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Huawei Setback Shows U.S. Is Refusing Investments, China Says

Feb. 17 (Bloomberg) -- Huawei Technologies Co.’s announcement that a U.S. government panel told it to divest technology assets bought from 3Leaf Systems shows the American government is using security concerns to reject Chinese investments, a Ministry of Commerce official said today.

“As far as the investment activities of Chinese enterprises in the United States, it’s clear that there are many cases where the United States is using a security review to refuse investment by Chinese companies,” Yao Jian, spokesman for the Beijing-based Ministry of Commerce, said at a briefing in the capital today. “You can say in some level it has influenced Sino-U.S. cooperation. We also hope that the U.S. can increase the transparency of the approval process and give Chinese companies investing in the U.S. fair treatment.”

Huawei, China’s largest phone networks maker, this week said it rejected calls by a U.S. panel to divest technology assets bought from 3Leaf Systems and will wait for President Barack Obama’s decision on the issue. The interagency Committee on Foreign Investment in the United States recommended last week that the Shenzhen, China-based company sell the assets after some U.S. lawmakers said the deal threatened national security.

The 3Leaf case isn’t isolated, Yao said today, also citing Huawei’s failed bid for 3Com Corp. In 2008, Huawei and Bain Capital Partners LLC abandoned their $2.2 billion bid for 3Com after failing to assuage security concerns raised by U.S. officials.

Obama to Decide

Huawei’s refusal to drop its 3Leaf purchase gave Obama 15 days to take a stand on the panel’s suggestion, Bill Plummer, the Chinese company’s Washington-based vice president of external affairs, said in an interview Feb. 15.

Huawei, founded in 1988 by former Chinese army officer Ren Zhengfei, has struggled to expand in the U.S. as the federal government considers whether the company’s phone networks pose national-security risks.

Members of Congress wrote at least two letters last year expressing concerns about the company’s activities in the U.S. A third letter last week raised concerns specifically about the 3Leaf purchase.

3Leaf, founded in 2004, developed technology for cloud computing, the lawmakers wrote. Cloud computing lets businesses and government agencies move applications and programs such as e-mail to remote networks owned and operated by a third-party.

Allowing Huawei access to 3Leaf’s technology could pose a serious risk to U.S. computer networks as they increase use of cloud computing, Senators Jon Kyl, an Arizona Republican, Richard Burr, a North Carolina Republican, and Jim Webb, a Virginia Democrat, wrote. Republican representatives Ileana Ros-Lehtinen of Florida and Sue Myrick of North Carolina were the two other signatories to the letter.

Huawei has said the allegations are unfounded.

To contact the reporters on this story: Edmond Lococo in Beijing at elococo@bloomberg.net Lifei Zheng in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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