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No Way, Huawei

On Friday, 3Com announced that it had agreed to be acquired. Bain Capital, the Boston-based private-equity firm, will take about 80 percent of the struggling computer networking pioneer. China’s Huawei Technologies is slated to purchase the remaining portion.

The deal faces a national security review in Washington by the Committee on Foreign Investments in the United States. CIFUS should turn down the proposed transaction on general principles. Huawei, which Newsweek once described as “a little too obsessed with acquiring advanced technology,” should not be allowed to make any sizable acquisition of sensitive American assets.

3Com’s technology, if shared with Huawei, would help China eavesdrop on U.S. domestic conversations. Moreover, the American company’s encryption technology would make China’s networks less vulnerable to foreign surveillance. Just last year 3Com ended its joint venture with Huawei. Now the Chinese company wants the 3Com technology that it does not already possess.

What’s wrong with Huawei? The official story says that Ren Zhengfei formed the company in 1988. It’s more likely that Ren, a former Chinese military engineer, is acting as a front for the People’s Liberation Army. It’s impossible to ascertain the truth, but this we know: in less than two decades Huawei has grown from scratch to an enterprise with 62,000 employees in 41 countries and sales of over $8.7 billion. And how did it do that? Huawei has benefited from substantial help from the Chinese government, especially R&D funding, tax incentives, and export assistance. The company says it is not owned or controlled by the Chinese military, but its denials have failed to convince outsiders. Huawei is one of the least transparent businesses in China.

In 2005, Britain blocked Huawei from taking over Marconi. Until we know much more about this Chinese company, we should stop it from purchasing any portion of 3Com. We did not allow the Soviet Union to buy critical American assets. The same principle should apply now.



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