China appeals to US over Huawei Go back »

2011-02-18 | All chapters

China appeals to US over Huawei
Financial Times, 17th February 2011

Beijing has appealed to the US government to treat Chinese companies fairly, in a sign that Washington’s denial of national security clearance for a patent deal by Huawei, the Chinese telecom equipment maker, is having an impact on bilateral relations.

Yao Jian, ministry of commerce spokesman, said past moves by Washington to block Chinese investments in the US had “affected the bilateral co-operation to a certain extent.”

“We hope the US security examination laws and regulations can treat a Chinese company fairly, regardless of whether it is publicly traded, state-owned or private, and can carry out a transparent, predictable review,” he told a news conference.

The remarks refer to frequent suspicions raised by US politicians that Huawei, one of the world’s largest vendors of telecom equipment, might have close links with the Chinese military or government. Huawei denies such links.

Huawei stunned US government officials and outside observers this week when it refused to quietly unwind a US$2m acquisition of patents from 3Leaf, a US company, after the Committee on Foreign Investment, the executive body which screens foreign acquisitions for potential risks to national security, refused to clear the deal.

The standoff, which forces Barack Obama, US president, to rule on the transaction, has highlighted the tensions created by increasing government scrutiny of cross-border acquisitions.

It has added a new problem to the testy bilateral relationship which both governments are trying to stabilise but which is often plagued by mutual suspicion and distrust.

Huawei’s showdown with the US comes as China is setting up its own equivalent to Washington’s Cfius. The move has caused some concern among foreign businesses that national security could be used as a pretext for protectionism.

Mr Yao said Beijing’s new rules would not make China less open to foreign investment.

But the European Union’s Chamber of Commerce in China has started lobbying the government in particular with regard to which industries the new rules will apply. A notice published by the State Council last week listed sectors including agricultural products, commodities, infrastructure and “important equipment”.

"It could allow for making almost all manufactured goods off limits," said Andre Loesekrug-Pietri, head of the chamber’s working group on private equity and M&A. “We have been trying over the past few days to find out more about this definition.”

European businesses are cautiously optimistic that they can influence Beijing on the final scope of the rules.

Foreign executives said this was similar to the lobbying process against Beijing’s “indigenous innovation” policies.

Under policies meant to support the creation of intellectual property by local companies, Beijing tried in late 2009 to exclude foreign companies from government procurement. In response to a subsequent outcry from international business, the government later watered down some discriminatory measures.

Beijing has called on foreign governments, including the US and India, before to treat its companies fairly.

When a 2008 refusal by Cfius to clear Huawei’s proposed acquisition of 3Com, a router and switches maker, prompted the company to abandon the deal, the Chinese foreign ministry said: “Huawei is making normal commercial investments as part of its internationalisation strategy. We hope that the relevant US authorities can fairly deal with the issue and create a fair, reasonable environment for Chinese companies in the US.”