There’s really very little commentary necessary for a story like this, although I will send along some of my exasperation. Here’s what went down on the latest China outbound foreign investment story:
Huawei Technologies Co. failed to reach agreements to buy two U.S. assets last month, even though the Chinese phone-equipment maker offered at least $100 million more in each case, according to two people with knowledge of the matter.
The sellers doubted Huawei’s ability to win U.S. government approval to purchase software supplier 2Wire Inc. and Motorola Inc.’s wireless-equipment unit, the people said.
I just want to highlight what happened here, because it’s slightly weird. Huawei tried buying U.S. computer company 3COM a couple of years ago and were blocked (politically) by the threat of being dinged by the Committee on Foreign Investment in the United States (CFIUS). Huawei ultimately withdrew their offer in the face of opposition.
So the 3COM deal is on everyone’s mind, as it should be. But there are a couple of things to think about here: 1) opposition to the 3COM deal was f@($^! crazy to begin with, not to mention blatantly protectionist; and 2) that was a different deal!
CFIUS is supposed to review deals, meaning that they should be looked at separately. People shouldn’t be thinking “Gee, that last one didn’t go that well, so better not try another one.” In other words, once a company gets a CFIUS rap sheet, the taint will stick to them for years thereafter. It’s patently absurd, not to mention unfair.
Why does Huawei get into trouble with U.S. investments? First and foremost, its founder, Ren Zhengfei, used to be an army guy, and the company still has strong ties to the PLA. Under that logic, General Electric would never be able to do business in China at all, right?1
Another “problem” cited by the Bloomberg story is that Huawei has had some IP trouble, including some litigation. Oh noes! Listen, not only should outside litigation have no bearing on a CFIUS review (unless the case involved spying or something), but Huawei is a high-tech company! Show me an IT hardware firm that isn’t up to its eyeballs in patent disputes, and I’ll be shocked.
Bottom line: the U.S. was being protectionist in the 3COM case. With this latest bid by Huawei, the U.S. didn’t even have to do anything. Just the memory of the earlier incident was sufficient to scare off the parties involved.
The U.S. has apparently perfected the art of foreign investment intimidation, aka Zen Protectionism (I think I’ll trademark that).
- Yes, I understand the core issue here. If the U.S. assets in question include super-sensitive tech that the U.S. doesn’t want to fall in the hands of the Commies in Beijing, it shouldn’t allow it to be bought by Huawei. That doesn’t explain what happened in 3COM though, not to mention the CNOOC/UNOCAL deal. [↩]