THE BLOG
03/28/2008 02:48 am ET Updated May 25, 2011

Reading The Tea Leaves: China's Huawei and 3Com

Read the tea leaves of the recently nixed $2.2 billion bid by China's Huawei Technologies to take over U.S. networking systems leader 3Com Corp., and witness a Washington, D.C. nervous about protecting America's intellectual property from falling into mainland Chinese hands.

What can also be predicted from the American government opposition to the acquisition bid led by private equity firm Bain Capital is an inevitable souring of relations between the U.S. and China over business dealings and a backlash to more China takeover attempts of U.S. companies.

The stop to the deal in the Beltway - specifically the Committee on Foreign Investment, which reviews the national security issues of foreign acquisitions in the U.S. - suggested underlying concern that Chinese money will pick off the best that America has to offer. The politics surrounding the proposed deal brought back memories of the 1980s, when there was a public outcry over the Japanese buying up everything from Rockefeller Center to Pebble Beach. Even before the 3Com deal was nixed, the indicators of a brewing political battle over Chinese takeovers were emerging. While IBM sold its personal computer business to China's Lenovo Group for $1.75 billion in 2004, a year later, China's state-owned oil company Cnooc Ltd. was blocked from buying Unocal Corp.

Behind the scenes, the halt to Huawei's takeover bid of the U.S. tech leader centered not only on protecting America's security interest, but also fear that China's major leaps forward in producing leading-edge technologies threaten our nation's continued dominance of research and development breakthroughs.

China has been developing its own knowhow in telecommunications standards, including a homegrown TS-CDMA technology for wireless communication that Huawei has put consider research into developing. The worry is that if the Mainland prevails with this new technology and it becomes the dominant standard in the Communist country, it could end up dictating world standards for next-generation telecom products. This is not so far-fetched when it's considered that China already has the world's largest mobile communication market.

The political brouhaha over this proposed deal was all the more pronounced because, not long ago, Huawei had a major legal run-in with its U.S. rival, Cisco, over intellectual property issues. The case was settled out of court in 2003 with Huawei agreeing to change some of its marketing language and underlying software codes.

Even so, the jitteriness over the deal seemed blown out of proportion. The market reality is that Huawei and 3Com have been joint venture partners since 2003, and in fact, Huawei is one of 3Com's biggest customers.

It has to be accepted that technology developments occur not just within country borders, but across borders. When the best minds in the world are put to work on creating new inventions together, it's the consumer that benefits.