3Com, Huawei, and Those Pesky Free Trade Pretenders.

On Saturday, the Washington Post’s Ariana Eunjung Cha reported on efforts by Shenzhen-based Huawei to acquire 3Com, a leading US manufacturer of telecommunications equipment. The story, entitled, “Telecom Firm in China Sets Sights on US market,” describes US opposition to the deal, and specifically points to concern among US government and industry officials about Huawei’s reported connections to the Chinese government and military. What follows is this:

Xing Houyuan, dean of the Beijing-based Overseas Investment Research Center, which is under China’s Ministry of Commerce, said efforts to block the deal amount to discrimination, an attempt by the United States to protect key industries like telecommunications.

“The so-called national security protections are only aimed at nationally owned or nationally controlled companies of certain countries like China,” Xing said.

Xing is likely referring to CNOOC’s [China National Offshore Oil Company] failed 2005 attempt to acquire Unocal, the 8th largest US oil company. Then, as now, US industry and business leaders voiced opposition to the sale of a company in a key US industry to a Chinese state-owned company. And then, as now, the Chinese claimed discrimination. Fair enough. But, in defense of discriminatory US trade practices, I merely point out that – when it comes to protecting key industries – the Chinese don’t even bother to discriminate. They just restrict everybody. So, in response to Mr. Xing Houyuan of the Overseas Investment Research Center, I offer a headline and article from the December 19, 2006 edition of the government-owned China Daily:

China names key industries for absolute state control

The article is lengthy – and available online – so let’s get to the point:

What are the key sectors critical to national security and the economic lifeline of China? The answer, given yesterday, is: armaments, power generation and distribution, oil and petrochemicals, telecommunications, coal, aviation and shipping industries were the State must have “absolute control,” according to a senior official … Li [Rongrong, Chairman of the State Assets Supervision and Administration Commission] said that the State should solely own, or have a majority share in, enterprises engaged in power generation and distribution, oil, petrochemicals and natural gas, telecommunications and armaments. [bolding, mine]

What I’ll never understand is why US and EU officials spend their time complaining about the national security consequences of Chinese acquisitions when they could simply point out that China will never allow a foreign entity – from any country – to acquire similar assets in China. Or, better put, what are the chances that Beijing would allow Cisco, another leading US networking company, to purchase a controlling stake in Huawei?

3 thoughts on “3Com, Huawei, and Those Pesky Free Trade Pretenders.

  1. So, is the Chinese insistence on total state control of their own telecom industry while slandering the US refusal to sell off part of its telecom industry “discriminaton” evidence of blatant hypocrisy, simple stupidity, or the low regard in which rules and others’ concerns are held? I suspect the latter. Taiwan of the 1970’s did the same with high trade barriers and duties specifically protecting export industries yet complaining that US import quotas on shoes for example, was protectionist and a barrier to free trade.

    By the way, in both examples the government’s position was and is highly supported and parroted by the citizenry, so this attitude is not simply that of officials.

  2. Several years ago, when I was still working, we watched our little industry (magnetics) slowly trickle away to China. Some factories were closed outright, unable to compete with Chinese or Maquiladores-produced product. Some were moved to China by their american or European parent companies, like where my husband now works. One of note, one of the last producing permanent magnets of a certain type in the US, was acquired by a VC group that included significant Chinese investment. When it was announced that the Chinese partners were closing the American plant, even Senator Bayh couldn’t lobby enough to have this material defined as “strategic” to protect the technology and manufacturing from being transferred out of the US and into China. This particular material and this particular factory supplied into weapons guidance and satellite technology, and the US governemnt argued that supply could always be secured from somewhere other than China if the need arose. Not that they could supply from the US, but that it would be available from somewhere else.
    Of course, this is magnets, not oil or 3COM, but the story has many parallels. I can’t understand why technologies, industries, or even sources of American employment aren’t in the strategic interest of our government.

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