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R 210832Z MAR 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6991
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UNCLAS SECTION 01 OF 02 GUANGZHOU 000171 
 
SIPDIS 
 
C O R R E C T E D  C O P Y - SUBJ' LINE ADDED 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ETTC EINV ECPS ECON CH
SUBJECT: HUAWEI SAYS 3COM PLANS STILL UNCERTAIN 
 
GUANGZHOU 00000171  001.2 OF 002 
 
 
 (U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  IT SHOULD NOT BE 
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM 
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR.  IT SHOULD NOT BE 
POSTED ON THE INTERNET. 
 
REF: 07 GUANGZHOU 1227 
 
¶1. (SBU) Summary: Huawei Technologies' plans on whether to resubmit 
a bid for Massachusetts-based 3Com Corporation remain unclear, 
according to senior executives.  Expressing frustration with the 
approval process, one senior executive wondered if Huawei had been 
singled out by the U.S. government.  They stressed that Huawei is 
privately owned by its employees and repeated denials of any link to 
the Chinese military.  The Chief Executive Officer (CEO) complained 
that neither the U.S. nor Chinese government trust Huawei.  End 
summary. 
 
No Decision on Resubmitting 3Com Bid 
------------------------------------ 
 
¶2. (SBU) Huawei has not yet made a final decision on whether to 
resubmit a bid for 3Com and may give up on the deal instead, 
according to Chief Sales and Service Officer Ken Hu.  He told 
Embassy Economic Minister Counselor on March 17 that Huawei had not 
initiated the acquisition plan, but rather had been approached by 
Bain Capital to participate in the buyout.  The approval process for 
the deal had already been very long and disappointing.  Describing 
Huawei's investment in 3Com as financial rather than strategic, Hu 
said he didn't understand why it had created so much controversy. 
Huawei has made acquisitions in Europe and has been subjected to 
similar review processes by European governments but had no 
difficulty obtaining approval there.  He complained that the 
questions Huawei was asked during the U.S. approval process 
suggested that the process had been politicized, citing questions on 
links to the People's Liberation Army (PLA). 
 
¶3. (SBU) Hu called Huawei's expansion plans for the U.S. market a 
top priority, noting that Huawei's market share was very small in 
comparison to its share in both the developing world and the EU. 
Huawei had sales of just US$130 million in the United States in 2007 
and aims to increase sales to US$200 million this year.  It wants to 
add major U.S. telecommunications companies like AT&T, Verizon and 
Sprint to its list of customers.  Hu said the company was 
considering both acquisitions and greenfield investments, but was 
leaning toward expanding existing greenfield projects, which are 
more strategic.  (At present the company has six sales offices and 
four R&D centers in the United States.)  He noted that these types 
of investments create new jobs and might also be less likely to draw 
political objections and asked how best to approach expansion in the 
U.S. market so as to avoid future political problems. 
 
Singled Out by U.S. Government? 
------------------------------- 
 
¶4. (SBU) Referring to recent visa cases, Hu wondered whether the 
firm was being singled out by the U.S. government.  He stated that 
for the last year all Huawei employees had been limited to 
single-entry visas only.   Hu noted that even the CEO, Ren Zhengfei, 
received only a single-entry visa earlier in the month.  Hu 
complained that this made things particularly difficult for top 
management like himself who have to travel frequently on short 
notice to meet customers in the United States.  He emphasized the 
company's strong relations with numerous reputable U.S. firms, 
including IBM, HP, Intel, Motorola, and Microsoft among others. 
Note: Per Department guidance, virtually all Huawei employees are 
subject to clearance under the Visas Mantis program, which is 
designed to prevent the unauthorized transfer of sensitive 
technologies.  Under Department policy, Chinese nationals who 
receive Mantis clearance are only authorized single-entry visas. 
End note. 
 
Claiming 100 Percent Employee Ownership 
--------------------------------------- 
 
¶5. (SBU) Hu asserted that Huawei is 100 percent privately owned and 
the firm's employees are the only stockholders.  Seventy percent of 
its employees have stock, according to Hu.  Explaining why the firm 
had not listed publicly, he noted that Huawei operates in a 
fast-changing industry.  Many other companies, he argued, had 
suddenly run into trouble because they needed to respond to investor 
demands for short-term gains.  He cited examples such as Lucent, 
Sprint, Siemens and Alcatel.  Much of Huawei's capital has come from 
banks instead.  Hu named Citibank, HSBC, Deutschebank, China 
Development Bank and Industrial and Commercial Bank of China as 
financial partners. 
 
GUANGZHOU 00000171  002.2 OF 002 
 
 
 
Denying Political/Military Connections 
-------------------------------------- 
 
¶6. (SBU) Ren Zhengfei, Huawei's founder and CEO, denied claims that 
either Huawei or Ren had close ties to the Chinese Government or 
military in a separate meeting with the Consul General on March 10. 
He argued that if Huawei had such connections it would be in the 
real estate industry, where it could make quick, easy money.  Ren 
also pointed out that his service in the PLA during the Cultural 
Revaluation was unusual considering his unfavorable political 
background.  Ren explained that his parents had both been sent to 
labor camps during the Cultural Revolution because they were 
identified as intellectuals.  However, because the PLA had a 
shortage of skilled technicians, he was allowed to join in order to 
work on a chemical fiber joint-venture with France in northeast 
China.  Ren said he left the military as a major in 1983, when Deng 
Xiaoping downsized the PLA. 
 
Complaining of Lack of Trust 
---------------------------- 
 
¶7. (SBU) Ren complained that neither the U.S. nor the Chinese 
Government trusted Huawei.  Huawei has had to slow its expansion 
plans on more than one occasion as a result, he said.  Ren commented 
that Huawei had no intention of acquiring a controlling stake in 
3Com.  Expressing frustration with the process, and pointing out 
that Huawei was not in a position to be a competitor with similar 
hi-tech companies in the U.S., Ren speculated that the best solution 
might be for U.S. investors to buy out Huawei's employees, who might 
be happy to cash out after all the hard work they had put into the 
company.