Huawei’s founder has issued a stark warning about the tech company’s future, raising alarm at the candor of his assessment and what it indicates for smaller companies amid China’s economic woes and global recession.
In a leaked internal memo, Ren Zhengfei told Huawei staff that “everyone will feel the chill” and that the company must focus on profit over cash flow and expansion if it is to survive the next three years, indicating more job cuts and divestments.
“The next decade will be a very painful historical period, as the world economy continues to fall,” Ren said, pointing to the pandemic as well as the impact of the Ukraine war and a “continued blockade” by the United States on some Chinese companies. .
“Huawei must lower any overly optimistic expectations 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 including pandemic restrictions, a real estate industry crisis and the collapse of international relations. The country is not expected to reach its economic growth target of 5.5% this year.
Huawei, routinely listed as China’s largest company, is working to manage big drops in revenue and profit. Revenue was down 14% in the first three months of 2022 and its net profit margin shrank to 4.3%, from 11.1% a year earlier, in the three months to March.
It has been a high point of tensions between the United States and China, with Washington and other Western counterparts restricting Huawei from their markets over national security concerns. The company has also been prohibited from buying any foreign technology.
“In the past, we embraced the ideal of globalization and aspired to serve all of humanity, so what is our ideal now?” Ren wrote.
“Survive and make a little money wherever we can. From this point of view, we need to adjust the market structure 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 expressing fear of what it would mean for ordinary people and small businesses if a company the size of Huawei sent out such warnings. .
“The last person who said such things was Wang Shi from Vanke and then the real estate was in danger,” one commentator said, referring to the CEO of a state-owned real estate development company.
Several blamed the US, with one commenter 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 poor shape and it was not unusual to cut costs in a recession. “The reason Ren Zhengfei’s words stood out is the way he said them. It sounded like she was in panic mode,” she said.
“Also, it’s a politically sensitive time right now. We are a couple of months away from the 20th party congress. As you know, economic performance is tied to party legitimacy.”
Professor Steve Tsang, director of China’s SOAS 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 much trouble a national champion like Huawei may face as a result of US sanctions, it indicates that the Chinese economy in general is also vulnerable,” Tsang said. “But that is, as the saying goes, above his salary level and it is a matter for Xi Jinping to decide on how to deal with it. The questions are whether Xi will have Ren’s pragmatism and vision to come up with something that can be as effective as what Ren is proposing for Huawei.”
China’s government this week announced a further $146 billion (£123 billion) in stimulus funds and 19 new measures to address the economic damage caused by the pandemic and the country’s hard-line responses, as well as a crisis in the real estate development industry.
Extensive and unpredictable lockdowns have disrupted factory output, supply chains and economic activity in general, particularly 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 reached an all-time high of 19.9% in July and the overall urban unemployment rate remained at a relatively high rate of 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 shrunk and some recruitment drives have been canceled or delayed,” said Zhang Ying, director of employment promotion. of the Ministry of Human Resources and social security, said at a press conference on Thursday.
“Some young job seekers have encountered new difficulties.”
Additional reporting from Xiaoqian Zhu and agencies