New York – Political resistance in the United States to thwart Huawei’s latest effort in acquiring technology assets from a US technology company reveals an intentional effort to block Chinese investment in advanced technology.

Seeking transparency in US security review measures, Chinese officials appealed on Thursday to Washington for a fair review of Chinese investments after the Shenzhen-based telecommunications company was asked to give up the $2m patent deal it acquired from 3Leaf Systems last May.

Huawei has rejected suggestions from the Committee on Foreign Investment in the United States (CFIUS) that it should divest the assets. The company opted to wait for the 15-day presidential review in which it hopes President Obama would treat the case fairly.

“As far as the investment activities of Chinese enterprises in the United States, it’s clear that there are many cases where the US is using a security review to refuse investment by Chinese companies,” said Chinese Ministry of Commerce spokesman Yao Jian at a briefing in Washington D.C., as reported by Bloomberg News.

“You can say in some level it has influenced Sino-US cooperation. We also hope that the US can increase the transparency of the approval process and give Chinese companies investing in the US fair treatment.”

Derek Scissors, a research fellow at Washington-based think tank The Heritage Foundation, said “there is an implicit American prohibition on Chinese participation in advanced technology.”

“There is no law to bar Chinese investment in advanced technology. The prohibition takes place because the US doesn’t trust the Chinese government,” said Scissors.

CFIUS appears to be angered over Huawei’s failure to obtain approval from the US government before purchasing 3Leaf’s technology.

Scissors said Huawei should have been more open in their actions, but he blamed it on the lack of transparency on the US side.

“The US should have clear regulations, rather than hidden barriers. I don’t have a problem with any government using real security concern to block investment. The danger is, if you have an unclear situation, you can abuse your regulations,” said Scissors.

“We should have a rule that says these are the kind of companies that require a review under so and so circumstances. Investors like transparency. China has been criticized for not being transparent. In this particular case, the US is not transparent and we should fix this.”

For years, the US government has raised concerns about Huawei for fears of the company’s link to China’s security services. Although Huawei’s founder, Ren Zhengfei, is a former military officer, the company has denied any ties to the Chinese military. Nevertheless, its alleged links to the Chinese government has caused its US deals to be revoked in the past.

Last year, Huawei lost a bid for a contract with Sprint, the US telecommunications group, over national security concerns. In 2008, Huawei was forced to abandon a joint takeover of US technology company 3Com.

Other Chinese companies have also been barred from US investments over national security concerns. In 2005, China National Offshore Oil Corporation (CNOOC), one of the major state-owned oil companies in China, was prevented from acquiring US-based Unocal Corporation.

Scissors said the US’ decisions based on “security concerns” are not unreasonable given the relationship of the two countries. He cited two dimensions for the US government’s rejection of Huawei.

“First, the US and China have a different relationship compared to the US’ relationship with Europe. I suspect the outcome will be different if Huawei were not a Chinese firm,” said Scissors.

“Second, Huawei is considered to be a state-controlled firm. And Huawei has denied it. They probably won’t allow a state-controlled company to do that. If it were a state-controlled French firm, could it have been different? I don’t know. These are the uncertainties. That’s why we should have clear regulations.”

As China’s economy grows, its foreign investments are projected to increase in the coming years. Last year, Chinese firms invested a total of $4.9 billion in the US, up from $2.8 billion in 2009, according to estimates from Rhodium Group. Investments in industrial machinery and equipment topped the list, followed by electronic equipment, utility services and natural resources.

But US experts say they think Huawei’s case will not discourage other Chinese companies from investing in the US, especially in “non-sensitive sectors”. 

This event should not affect broader Chinese investment in the US “outside of technology”, according to Scissors. He cited the recent acquisition of Chesapeake Energy’s Eagle Ford shale project in South Texas by CNOOC.

“Given the failure of CNOOC to buy Unocal due to a large degree of political resistance, many Chinese companies, particularly those in sensitive sectors, had already decided not to consider the US as a first choice for their investments,” said David Hofmann, director of InterChina Consulting.

“However, in many other sectors where there is no such perceived resistance, [e.g.,] consumer products, real estate etc, Chinese companies see the US as a major investment opportunity.”