Huawei Mulls IPO to Sooth Critics

Telecoms equipment giant Huawei Technologies is reportedly considering an overseas public listing in a bid to become more transparent and quiet western critics who suspect it’s a spying arm of Beijing. The move would be the latest in a series by Huawei and crosstown rival ZTE (HKEx: 763; Shanghai: 000063) in their ongoing campaigns to win more business in lucrative western markets where they have met with strong political resistance. But while an IPO may excite investors, such a move is unlikely to sway Huawei’s more politically-focused critics who can point to numerous similar cases of major Chinese companies whose publicly listed status hardly means independence from Beijing.

International media reported last week that Huawei has enlisted several western investment banks to help it explore a possible overseas initial public offering, most likely in Hong Kong or the United States. (English article; Chinese article) The company has discussed such a potential offering for years, but usually says its complex shareholding structure would make such a move difficult. Clearly one of the main drivers behind this new push is the repeated political resistance that Huawei has faced in the west over the last two years, particularly in the US where it has yet to win a major sale.

The new reports say Huawei first began exploring a possible IPO after one of its most recent setbacks, which saw its previously announced purchase of a small US technology company ultimately fall apart last year after politicians intervened. Since then the company has hit a non-stop stream of other obstacles, including exclusion from bidding for billions of dollars worth of contracts to build new government-supported networks in both the US and Australia.

In a bid to diffuse the controversy, Huawei has offered to open up its software to outside inspection and has hired a number of foreign lobbyists with strong government ties to make its case to western politicians. But the suspicions have continued nonetheless, with executives from both Huawei and ZTE called to testify to the US Congress just last month in a probe over the security issue.

Word of a potential IPO looks like Huawei’s latest attempt to diffuse the security concerns by opening its books to show the world just who exactly owns the company. While a look at those books may certainly please investors, it’s unlikely to sway skeptics who can point to a wide range of big Chinese firms that are publicly listed but still take their orders from Beijing when it comes to snooping on sensitive issues.

Three model cases in that regard are China’s major telecoms carriers, which are all listed in both Hong Kong and US. Yet despite their financial transparency and independence, all three implement strict orders from Beijing to block sensitive websites, and also probably assist government investigations involving sensitive matters on the Internet. Those kinds of precedents will hardly convince western politicians that a major company like Huawei can act independently of Beijing even if it becomes publicly listed. Instead, Huawei  will have to take more politically symbolic steps if it really wants to show its independence, including mimicking western peers whose occasional spats with government overseers show they’re not simply political puppets.

Bottom line: Huawei’s potential IPO would do little to quiet western critics that say the company is a spying arm of Beijing.

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