Red storm rising

Another week, another Chinese controversy in official Washington.
Congressional furor seemingly had begun to subside over imports of pet food, toys, toothpaste and seafood-all subjects of safety concerns-when 3Com Corp. announced it will be swallowed up by Bain Capital Partners L.L.C. in a $2.2 billion deal in which Chinese wireless network giant Huawei Technologies Co. Ltd. will hold a minority interest as well as become a commercial and strategic partner of 3Com.
Republican lawmakers immediately raised red flags, pointing to Huawei’s links to the Chinese government and, by extension, its military apparatus.
“This sale raises the ongoing and thorny issues of illegal technology transfers to China, public reports of Chinese cyber attacks on U.S. government networks, repeated efforts by the Chinese government to gain access to military sensitive and classified technologies of the U.S. government and continuing concerns about infringement of intellectual property rights by Chinese companies,” wrote Rep. Duncan Hunter (R-Calif.), ranking Republican on the House Armed Services Committee, and Rep. Peter Hoekstra (R-Mich.), ranking Republican of the House Permanent Select Committee on Intelligence, in a letter to Treasury Secretary Henry Paulson.
The two lawmakers, not the only ones to raise concerns about the 3Com-Bain Capital-Huawei transaction, asked that the Committee on Foreign Investment in the United States-the Treasury-led interagency group-scrutinize the deal and keep Congress apprised of the review. Boston-based private-equity firm, Bain Capital, weighed in.
“We believe the U.S. government review in this matter will conclude that the company will be firmly controlled by an American firm, have only a small minority foreign shareholder, and that the deal presents no risks to national security,” Bain Capital stated.
As for the business rationale for the deal itself, there is speculation Huawei wants to keep up with the Jones-in this case, Chinese rival ZTE Corp.-in the U.S. wireless market.
Meantime, 3Com probably is not losing any sleep as a result of all of the rhetorical ruckus. Goldman Sachs & Co. is serving as financial adviser 3Com in the matter. Treasury Secretary Paulson was chairman and CEO of Goldman before joining the Bush administration, and during the mid-to-late 1990s, Josh Bolten-the White House chief of staff-headed legal and government affairs for Goldman in London. Looks like a done deal from here.