By Li Weitao (China Daily)
Updated: 2008-02-22 09:57

Chinese Telecom equipment maker Huawei Technologies has no intention of abandoning its acquisition of US network technology company 3Com Corp despite rising protectionist sentiments in the United States, a company source said.

Huawei and its partner, US private equity firm Bain Capital LLC, have withdrawn an application for the acquisition from the Committee on Foreign Investment in the United States (CFIUS), a US government panel that reviews the "national security" implications of foreign deals.

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That could make Huawei another victim of the rising US protectionism against Chinese companies' acquisition activities in the United States, after China National Offshore Oil Company Ltd, whose attempt to acquire Unocal Corp was nixed by US politicians.

Yet, Huawei will seek other ways to push the acquisition bid forward, the source said, without elaborating.

"The deal is a normal commercial investment for Huawei," China's foreign ministry spokesman Liu Jianchao said yesterday. "We hope the relevant US agencies will treat this matter in a fair and just manner and create an equal and reasonable investment environment for Chinese companies."

Huawei and Bain clinched a $2.2 billion deal with 3Com in September. Industry insiders say Huawei initially wanted to go it alone in the acquisition, but later invited Bain to dilute its stake to ease political concern.

Under the deal, Huawei would take a 16.5 percent stake and promise not to exert management control. Besides, a unit of 3Com, which sells security software to the US government - the focus of US politicians' concerns - would be divested by Bain.

The Huawei source said the security fears about the acquisition are being hyped by the looming US presidential election.

"The US is almost the last market where we have been unable to build a significant presence (due to protectionism)," he said.

Huawei last year reported $16 billion in contract sales, with 72 percent from overseas. It has been selling products in more than 100 countries, but its US expansion has been bumpy.

San Jose-based Cisco Systems, which competes with 3Com, launched a lawsuit in January 2003 against Huawei accusing it of infringing upon its patents in routers, which direct the Internet traffic.

In 2004, Cisco dropped the lawsuit, but it put a brake on Huawei's expansion in the US, where Huawei had been undercutting Cisco with products about 30 percent cheaper.

US politicians and some sections of the media have labeled Huawei as a company associated with the Chinese military just on the ground that company founder Ren Zhengfei was a retired armyman.

Although Huawei has posed a serious threat worldwide to established Western rivals such as Ericsson, Nokia Siemens Networks and Nortel Networks, it has yet to get a jump-start in the US.

"We have had great difficulties in securing contracts from US operators although we outperformed our rivals in technology tests," the Huawei source said.