U.S. Two-Faced on China: Happy to Spend There, Blocks Acquisitions Here

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Chinese tech firm Huawei, #5 on our list of the Most Innovative Companies 2010, has been in the news several times recently, for its new Android smartphone products and its surprisingly forward-thinking eco policies. But did you know that twice in the last month alone the firm has been denied the purchase of two U.S. companies, despite placing the highest bid on the table?

CNN writes about the matter in a piece published early this morning titled "Why America sees red in corporate China." Shenzen-based Huawei, it emerges, bid for ownership of 2wire--a California-based consumer electronics and software firm--and the business telecoms unit of Motorola that the tech giant wanted to divest itself of. Huawei reportedly placed the highest bids for both firms, but 2wire went to U.K.-based Pace, and Motorola's division was snapped up by Finland's Nokia. These are both "friendly" nations, evidently less Communist, less free speech-trampling and less Net censorship-happy, compared to China. Did this nationality aspect play into the decisions?

It would seem that it definitely did. The smack-down of Huawei's recent M&A efforts in the U.S., which have partly been driven by recently relaxed Chinese regulations about investing overseas, caused some outrage in the Chinese press. The Global Times made no bones about it, and alleged the West is prejudiced against China and "Despite intensified globalisation, the invisible wall of the cold war era still looms between the west and the east." First things first, there's a logical inconsistency in that allegation, since it's China that loves to build technological and psychological walls around its nation and culture, but it does illustrate a point: The U.S. is taking a bizarrely two-faced stance on modern Chinese business.

Why? Because numerous U.S. tech firms are more than happy to invest billions of dollars inside China into high-tech manufacturing, and taking advantage of the economies of scale offered by giant firms like Foxconn (with close to a million employees) and low cost of wages and so on. Foxconn, a key contributor to Apple's mobile gadgets successes, is even in the process of building a massive new factory in inland China, at huge cost, so it can more efficiently meet demand. Meanwhile Foxconn, and other Chinese firms, face disproportionate scrutiny about the working conditions inside these factories--Foxconn's "suicide cluster," which statistically is really no such thing at all, being a classic example.

And yet when some Chinese firms like Huawei try to invest in the U.S., the deals are often batted down due to concerns that the Chinese state is guiding the business decisions too much. Any deal like this has to be approved by the Committee on Foreign Investment (Cfius), and while its here that some of the "no" decisions are made, CNN notes that Cfius didn't even get to see a recent joint venture proposal between a U.S. fiber optics firm and a Chinese investor, since it was quashed by the White House, citing security concerns.

So, what will happen if the U.S. continues to follow a policy like this? European firms may well get a nice boost, if their cheaper offers to buy American companies remain favored over Chinese firms ones, but that's a minor matter. Much more importantly, Chinese firms will simply spend their billions of dollars, primed and ready to invest in the future, outside of the U.S. Is this a situation that a nation that's only just staggering out of recession can afford?

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