A recent research paper examining Huawei’s ownership structure published Monday refutes the company’s claim of being wholly owned by employees and says that the identity of the actual owners is unknown, and may potentially include the Chinese government. Authored by Donald Clarke of George Washington University and Christopher Balding of Fulbright University Vietnam, the report states that Huawei is wholly owned by a holding company, of which 99% is held by an entity called a “trade union committee.” The trade union committee, the authors said, if it is run as a typical such organization in China, could mean that the telecom equipment giant is owned and controlled by the government.

Trade union decision-makers in China are not selected by or accountable to the employees, according to the report which was published on research platform Social Science Research Network (SSRN). On the contrary, they owe their loyalty to superior trade union organizations, all the way up to the All-China Federation of Trade Unions, which is controlled by the Communist Party, whose head belongs to the Politburo, the highest policy-making entity in China’s Communist Party. “Given the public nature of trade unions in China, if the ownership stake of the trade union committee is genuine, and if the trade union and its committee function as trade unions generally function in China, then Huawei may be deemed effectively state-owned,” said the paper.

Huawei’s employee ownership claim is untrue because its employees have no control over the trade union’s decisions, the paper says citing China’s Trade Union Law. The employees actually hold “virtual stock” which allows for participation in a profit-sharing scheme, which are canceled when an employee leaves the company and allow no voting rights over the company, it said.

Huawei said in a statement to TechNode that the report was “based on unreliable sources and speculations, without an understanding of all the facts.” Its trade union fulfilled shareholder responsibilities and exercised shareholder rights through a representatives’ commission, which was also Huawei’s highest decision-making body, the company added. Members of the representatives’ commission were elected by shareholding employees that had the right to vote. “They do not report to any government agency or political party, nor are they required to do so,” said the company.

Huawei asserts in its 2018 annual report that it is a “private company wholly owned by its employees,” a pillar of its defense against recent claims by the US government about its potential to be influenced by the Chinese government. Its ownership structure was established as an “employee shareholding scheme” limited to employees, and involves 96,768 employee shareholders. The company specifies that “no government agency or outside organization holds shares in Huawei,” a statement that is absent from its 2017 annual report.

Ownership has become a sensitive topic for the telecom giant following a US government ban on its equipment on the basis that Huawei’s networking equipment could be used for espionage by the Chinese government. The US has embarked on a campaign to persuade its allies to exclude Huawei equipment from their 5G network rollouts.

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