Prof. Balding has (apparently) responded to this newsletter on Huawei
And this is Balding's response in full
On Monday, Feb. 1, this newsletter published a full, 10,000-word English translation of 华为的股权与治理结构 Huawei’s Equity and Governance Structure, apparently written by Associate Professor 王军 Wang Jun with China University of Political Science and Law.
The link to the newsletter is here, and in case you want to read a standalone PDF file shared via Google Drive, click here.
That article is a detailed response to Who Owns Huawei? published in April 2019, by Prof. Christopher Balding, then with Fulbright University Vietnam, and Prof. Donald C. Clarke, with George Washington University Law School.
Your Pekingnologist wishes to, again, stress that he translated and published the exceedingly lengthy newsletter out of his own volition and without coordination with anyone, including his day-job employer Xinhua News Agency, Wang Jun, or Huawei because he believes this is an invaluable work that will provide badly-needed value - and balance - to the prevailing and dominating narrative internationally.
Your Pekingnologist woke up this morning (Friday, Feb. 5, 2021) and found on Twitter that Balding has apparently published Revisiting Huawei, responding to the Monday newsletter.
Your Pekingnologist decides to, in his self-styled spirit of impartiality, fully copy and paste Balding’s response in full here.
This is certainly not an endorsement, but to keep the subscribers to the Pekingnology newsletter reasonably informed of arguments from both sides, and a perhaps futile attempt to facilitate a good-faith exchange of ideas.
Balding apparently didn’t address the complex historic and legal background in the Chinese context which, as Prof. Wang explained in excruciating detail, probably led to and shaped Huawei’s equity and governance structure as it is today.
Your Pekingnologist also wishes to comment briefly on the last sentence of Balding’s response, which these days happen all too often
As a matter a normative practice, it makes absolutely no difference who legally owns the company everything in China is controlled by the CCP. I believe that should settle that dispute
From a practical point of view, if this is the spirit and most importantly the content informing debates and even policymaking, then indeed any dispute could be settled instantly. What’s there left to talk about?
Additionally, your Pekingnologist wrote (not translated, as in the Huawei case) a lengthy newsletter a short while ago, to provide balance to - Okay, refute - serious insinuations against Prof. Gao Wei by made by Prof. Anne-Marie Brady together with Jichang Lulu (a pseudonym) and Sam Theloung in a report to the New Zealand Parliament and published by the Wilson Center.
That newsletter is in two parts: Part I and Part II. Your Pekingnologist has since received inquiries, one from a senior editor of a major international media outlet and the other from an experienced former China bureau chief, about Prof. Brady’s response. Your Pekingnologist hasn’t been aware of one.
On the last note, you are invited to read this newsletter’s exclusive but unauthorized 10,000-word translation of 华为的股权与治理结构 Huawei’s Equity and Governance Structure, by Associate Professor 王军 Wang Jun with China University of Political Science and Law.
Posted on February 5, 2021
It has been brought to my attention that some Chinese academic has written a paper attempting to refute the paper Donald Clarke and I wrote about Huawei ownership which is now being promoted by Chinese state media affiliates. I have neither the time nor inclination to respond in detail to such a self contradictory illogical factually devoid piece of work but I will lay out merely a couple of problems.
First, the author does not criticize our findings of fact or provide evidence that the facts presented in our paper are incorrect, false, or misleading. It is important to stress that I am referring here to finding of facts. For instance, we are both in agreement that the party of record owning 99% of Huawei at the holding company level is the employee union. I would have to spend a lot more time to catalogue all these issues so I am not ruling out any factual disagreements, however, on the statements of fact there is minimal disagreement given they are easily documented. The author does disagree on the interpretation of said facts.
Second, the paper is effectively a dressed up version of “foreigners do not understand China” relying on interesting interpretations agreed upon facts, such as the employee union owning Huawei, to arrive at desired conclusions. The author even states as much arguing the legal statement of facts that can be confirmed by corporate records do conform to the “normative” practices. This is very debatable but leave it aside for the moment, this is effectively stating that while the legal records confirm our analysis it is different in reality. Let us go over some of the specifically egregious examples of unique interpretations:
The author does not disagree that the trade union committee owns the 99% share of Huawei but also argues that the trade union committee does not have assets in this case the ownership stake of Huawei. This is a logical and legal contradiction. A legal entity, in this case the trade union committee, cannot both be the legal owner of record of a 99% of a major tech company, in this case Huawei, and simultaneously have no assets. The legal owner of a company by accounting, legal, and logical definition owns an asset, its ownership stake in a company. The value of that asset may be debated but the owner cannot own both own the company and not own the asset in this case the company.
To reconcile this self contradictory position that the union both owns the company but does not own the asset, the author argues that the actual asset is held basically as a type beneficial owner on behalf of the employees. To support the argument, the author cites a Supreme People’s Court opinion that nominal shareholders are not necessarily the real shareholders even if the shares are held in their name. However, the this is second best evidence when first best evidence exists and the author conveniently ignores. Both Huawei and Chinese courts have argued and ruled against employee arguments these are actual ownership shares. Huawei calls them “virtual” shares and Chinese courts have regularly ruled that the employee does not actually own shares either in the trade union committee or in Huawei.
It is important take a second to briefly address a semi-complex point here about ownership. The first question is what specifically is owned? The author argues that because employees put money at risk and return will vary based upon the performance of the company this means they own Huawei. This is factually wrong. There are large numbers of financial products that would meet the description provided by the author that do not provide actual ownership of the underlying company. For instance, investors in Alibaba listed shares on the NYSE do not actually own a share of Alibaba. However, according to the authors definition of equity ownership the NYSE owners would be owners. Take another similar example of securitized products. An entity may put financial capital at risk and provide input about the management of the underlying asset but they do not own the underlying asset they own cash flow rights to the underlying asset NOT the underlying asset. It cannot be stressed enough that having characteristics similar or just like in most ways like ownership does not mean legal ownership.
To briefly expand on this point there is a multilayer relationship here. The trade union committee legally owns the Huawei stake and by pass through the author argues the employees own Huawei. However, this is legally and factually incorrect. Take a two simple comparisons like a direct share fund or mutual ownership. If 10 people pool financial resources to buy a company they form a holding company and each individual holds a share in that holding company equal to their share of the underlying company. In the case of a mutual fund, individuals pool money and the mutual fund buys shares on their behalf. The individuals own shares of the fund that own the shares. In this case however, the employees do not own or have a legal claim upon Chinese trade unions. By law and legal registration, the trade union committee does not have any shareholders. The trade union committee has no debt obligation to the employees so there is no equity or debt obligation to employees. In other words, the employees do not own the company or fund that owns the shares. Put another way, the employees do not have a legal claim upon the entity that holds the Huawei stake.
Stripped down to its core, the author is arguing that while the legal facts are relatively undisputed such as who is the owner of record, what our work fails to understand are the norms and practices of China that foreigners simply do not understand despite what the corporate records, Chinese court decisions, and black letter law state.
If the author wishes to pursue this normative practice debate we are perfectly willing to consider this. As a matter a normative practice, it makes absolutely no difference who legally owns the company everything in China is controlled by the CCP. I believe that should settle that dispute