Security fears crimp Chinese investment

BEIJING - Flush with hundreds of billions of dollars, China Inc. is still having trouble investing abroad, running into foreign security worries as it tries to acquire companies and resources.

The latest casualty: a deal by a Chinese maker of telecom gear and a U.S. private-equity firm to buy U.S. tech company 3Com Corp.

The bidders say they just want to make money. But acquisitions are a political minefield because many Chinese buyers are owned by or close to the communist government, feeding fears that Beijing might gain access to military technology or control of strategic resources.

"Where it looks purely commercial, everyone finds that acceptable, but where it touches on resources or security concerns, it just falls into a different basket," said William Hess, China analyst for consulting firm Global Insight Inc.

On Wednesday, Huawei Technologies Co. Ltd. and its U.S. partner, Bain Capital Partners L.L.C., withdrew a request for U.S. government approval of their $2.2 billion bid to buy 3Com. The companies said they failed to satisfy national-security concerns.

U.S. lawmakers and officials had expressed concern that sensitive technology could be transferred to China through Huawei's 16.5 percent 3Com stake.

China's government said yesterday that the Huawei bid was commercial and appealed to Washington to handle it fairly.

"We hope the relevant U.S. authorities can deal with the case in accordance with law so as to create a fair and favorable environment for Chinese enterprises in the United States," said Foreign Ministry spokesman Liu Jianchao.

U.S. opposition to such purchases is prompted by unease about China as a strategic rival, rather than details of individual deals, said Joseph Cheng, chairman of the Contemporary China Research Center at the City University of Hong Kong.

"There is this perception that China is the most serious threat that the United States will face in coming decades, and this perception has colored the opposition to these mergers and acquisitions," he said.

Unease about China's acquisitions extends to Europe, Australia and elsewhere.

It has been fueled by questions about how China's $200 billion sovereign-wealth fund, launched last year, will invest and whether its financial muscle will be used to push official policy.

China burst onto the acquisitions scene when computer-maker Lenovo Group Ltd. agreed in December 2004 to buy International Business Machines Corp.'s personal-computer unit in a $1.75 billion deal. Some critics cited possible security risks, but the sale went through after U.S. regulators apparently decided PCs were too generic to pose a threat.

The following year, state-owned oil company CNOOC Ltd. ran into a firestorm when it tried to buy Unocal Corp. CNOOC dropped its bid for the U.S. producer of oil and gas after opponents said it might endanger energy security.