Wednesday, October 17, 2007

The White House yesterday said critics of a proposed merger between a U.S. maker of computer-security equipment and a Chinese company should give an interagency national-security review a chance to do its job.

White House spokesman Tony Fratto said the Treasury Department-led Committee on Foreign Investment in the United States (CFIUS) will review any risks from the merger of 3Com with China‘s Huawei Technology, which defense officials and private security analysts say is closely linked to Beijing’s military.

“It will be thorough and diligent,” Mr. Fratto told reporters.

The spokesman was asked whether the White House is concerned the deal will be derailed by political pressure, like last year’s attempt by United Arab Emirates’ Dubai Ports World to take over operations at six U.S. ports.

“We just want everyone who has interests over these kinds of transactions to take a look at the facts and look at them very clearly and understand the threats that may or may not be there in any one of them,” Mr. Fratto said.

Mr. Fratto said members of the CFIUS “have committed to communicate certainly better than we have previous to the Dubai ports transaction.”

The comments came in response to legislation introduced Friday by a group of House Republicans calling on the Bush administration to block the $2.2 billion deal announced last month, under which 3Com will merge with Bain Capital Partners LLC and Huawei will acquire a minority interest and become “a commercial and strategic partner of 3Com.”

The Republicans oppose the deal because of concerns that China will be given greater access to 3Com’s computer-security systems, which are used by the Pentagon, and that it will result in more Chinese hacking into U.S. defense networks.

The CFIUS will “communicate with Congress,” Mr. Fratto said.

Bain issued a statement Monday stating that under the merger agreement, Huawei will not have access to sensitive technology. But defense and security officials oppose the deal based on a growing Chinese intelligence threat and past Chinese trade secrets and spying activities.

Recent Chinese spy cases in California and Hawaii revealed that China carried out highly damaging technology theft that included stealing sensitive U.S. Navy and Air Force data. Chinese computer hacking also has raised alarms among intelligence officials, with reports of Chinese-military-backed hacking attacks on the Pentagon and on the governments of Britain, France and Germany.

Based in Shenzhen, in China’s southern Guangdong province, Huawei, which means “China achievement,” was founded by Ren Zhengfei, a communist and former military officer who runs the company according to Maoist and military precepts. Mr. Ren stated in a company publication that “Huawei’s corporate culture” is based on China’s national culture, which he said is “communist culture.”

Spokesmen for the company and Chinese government officials could not be reached for comment.

Two private security specialists said 3Com’s earlier joint venture with Huawei, which ended last year, probably compromised sensitive computer technology.

James Mulvenon, director of the private Center for Intelligence Research and Analysis, said Huawei continues to have “intimate” ties with the Chinese People”s Liberation Army (PLA).

“The bottom line is the relationship between the Chinese military and Huawei gives the PLA access to top-of-the-line networking and switching gear that they can then use in the thousand of kilometers of fiber optic cable that they’ve laid around China that is the foundation of this revolution in Chinese command and control that we see on the ground,” Mr. Mulvenon said.

China’s government development bank also has provided a $10 billion line of credit to Huawei, he said.

Mr. Mulvenon said a strategic concern about the 3Com deal is that Chinese military hackers could “delay or disrupt” U.S. military efforts to defend Taiwan, known as the Republic of China and considered a breakaway province by Beijing, from a mainland attack.

“With this as background, it’s easier to understand … why we would be concerned about the possibility of a Chinese company linked to the Chinese military acquiring a networking and technology hardware company that provides intrusion detection systems to the Department of Defense,” Mr. Mulvenon said.

John J. Tkacik Jr., a Heritage Foundation specialist on China, said Huawei is “100 percent a PLA creature.”

Mr. Tkacik said it is likely that Huawei already has penetrated 3Com “to the point that it has no more secrets to keep from Huawei.” Mr. Tkacik said Huawei and 3Com had a lucrative joint venture in Asia called HC3, which manufactures products similar to those made by 3Com in the U.S.

Last year, 3Com bought out Huawei’s portion of the joint venture and the 3Com unit is “still staffed 99 percent by current Huawei employees.”

“Huawei now wants to buy a seat on 3Com via Bain … and eventually will get control of the entire company,” he said. “Huawei is buying control of 3Com with 3Com’s own money.”

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