Huawei invites feds to investigate it

Huawei has taken the extraordinary step inviting an investigation by the US government to clear up “any concerns it may have” about the Chinese telecom vendor.

The privately-held firm said claims that it was closely connected to the PLA and threatened US national security “have had a significant and negative impact on our business activity.”

The appeal, in an open letter published on its website, follows Huawei’s ham-fisted attempt 12 days ago to force President Obama to make a decision over its acquisition of Silicon Valley firm 3Leaf. Instead of taking Cfius’ advice and divesting the assets as virtually every other company had done, Huawei had escalated the issue by calling on the White House to overturn the ruling.

In doing so it added another topic to the crowded US-China bilateral slate, as well as more closely identifying itself with the government it was trying to distance itself from.

Whether by accident or design - or under the advice of Chinese officials – Huawei made an about-face four days later, declaring it would unwind the 3Leaf deal.

The one revelation in today’s 2,000-word appeal, which appears under the name of US chairman Ken Hu, is Huawei had notified the Department of Commerce at the time of the acquisition last year and was told no export licence was required. Previously, the company had been reported to have not notified the US government about.  

In the letter Huawei says the sole basis for the claims that it is tied to the Chinese military is CEO Ren Zhengfei, who left the PLA in 1987 to set up the company.

It is a matter of fact that Mr. Ren is just one of the many CEOs around the world who have served in the military, and it is also a matter of fact that Huawei has only offered telecommunications equipment that is in line with civil standards. It is also factual to say that no one has ever offered any evidence that Huawei has been involved in any military technologies at any time.

However, Huawei did not elaborate on the core issue - its ownership - structure other than to use its traditional formulation that it is "owned entirely by its employees."

It said the allegation that it posed a threat to US security derived from “a mistaken belief that our company can use our technology to steal confidential information…  or launch network attacks.”

If the United States government has any real concerns of this nature about Huawei we would like to clearly understand those concerns, and whether they relate to the past or future development of our company.

The rejection of the 3Leaf deal is the latest in a series of setbacks for Huawei in the US market because of security concerns. Its planned minority acquistion of 3Com in 2008 collapsed, and last year it was ejected from a Sprint Nextel wireless tender, both on security grounds.

Huawei raises the stakes in US

Huawei has upped the stakes in Washington with its decision to ignore a request from a key security body to divest itself of Silicon Valley startup 3Leaf Systems.

Huawei bought the firm, which offers virtualisation and other server technology, for $2m last May, but did not declare it at the time, claiming it not believe it was necessary.

The Committee on Foreign Investment in the United States (Cfius) has told Huawei that it must sell 3Leaf or it will recommend to the White House that the deal be unwound.

In a move clearly intended to throw the spotlight on what it perceives as unfair treatment in the US, Huawei will bypass that and take the issue straight to Obama, the FT reports.

“This is brinkmanship,” said one veteran attorney who asked not to be named. “To say ‘We are going to appeal to the president over the recommendation of his national security advisers’, which is what Cfius is, is stunning.”

Huawei, the world’s third-largest vendor, has jumped through every hoop in its effort to crack the US market but has been stymied because of its alleged links with the PLA.

CEO Ren Zhengfei co-founded the company in Shenzhen in 1987 with fellow ex-PLA officers. The privately-held firm has never fully disclosed its shareholders, but it has denied it has any military connections.

Huawei’s bid for networking firm 3Com in 2008 and its attempt to sell wireless gear to Sprint Nextel last year were both blocked on security grounds.

Its frustration is understandable, but the danger in this strategy is that the issue will become embroiled in the fractious US-China hi-tech relationship. It also ties Huawei very publicly to the Chinese government.

FT speculates it may also prompt retaliatory action from Beijing, where the government has yet to approve Motorola’s acquisition of Nokia Siemens’ assets, which include some Huawei intellectual property.

Coincidence or not, rival ZTE is also showing signs of irritation, with CFO Wei Zaisheng recently complaining about US political interference.

“The government should promote a fair, equitable, normal and free commercial environment, and it shouldn't interfere,” he told Dow Jones.