3Com Deal: Huawei is Mad as Hell

Posted on February 12, 2008
Filed Under Apparatchiks, China Business |

The Financial Times reports:

The Chinese company participating in the planned buy-out of a US telecoms equipment maker has angrily rounded on US politicians who claim the deal could endanger US national security.

Xu Zhijun, chief marketing officer at Huawei Technologies, told the Financial Times that the concerns expressed by some US lawmakers were “bullshit”.

Mr. Xu’s zesty language was meant to make a point:

Asked about the concerns that the deal could endanger US national security, Mr Xu said through an interpreter: “That would be bullshit.” Pressed to clarify his remarks further, Mr Xu added: “Because we only just take 16.5 per cent.”

When Asked what message he had for US lawmakers who voiced concerns about the deal, Mr Xu said Cisco, the leading US network equipment maker, supplied products to Chinese telecoms companies: “Cisco’s equipment is everywhere in China.

“If the US government is concerned about Huawei, if some of the lawmakers are concerned about Huawei, Cisco is everywhere within China. Who should be more concerned?”

Cisco is certainly everywhere in China’s networks, albeit in the face of stiff competition from Huawei and ZTE. But Mr. Xu’s analogy is not quite accurate. Cisco sells its products in China as a foreign registered company, much as Huawei and ZTE sell their products (with limited success) in the US. Cisco, to my knowledge, has not tried to acquire a portion of a local networking equipment company that supplies security solutions to sensitive government organizations (although Cisco is widely rumored to supply the technology behind the Great Firewall).

That’s the primary concern and Mr. Xu’s outburst goes nowhere in addressing it.

The other concern, that Huawei is in effect a commercial arm of the People’s Liberation Army (PLA), gets the brochure treatment:

He also insisted the Chinese government had no influence over Huawei, adding Beijing was not a shareholder. He described Huawei as a “private enterprise” that was owned by its 20,000 employees.

The People’s Liberation Army is one of Huawei’s customers, and Mr Xu confirmed that Ren Zhengfei, Huawei’s founder and chief executive, was a former PLA officer.

Huawei is not going to open up its books so that the Committee on Foreign Investment in the United States (CFIUS), the Treasury department committee charged with investigating acquisitions of US companies for national security concerns, can analyze its ownership structure and military-industrial complexities. Huawei’s lack of transparency contributes to the overall paranoia over the deal. Something more than corporate profile boilerplate was what was needed.

In short, Mr. Xu managed to stick two feet into his potty mouth. Instead of giving red meat to a reporter, he should have focused on the business aspects of the deal. Unfortunately for Huawei, it gets little coverage except for the last paragraph of the article:

Mr Xu described the rationale behind Huawei’s role in the 3Com deal as a “business investment” from which it hoped to get “investment returns”.

That’s what the deal is really all about. But, thanks to Mr. Xu, the article focuses on the controversy. The legitimate reasons are given short shrift and relegated to quotation marks.

Oh well, tough shit.

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