FYI: I discussed this case yesterday at length with Josh Gartner. You can hear that conversation on the China Policy Pod.
The most recent blade sunk into Huawei’s expansionist guts came from the Committee on Foreign Investment in the US, a security review body commonly referred to as CFIUS, which recommended that Huawei divest itself of technology assets purchased from defunct tech firm 3Leaf last year. For several days, Huawei played it uncommonly tough, declining to go with the CFIUS fix, which would have forced President Obama to make the call. Well, yesterday they threw in the towel.
Why is this tragic? This is now the third time that Huawei’s US plans have been thwarted. They were first given the cold shoulder in 2008, when Huawei, and a group of other investors, tried to buy in to 3Com. CFIUS put the kibosh on that deal as well, resulting in a similar “voluntary” withdrawal by the Chinese company.
A couple years later, when US telecom company Sprint solicited bids for equipment needed for an upgrade of its cell phone network, Huawei (and fellow Chinese firm ZTE) participated, at least for a while. Ultimately it was 3Com all over again, furious gnashing of teeth were heard from the usual suspects in Washington, and the bids of the Chinese firms were tossed in the dust bin.
Third time’s the charm? Sadly, no. Huawei purchased patents from 3Leaf last year, and all appeared to be going well. This was deceptive, however, since as it turns out, Huawei had inexplicably failed to report the transaction to CFIUS. Once they found out, the familiar pattern set in, with CFIUS recently suggesting to Huawei that it better find another buyer for those patents or suffer the consequences.
Huawei talked a good game for a few days, surprising a lot of people with their obstinacy, their chutzpah in challenging CFIUS. But in the end, perhaps with an eye on future investment attempts, they prudently accepted the panel’s recommendations. Live to fight another day.
“This was a difficult decision, however we have decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf,” Huawei said in a statement issued late on Friday night in the United States.
“Huawei will remain committed to long-term investment in the United States. The significant impact and attention that this transaction has caused were not what we intended. Rather, our intention was to go through all the procedures to reveal the truth about Huawei.”
But will they live to fight another day? Huawei has a big red target on its back, and it’s hard to see CFIUS shelving its suspicions of the Chinese company, which many in the US believe has ties to the People’s Liberation Army, any time in the future. Since Huawei is a high-tech firm, virtually any acquisition it makes in the US will involve technology that can be easily portrayed as “sensitive” from a national security perspective.
I don’t think this was just bad PR, or if this would have gone differently if Huawei had been more proactive. Failure to report undoubtedly was a negative here, but arguably it would have gone the same way regardless. Huawei’s image problems in the US are endemic, stemming from the history of its establishment and compounded by a convoluted corporate structure. Is Huawei being treated unfairly? As a free trader, I would say yes. But complaining about it, as Beijing has done the past couple of days, will not change the result here.
Good luck, Huawei. I guess you’ll keep banging your head against the US wall. By my count, though, this 3Leaf deal makes three strikes against you, and that usually means . . . well, I think you know. Perhaps you’ll have more success in London.