-burning exercise by China’s first emperor, which was interpreted by some observers as a complaint against the government’s regulatory crackdown on the tech sector. Wang later denied that the poem was meant to be a metaphor about business. South China Morning Post

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