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Feds eye China's piece of 3Com deal

A view of the front of the corporate headquarters for 3Com, near San Jose, Calif.

TEXT OF STORY

KAI RYSSDAL: The federal government wants to think for just a little bit longer about a proposed buyout of 3Com, the computer network company. Bain Capital is orchestrating the deal, but with a Chinese partner -- which is what has the Feds a bit spooked. The Chinese company would get a 15 percent stake of 3Com. So this week the Treasury Department is expected to extend its review for another month-and-a-half. Marketplace's Nancy Marshall Genzer explains.


NANCY MARSHALL GENZER: Here's the hang-up. 3Com supplies technology to the Defense Department. It prevents intruders from hacking into the Pentagon's computers. The Pentagon suspects China of orchestrating a massive cyber attack last year. Critics say if the Chinese company, called Huawei Technologies, buys a chunk of 3Com, it would be like the fox guarding the high-tech hen house.

MOYARA RUEHSEN: This is a very clear-cut national security concern issue.

Moyara Ruehsen of the Monterrey Institute of International Studies says Bain Capital may not be able to head off the security issue. Even if the deal holds up, Bain could be forced to sell the 3Com division supplying technology to the Pentagon.

RUEHSEN: I don't know how easy that would be to do. Because, well maybe that's what makes it an attractive investment.

China has already invested about a trillion dollars in the U.S. over the past seven years. But a lot of that went into treasury bonds. It's more unusual for the Chinese to invest directly in a U.S. company. And economists say the Chinese government could have direct influence over 3Com because it usually helps appoint the directors of Chinese companies.

UCLA political science professor Richard Baum says U.S. politicians will criticize the deal to attract voters suspicious of China.

RICHARD BAUM: For those constituencies, the message that plays positively is a message of warnings of a a Chinese economic threat.

Perhaps anticipating that, Bain Capital issued a statement today, stressing that 3Com would remain firmly under American control.

In Washington, I'm Nancy Marshall Genzer for Marketplace.

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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