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How a bankrupt U.S. company could give China a powerful new superweapon development system

By | February 10, 2011, 9:56pm PST

Summary: What happens when a company develops innovative new technology — really, really innovative technology, then goes belly up?

So here’s a new national security problem. What happens when a company develops innovative new technology — really, really innovative technology, then goes belly up? What happens to the tech?

See also:Hacking attacks from China hit energy companies worldwide

We’re seeing the U.S. government grapple with just this sort of problem right now, in the relatively obscure case of Huawei Technologies and 3Leaf Systems.

Let’s first explore the players. 3Leaf Systems was a company that was — apparently — doing some interesting processor scaling work. Although the company’s Web site is gone and most of the content on the Web has vanished, there’s a 15-month-old report in The Register that describes some of the tech.

Roughly, 3Leaf was building technology for dynamically scalable supercomputers. In the same way you can use a box of Legos to build up toys of almost any shape, the idea that 3Leaf had was to use lots of processors to build up a specialized, parallel super-computer of pretty much any architectural need.

Now, we’ve had tightly-coupled and loosely-coupled multiprocessor machines and clusters for decades. But from what I can tell, the 3Leaf design was particularly scalable and malleable.

In any case, for some reason I haven’t yet tracked down, 3Leaf went bankrupt. If I had to guess, I’d say it was probably skittish VCs in a nasty recession.

Enter Huawei Technologies.

This is a Chinese company that many government officials think might have some tie to the Chinese government. You think? Just about every enterprise in China has some tie or approval from the government to function. Huawei, some think, has more of a tie because, as Reuters reports, Huawei was founded by a former Chinese soldier and may have more serious ties to the Chinese military.

Anyway, Huawei decided to pick up 3Leaf’s assets (including employees, patents, and servers) from the bankruptcy. Essentially, Huawei bought 3Leaf without having to buy 3Leaf.

This little deal came to the attention of Committee on Foreign Investment in the United States (CFIUS), an inter-agency group that watches over such acquisitions. CFIUS say this not good for America.

According to the Wall Street Journal (paywall), the CFIUS is asking President Obama and the Pentagon to stop the sale.

Why is everyone in such a huff?

Massively parallel computers can be used to solve big — really, really big — computational problems. These sorts of problems include human gene analysis, filtering signals from stars, and doing analysis of things like submarine acoustic signatures or battlefield-wide blast patterns.

If China gains easy access to this technology, and then is able to dynamically reconfigure it as needed, the implications are potentially staggering. If this technology works, and China buys it from a defunct U.S. company, then it’s also possible China will have it, and we won’t. That would suck.

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David Gewirtz, Distinguished Lecturer at CBS Interactive, is an author, U.S. policy advisor, and computer scientist. He is featured in The History Channel special The President's Book of Secrets.

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Biography

David Gewirtz

In addition to hosting the ZDNet Government and ZDNet DIY-IT blogs, CBS Interactive's Distinguished Lecturer David Gewirtz is an author, U.S. policy advisor, and computer scientist. He is featured in The History Channel special The President's Book of Secrets, is one of America's foremost cyber-security experts, and is a top expert on saving and creating jobs. He is also director of the U.S. Strategic Perspective Institute as well as the founder of ZATZ Publishing.

David is a member of FBI InfraGard, the Cyberwarfare Advisor for the International Association for Counterterrorism & Security Professionals, a columnist for The Journal of Counterterrorism and Homeland Security, and has been a regular CNN contributor, and a guest commentator for the Nieman Watchdog of the Nieman Foundation for Journalism at Harvard University. He is the author of Where Have All the Emails Gone?, the definitive study of email in the White House, as well as How To Save Jobs and The Flexible Enterprise, the classic book that served as a foundation for today's agile business movement.

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How about an update or some followup on this, please
vbrucewhitehead@... Updated - 4th Jun
This article was published nearly 4 months ago, so it would seem that something one way or the other should have at least begun to happen by now. It sounds worrisome that the Chinese could be learning all the U.S. company's secrets as time goes on during a potentially meaningless legal battle over patents or some such. How about either putting our fears to rest or verifying them? We'd appreciate that very much. Thank you for writing the article and thank you in advance for bringing it current.
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How to make sense out of this?
RelaxWalk 10th Feb 2011
This company, which is inviable in the US, becomes a valuable asset for China? Do the same to the Chinese! Go buy a Chinese company that nobody wants in China.
@RelaxWalk : you are really don't know about Chinese. Ther is nothing that nobody wants in china, because of they want the whole globe.
@phankhanhhung@...

Do I hint a little bit of grammatically-deficient racism here?

If the US government is not smart enough to detect which technology has potential and let a company goes bankrupt, it's NOT the fault of China who's able to consider long-term development and decide to buy the assets of such a company.

Are you jealous because somebody was able to make something wonderful from what you considered worthless?

That's a xenophobic statement you just wrote. Talk more about the problems INSIDE USA for not being able to help the companies with such technological potentials.
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as evidenced by their 800 - 1000 military bases on foreign soil and their continual wars of aggression abroad ? Perhaps a little study and a little thought before posting would do no harm ?...

Henri
@Henri: just wait, they just still can't do what they want.
@phankhanhhung@...
I'm sure the common Chinese person is nice, just like the common American is nice. However, their government has never denied that they want at least Taiwan and Tibet, as well as valuable possessions like the Spratly Islands (oil) and Panama Canal (force projection) for example. Neither have they abandoned their commitment to spreading Communism and authoritarianism.

Being wary of an enemy who has sworn to destroy your way of life is not xenophobia, but rather prudence.

This isn't the first stupid leak of military equipment by our governement. Consider the loss of MX-80 info, or when our companies (Hughes) helped them resolve their missile problems and reverse engineer our spy satellites, or when the government allowed sales of high-thrust turbine cores and side looking synthetic aperture radar. Business greed and government bungling (or maybe corruption..there were huge political contribution from the chinese) equals loss of technological advantages that keep us safe.
@phankhanhhung@...
as evidenced by their 800 - 1000 military bases on foreign soil and their continual wars of aggression abroad ?
Not to mention the many big Chinese nuclear-powered aircraft carriers with hundreds of A7 'Hoodlum' supersonic jets, cruising the seven seas, ready to go beat up anyone on a moment's notice!
... We ARE talking about those evil Chinese, right?
@phankhanhhung@... Quote: "Ther is nothing that nobody wants in china, because of they want the whole globe. " ---Had heard about this kind of garbage when 1980s Japanese powerful economy rocks USA.
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We can't.
JohnMcGrew@... 11th Feb 2011
They already have our money.
@JohnMcGrew@...

Only 9% of it, actually. Japan has only slightly less than that, about 8.9%. The majority of the U.S. Government's debt is owned by the U.S. citizens at roughly 58%.

Well, at least that's what I read earlier this week. Now the articles I can find have China owning even less. Probably depends on just how you figure it.

Anyway, debunked:

http://seekingalpha.com/article/246958-guess-who-owns-the-most-u-s-debt-not-china

http://en.wikipedia.org/wiki/United_States_public_debt
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Did you not read those links?
JohnMcGrew@... 11th Feb 2011
@grassdogstudio@, China holds 20.6 (with Japan a close 2nd with 20.2%) with most of that acquired in the last 7 years.

Debunked, debunked.
@JohnMcGrew@...

the seekingalpha article states China own 7.5% of the US debt, the Wikipedia article breaks down the foreign owned percentage of the debt and says China own the largest segment of that at 20.6%. Pretty simple to understand.
@JohnMcGrew@... The money/Treasuries that the US Fed holds was paid for by just freshly printed money with no inherent value...debasement of the US dollar will lead to the debasement of the US...Bernanke is such a good citizen he is handing out money from his helicopter. bye bye
@RelaxWalk

Erm, you can't just go buy firms in China. Even with approval from the Chinese state, the best a foreign firm can usually hope for is a joint venture that favours the Chinese partner, and involves transfers of technology from the foreign partner to the Chinese.

At any rate, this sounds like a military issue, not an economic one. The firm wasn't economically viable, but may have been developing technology with military potential. If that's the case, the US state probably should block the sale (just like the Chinese state would do).
@RelaxWalk As a foreigner, you would not be allowed to own anything in China, ergo no buying of any Chinese company. See how this "fair trade" works when China is allowed to screw the US using their own set of rules while the US is supposed to play be another set?
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@RelaxWalk That's a socialized economy in action for you. The Chinese government can simply decide that a company *should* be viable, and if they screw up and prop up a bad company, people there don't really cry foul. The U.S. government has all of us watching for screwups, so they have to think twice before doing it. (To be clear, I don't mean that's a totally bad thing. Yeah, sometimes our, er, bureaucracy of principles backfires, but it's good in most cases.)
I wonder how this affects the trade balances and free trade (:-
China is bad if she doesn't sell rare earth metals at the prices the US wants; the US is great if she doesn't permit selling anything that may potentially give China some advantages. Just wonder how the US defines fair trade.
@spockv

You spoke the truth!

I'm Canadian and from my perspective, the NAFTA agreement is a big black hole centered in the USA.
@dcroteau... I'm Canadian too, but our economy has been heading to the service industry long before NAFTA came into effect in the early 90s. I've seen a big black hole created by companies I have worked for in Canada (ie... Nortel) that was created by the companies own mismanagement. Our high taxes don't help... and the fact that many companies in the USA (and I dare say Europe) tend to buy their own home grown products (like the baby Bells have long been in bed with one of their own like Lucent).
@spockv "fair trade" This has nothing whatsoever to do with free trade. No country wants to get sensitive information to another country.
and the technology to build their space program.

Ask Clinton about about it.
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@spockv
Come on, nobody's that guliable.
adornoe@...
02/11/2011 10:26 AM --

Ask Reagan about some missile guidance systems as well. Or Nixon for opening up China to begin with.

How far back shall we go? Which presidents get a free ride and which get scapegoated? Or why we should diddle with the past since we're here in the present and lack a TARDIS in order to go back into the past.

Indeed; I'm starting to reevaluate my own beliefs. Maybe we should all look forward and work for a common good. Like that will actually happen but I may as well live blissfully in la-la land...
@spockv, Its one thing to consider the costs and supply of raw materials (oil ranks up there also) and another to hand over technologies that could shift the balance of military power (and influence in the region). Why would you compare products that are mined in a cave as opposed to scientific analysis that takes years/manpower to develop? I've worked with some companies that have developed communications products and sold/provided demos to companies around the world. Only in China and Israel did I find that the products wind up opened/probed as an obvious attempt to reverse engineer products. A good portion of this is to clone your products.... and another is to likely develop the expertise to create your own products that could be used in other sectors of the economy - and that includes home grown military tech.
@spockv The US is NOT a free trader by any means...even amongst 'friends' such as Mexico, Canada and Europe. So why would you expect China or any other nation to be a free trader with the US?
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lotsa stuff about the chicoms sucks
Johnny Vegas 10th Feb 2011
we got to see whos side clinton and pelosi were on already, now we'll get to see whos side obama is on...
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If Huawei made an offer for the technology, you can rest assured that it's already in their hands. The only thing that owning the "legal right" to the technology would do is discourage US companies from building similar systems.
@all : a dummy question, Do you have a huawei switch in your network? Is US have any authority to to make sure that is it really SAFE?
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Market says NAH
guihombre 11th Feb 2011
The market rejected 3Leafs ideas and if those employees were useful they'd be snapped up by US competitors.

A much bigger problem is USA shipping manufacturing to China, the companies that make factories follow, so do the companies that design factories, and so on...

Like this one:
http://iclarified.com/images/news/13705/47195/47195-500.png

Apple hiring software engineers for the iPod in China now.
@guihombre the market doesn't control defense spending. I think the entire point of the article was that the technology could be used for military purposes...
@keitha73, food can be used to feed the military; airplanes can be used to transport military personnel and can be reverse engineered to make fighter jets; games can be inspirational to the military... So what can the US trade with China?
@guihombre

Because people in US do not want to be scientist anymore, they are too busy living the "American dream" if working in the financial world and becoming millionaire.

Why would they hire software engineers from China? Let me see, maybe because the Asian software engineers are the best one in the World? That's maybe the reason why....
@dcroteau That MUST be it...that would explain why US software companies send their developers to China to learn how to code too, right? Oops, they don't...give me a break, lol.
@dcroteau

Let me see, maybe because the Asian software engineers are the best one in the World?

Best in the world? Don't know any such basis for determining that. There are plenty of excellent asian developers certainly but US companies ship such jobs to China or India for one reason: cost.

Because people in US do not want to be scientist anymore, they are too busy living the "American dream" if working in the financial world and becoming millionaire.

Primary reason people in America don't go into science or engineering anymore is because it's hard work with no reward. Before outsourcing it was a valued profession.

Now there is no point going through all of the hard work when an engineering or science degree is no more valuable (less?) than a business degree where you can drink and party all through college without having to work.
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Need a special care with this case
phankhanhhung@... Updated - 11th Feb 2011
Your government known what they do, It's because Chinese is extremely dangerous. I am from Vietnam and we have thousands years of experiences with that suck.
@phankhanhhung@...

No, they aren't dangerous. Need I remind that China is one of the ONLY countries in the world that hasn't gone to war in the past 60+ years since World War II!
@Lerianis10 : you should re read the history book, their civil war before the PRC government is extremely bloody. PRC involved in Korea war, in a war with India, backed the Cambodia's Red Khmer to kill millions people and in a short but bloody war with Vietnam, kills about 30 thousands each side. They have an ultimate goal of take over the whole world, not just any technology.
  • Flagged
@Lerianis10 Sino-Indian War, 1962.
@Lerianis10 okay... so they haven't "gone to war".

But I guess that genocide is okay.

Or haven't you ever heard of a little place called Tibet?
@Lerianis10
May be you should first remind (or educate) yourself that China attacked India in 1962.
Ref: http://en.wikipedia.org/wiki/Sino-Indian_War
@Lerianis10

not true, may I remind you about Korea war from 1950 to 1953, the Sino-Indian War in 1962, the Vietnam War from 1965 to 1970, Sino-Soviet border conflict in 1969 which was very close to becoming a war with the Soviets and the Sino-Vietnamese War in 1979 with other conflict with Vietnam in 1974 and 1988.
@Lerianis10 "No, they aren't dangerous." Head in sand.
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Not quite right, Lerianis10 ;
mhenriday 11th Feb 2011
while in this respect the record of the Chinese government is far better than that of, say, the USA, which has engaged in foreign wars of aggression more or less continually since the end of WW II, the Chinese government under Deng Xiaoping did, in fact, take a page from the US book and with that country's encouragement, in February 1979 went to war against Vietnam in response to Vietnam's invasion and occupation of Cambodia. Fortunately, the Chinese leadership was wise enough to declare victory and withdraw its troops less than a month after starting the conflict, saving many lives on both sides. Since then, China has not engaged in this type of adventure. Would that more countries would learn from this example - humanity might then have a decent chance of making it through the present decade without going extinct !...

Henri
@Henri: not quite right, china backed red khmer in cambodia to kill their people and attacked south of vietnam, vietnam just ended long war with the US and don't want to be stupidly involved in Cambodia but Vietnam too understand the security threat of being have a baby china in the cambodia and occupied the cambodia. china attack Vietnam with two purposes: force vietnam to withdraw to save it's baby in cambodia and test the ussr-Vietnam alliance.
Wars dont tell much about ethics, but supporting for a crazy government to kill millions their people, is that enough good? Or just want to take over Cambodia with any means?
@Lerianis10
How about the millions of its own citizens that were methodically killed by Mao? This link states 40,000,000!!!
Does this not count as War?
http://necrometrics.com/20c5m.htm#Mao
@phankhanhhung@...

You want to talk about thousands of years?
Ok: Over the past 5000 years, China has been the most stable civilization and never had the intent to "take over the World". It changed shape and size over time (of course, border countries change hands but that's always the case everywhere in the World) but has always been satisfied to develop itself without wanting anything from surrounding "barbarian".

China does not want to invade the World...it just want to create a stable civilization, something that has always been jeopardized by others pillaging it and forcefully exchanging silk and tea with unwanted drugs.
@dcroteau : at last, you understood what i mean. I am from Vietnam, china is our thousands years opponent, my parents told me and I will tell my sons, that's why I have a real life experiences and have a rich knowledge of their history, enough to talk with you for years, my point is some how maybe bias but my knowledge are credible and I want to share my experience with them. Where are you from? China or US? I just see you want to state out your view without any knowledge backed argument or clarification.
A particular Chinese man is good, and dont have any intention other than to stay happy, the common happy is to own as much as possible, almost of people in the world are same. But the Chinese culture has it own problem, it's drive people to achieve their goals with any means, regardless it's right or wrong. They lack a real religion which drive people to live happy together. That's why the Chinese are dangerous, they are stronger, and powered by more advanced weapon, that's why they are increasingly dangerous, and now they are extremely dangerous. Thats why we need a special care of them.
@dcroteau
Have you ever researched the history and political philosophy of Mao Zedong? Your remarks do not equate with the history of his rule or of his successors rule. Please read and learn before comparing. China is not a western nation and does not now nor ever has followed western political, military or technological rules or philosophy. They do not even enforce copyright protection which is fundamental to intellectual growth in any culture.
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Well its call free market and capitalism
Quebec-french 11th Feb 2011
that all don't be surprise that one moment. when you open everything to everyone who as money that what happen.

the same this is about OS USA and allied use the same system as everybody else now so the play-field is level for everybody . Its call capitalism enjoy it
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agree
Linux Geek 11th Feb 2011
@Quebec-french
if it were not worth it in the US, the chinese can have it!
Since when the processors have become a 'national security threat'?
We've been making them in China for many years.
US losing the know how and expertise....that's another story that has do with the American greed rather than the Chinese dirty deeds.
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How about an update or some followup on this, please
vbrucewhitehead@... Updated - 4th Jun
This article was published nearly 4 months ago, so it would seem that something one way or the other should have at least begun to happen by now. It sounds worrisome that the Chinese could be learning all the U.S. company's secrets as time goes on during a potentially meaningless legal battle over patents or some such. How about either putting our fears to rest or verifying them? We'd appreciate that very much. Thank you for writing the article and thank you in advance for bringing it current.

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