Canadian smartphone manufacturer BlackBerry Ltd. announced on Monday that it was abandoning its attempt to sell itself, opting instead to pursue a $1 billion financing arrangement. [1] The move came after Chinese computer manufacturer Lenovo Ltd. expressed strong interest in acquiring BlackBerry. [2] So why the sudden change of heart on BlackBerry’s part? As it turns out, the Canadian Government vowed to block any takeover of BlackBerry by a Chinese company on national security grounds. [3] Lenovo ultimately elected not to file a formal bid for the company. [4]
The United States has similarly resisted attempts by Chinese companies to acquire a stake in its telecom infrastructure. Huawei, a Chinese telecom company, has three-times found its efforts to expand its U.S. presence blocked by the U.S. government due to alleged national security concerns. In 2008, the government blocked Huawei from acquiring the U.S. software company 3com. [5] In 2010, at the urging of the government, Sprint refused to consider a bid from Huawei (as well as one from Chinese telecom company ZTE) to provide components for Sprint’s 4G network. [6][7] And in 2011, the government rejected a bid from Huawei to build a nationwide network for first responders to emergencies. [8] The U.S. House of Representatives Permanent Select Committee on Intelligence has gone so far as to recommend, in a formal report released in 2010, that the U.S. government block all mergers of U.S. firms with Chinese telecom companies suspected of having ties with the Chinese government based on espionage concerns. [9]
While both the U.S. and Canadian government are empowered to block deals that they believe threaten national security [10] [11], there is concern that these moves may be motivated by a desire to shut out Chinese investment for economic reasons rather than for security reasons. [12][13] Chinese companies hurt by this trend claim that the “national security” concerns cited by the U.S. and Canada are vague and unsubstantiated. [14] At the same time, however, a 2011 report by the Office of the Director of National Intelligence found that “Chinese actors” were the “world’s most active and persistent perpetrators of economic espionage.” [15]
Clearly a balance needs to be struck between national security concerns on the one hand and encouraging foreign investment on the other (especially in cases like the BlackBerry-Lenovo deal, in which acquisition by Lenovo may have been the best outcome for the struggling smartphone manufacturer). Blanket bans like the one suggested by the House committee seem overly restrictive of commerce. Both the U.S. and Canada may benefit from a more individualized assessment of the security risks and commercial benefits of a given deal. For now, however, it appears Chinese telecom companies looking to expand their foothold in the U.S. and Canada have a tough road ahead of them.