Here's another entry in the seemingly non-stop catalogue of US-China dustups. Given America's chronic external deficit, it must attract at least an equivalent amount of capital inflows to compensate. To date, the Chinese have been willing to purchase US Treasuries (perhaps more reluctantly in recent years). However a natural misgiving given the rock-bottom near-zero interest rate policy (ZIRP) being pursued Stateside is that the yields China receives may not adequately compensate for the risk China takes. First, there are local grumbles that so much money is better spent at home where many problems alike poverty and pollution remain endemic. Parking huge sums of money in the US has dubious moral consequences, and domestic unrest can be a manifestation.Second, there is the valid complaint that while the US is perfectly willing to let China buy Treasuries of dubious worth, it generally doesn't allow it to purchase more valuable parts of America such as its enterprises. On the balance sheet, China can purchase US debt--no problem--but not much equity by owning businesses that have the potential to create large revenue streams for the Chinese unlike Treasuries with their miserly yields. The reason? To me, it's always been naked protectionism. For obvious reasons, Chinese firms have been keenest on purchasing US firms with technological know-how. However, the US government has always baulked under "security" grounds via the Commission on Foreign Investment in the US (CFIUS), a multi-agency body headed by the Treasury.
Hence, there are two asymmetries at work. China can buy lots of America's debt but not equity (or ownership) in America. Also, while US firms have been (usually) welcome to invest in China, the obverse does not neccessarily hold--especially for Chinese technology firms.
I have made many posts [1, 2, 3, 4] on the Chinese telecoms gear manufacturer Huawei being--let's be honest here--harassed by American authorities. There's a longstanding insinuation that Huawei is affiliated with the Red Army. Insofar as it's a claim Huawei has not wholly refuted, it's given the Chinese concern endless grief. As it turns out, Huawei tried a somewhat different tack in approaching yet another US technology outfit. Assets of privately-held 3Leaf Systems (no relation to 3Com which Huawei famously tried to purchase before) were bought on the sly without informing CFIUS. Let's just say CFIUS was not very happy about this after finding out. Recent news suggests government pressure [surprise!] has resulted in Huawei's hand being forced into divestiture:
China's Huawei said it would back away from its acquisition of U.S. server technology company 3Leaf's assets, bowing to pressure from a U.S. government panel that had suggested it should divest the assets. The U.S. government has been concerned about Huawei, China's largest telecommunications equipment maker, for years because of uncertainty over its relationship with the Chinese government. Huawei was founded by a People's Liberation Army soldier, and opponents say it retains links with China's security services. Huawei has denied the links.Meanwhile, China's Ministry of Commerce flags up the obvious:
Huawei bought certain 3Leaf assets for $2 million last May but did not file with the Committee on Foreign Investment in the United States (CFIUS), which reviews deal for possible national security implications, until November. According to Huawei, CFIUS suggested that the Chinese company voluntarily divest the assets.
As recently as February 14, Huawei said it would wait for a decision from the White House rather than divest. Now it has changed its course. "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 in a statement issued late on Friday night in the United States.
"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."
Huawei is the world's No. 3 mobile gear maker behind Ericsson and Nokia Siemens Networks, which is a joint venture of Nokia and Siemens. Alleged links with China's security services, which Huawei has denied, have torpedoed its U.S. deals in the past. The company gave up a bid for 3Com in 2008 due to security concerns. In 2010, a group of Republican lawmakers raised national security concerns about Huawei's bid to supply mobile telecommunications equipment to Sprint Nextel Corp.
China's Ministry of Commerce (MOC) said Monday it regrets Huawei Technologies Co.'s withdrawal of its agreement to buy the assets of 3Leaf Systems while under pressure from a U.S. panel. The MOC said in a statement on its website that it hopes "relevant parties" in the United States would "abandon prejudice, avoid protectionist measures and treat properly investments from China and other countries" with a fair, just and open attitude.Free trade as core American policy? Yeah, right.
The MOC statement came after the Committee on Foreign Investment in the United States (CFIUS) last week recommended opposing the Chinese telecommunications equipment manufacturer's agreement to acquire assets and technology from 3Leaf Systems, on "national security" concerns.
In the statement, the MOC called Huawei's planned acquisition of 3Leaf's technological assets "a normal business move" based upon market economy rules and its own development needs...In recent years, some relevant parties in the United States have used various reasons, such as national security, to hamper Chinese firms' trade and investment activities in the United States," the MOC statement said, adding: "Such obstructions have already had an impact on the Sino-U.S. economic and trade cooperation."
"We believe an open, just and transparent trade and investment environment is good for economic growth for both China and the Untied States and can help facilitate the world economic recovery," the MOC statement said.
