Huawei Technologies, the mainland's largest telecommunications equipment maker, refused a US agency's call to pull out of its recently acquired US technology firm.
Shenzhen-based Huawei yesterday said the agency's action has put its US$2 million purchase of 3Leaf Systems up for review by US President Barack Obama.
The privately held firm said the Committee on Foreign Investment in the United States (CFIUS), an inter-agency group that reviews national security implications of transactions that result in control of a US business by a foreign person, suggested it voluntarily 'withdraw its notice' to the panel and divest its 3Leaf assets.
'In light of the possible further damage to the Huawei brand and reputation, Huawei has been compelled to decline the CFIUS offer,' Bill Plummer, the vice-president of external affairs at Huawei USA, said. 'We welcome the next step in the 3Leaf transaction review.'
The decision by CFIUS is another setback to efforts by Huawei and other mainland telecommunications equipment vendors to expand their presence in the US amid politicians' concerns about national security.
Huawei's 2007 bid to buy computer networking firm 3Com Corp, and its plan last year to supply wireless network equipment to mobile carrier Sprint Nextel Corp, both collapsed because of US security fears.
Without initially notifying CFIUS before it completed the deal, Huawei last May acquired assets, including key intellectual property and staff, of 3Leaf, a bankrupt provider of so-called virtualisation solutions for high-performance server computers.
Five US lawmakers last week wrote to Treasury Secretary Timothy Geithner and Commerce Secretary Gary Locke asking for scrutiny of the acquisition and warning of the risks of letting a Chinese firm gain such technology, media reports said.
'To me, this is [a case of] politicians looking for press,' Matt Walker, an analyst with Ovum, said. 'Keep in mind that since Huawei bought 3Leaf and [Chinese president] Hu Jintao visited the US, xenophobia in the US has kicked up again.'
Huawei said it would co-operate with any probe of its business. 'We welcome a broad national security agreement offering the US government full visibility into all aspects of Huawei's operations, employees and facilities in the US,' Plummer said.