Huawei has pulled out of a deal to buy US server firm 3Leaf after the Committee of Foreign Investment in the US (CFIUS) raised concerns about Huawei's links to the Chinese government.
The deal was announced in May 2010 and would have seen Huawei acquire 3Leaf for £3.1m.
Huawei said that agreeing to the CFIUS concerns when they were first put forward might have harmed its reputation, but has now agreed not to acquire 3Leaf and to look for alternative US investment opportunities.
"This was a difficult decision but we have decided to accept the recommendation of CFIUS to withdraw our application to acquire specific assets of 3Leaf. Huawei will remain committed to long-term investment in the US," the company said.
"The significant impact and attention that this transaction has caused were not what we intended. Rather, our intention was to go through all the procedures to reveal the truth about Huawei."
Huawei has run into difficulty with US regulators in the past. The company's planned part buy out of telecoms firm 3Com with Bain Capital came under scrutiny and was eventually abandoned.
The Chinese government has been suspected of involvement in cyber attacks on US firms such as Google, and of temporarily rerouting as much as 15 per cent of the world's internet traffic through servers at the state-run China Telecom.
Huawei has offered to provide over £100m worth of equipment free of charge to UK mobile network operators to help with mobile coverage on the London Underground in time for the 2012 Olympics.
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