An international technology transfer between a Chinese telecommunications-equipment maker and a Silicon Valley-based IT company could have serious implications for national and economic security. Last May, China’s Huawei Technologies Co. purchased the assets of bankrupted 3Leaf Systems for $2 million. 3Leaf’s I/O virtualization solution enables multiple x86-based systems to be transformed into a powerful supercomputer.
3Leaf was a player in the HPC space, but despite its innovative technology, the company eventually succombed to the economic downturn. Now a government panel is reviewing the cross-border deal and could recommend that President Obama veto it.
The Committee on Foreign Investment in the United States (CFIUS) is charged with reviewing sensitive cross-border deals. CFUIS claims that Huawei, a firm suspected of having close ties to the Chinese government, should have requested permission before finalizing the purchase back in May. Huawei claims they were not required to seek a review because they “only” purchased 3Leaf’s assets, including intellectual property and staff, but did not purchase the company outright. Pentagon officials disagreed and asked the company to retroactively seek clearance.
Government officials are concerned that 3Leaf’s technology could be used to strengthen the Chinese military. According to a Wall Street Journal article, Huawei’s founder, Ren Zhengfei, was a former commander in China’s People’s Liberation. The company denies any ties, but opponents claim the company provides services for the government and receives military funding.
CFIUS can ask the President to veto the deal, but the President is not required to do so. Such vetos are exceptional rare. According to the WSJ article, a US president has only vetoed foreign transactions two or three times. CFIUS is expected to announce its decision today.