China's Huawei Drops U.S. Tech Firm Deal

Feb. 21, 2011
The Chinese firm said it had changed its mind due to U.S. lawmakers' concerns over the security implications of the deal, accusing it of having links to the Chinese army and Taliban.

Chinese telecom giant Huawei said it has taken the "difficult decision" to abandon its acquisition of U.S. computer firm 3Leaf Systems, after the U.S. Committee on Foreign Investment voiced security concerns about the deal.

Huawei made the U-turn only days after saying it would not bow to a request from the committee to go back on the $2 million deal and leave the decision to President Barack Obama. The Chinese firm said it had changed its mind due to U.S. lawmakers' concerns over the security implications of the deal, accusing it of having links to the Chinese army and Taliban.

"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 on Feb. 19.

"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," it said.

Huawei said last week ago that its image and reputation would be damaged if it complied with the committee's request and sold patents it obtained from 3Leaf Systems. 3Leaf makes software that allows computer resources to be reallocated according to a user's needs across a computer network.

If the Chinese firm had opted not to back down, it would have meant Obama himself would have had to decide whether the firm needed to divest from the U.S. computer firm.

Huawei, founded 23 years ago by Ren Zhengfei, a former People's Liberation Army engineer, is at the forefront of efforts by Chinese firms to shift from being the world's workshop to becoming creators of genuine global brands. Its consumer products include smartphones that run on Google's Android platform and technology to connect laptops to the Internet using 3G networks.

Huawei's technology is also used to build mobile phone networks around the world. It has reportedly offered to install for free a network worth £50 million on the London Underground train system in time for the 2012 Olympics.

Huawei has long rejected claims that it has ties to the Chinese military. It says it is owned by its employees and that Ren, its chief executive, has less than a 2% stake in the company. However, in a letter to U.S. Commerce Secretary Gary Locke and Treasury Secretary Timothy Geithner, a group of top lawmakers accused Huawei of having "ties with the People's Liberation Army, the Taliban, and the Iranian Revolutionary Guard."

Copyright Agence France-Presse, 2011

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