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US sees a spy in China's
Lenovo
WASHINGTON - In a
potentially damaging move for Sino-US business
relations, American regulators are reportedly
blocking IBM's proposed $1.25 billion sale of its
personal computer business to the Lenovo Group of
China, on national security concerns.
Citing unnamed sources "familiar with the
matter", Bloomberg reported on Sunday that members
of the Committee on Foreign Investments in the
United States (CFIUS) are concerned that Lenovo
employees might be used to conduct industrial
espionage. According to the report, these members
are worried that Chinese operatives may use an IBM
facility in North Carolina to launch industrial
espionage to further China's military technology.
The Chinese government has a majority share in
Lenovo, formerly known as Legend. Incidentally,
the US recently sanctioned eight Chinese companies
for exporting technology to Iran for use in a
missile program, according to a recent New York
Times report.
CFIUS comprises 11 US
agencies, including the Department of Justice and
the Department of Homeland Security, and is
chaired by the Treasury Department. The
influential committee has the ability to veto the
deal and could also launch an investigation into
the implications of such a deal. IBM had earlier
this month said that it had filed for CFIUS
approval as part of the necessary regulatory
approvals it was seeking to formalize the deal.
The Lenovo sale got a US anti-trust clearance
earlier this month.
Lenovo and IBM
formally filed a notice seeking CFIUS clearance on
December 29, according to the unnamed sources. US
law stipulates that if the committee doesn't
approve a foreign takeover in 30 days, it must
open a formal investigation and finally take the
matter the US president for a decision. "Because
of national security concerns, we do not comment
on matters that may be under review by the
Committee on Foreign Investment," Treasury
spokesman Tony Fratto was quoted as saying. The
committee never reveals whether it's studying a
certain transaction or the decisions it takes on
them.
IBM and the government are
negotiating the matter, the sources told
Bloomberg. "IBM has filed a required notice with
the Committee on Foreign Investments," Edward
Barbini, a spokesman for IBM Corp of Armonk, New
York, was quoted as saying. "IBM is fully
cooperating with all government agencies in their
review of this transaction." In a statement,
Lenovo spokeswoman Alice Li said: "Lenovo
continues to fully cooperate with relevant
authorities." Treasury Department spokesman Rob
Nichols declined to comment, so did Chinese
government officials in Beijing.
CFIUS,
which reviews takeovers of US firms by foreign
entities to ensure that the deals do not endanger
US national security, has previously blocked
similar acquisitions by companies with links to
China. In 2003, it scrapped the sale of Global
Crossing to Hutchison Whampoa Ltd, the Hong Kong
conglomerate controlled by billionaire Li
Ka-shing, because of national security concerns
raised by Chinese control of the company's global
undersea cable communications network.
According to the terms of the IBM-Lenovo
contract, touted as the most ambitious attempt by
a Chinese company to penetrate the American
market, IBM will would get $650 million in cash
and $600 million in Lenovo stocks to hold a 18.9%
stake in the Chinese state-controlled computer
major. Lenovo would move its PC business
headquarters to New York from Beijing, combining
the 9,500 IBM personal-computing division
employees with its own 10,000 workers. Lenovo's
operations were to be jointly run from Research
Triangle Park, North Carolina, where the design
and marketing of IBM PCs is centered, and from
Beijing, where Lenovo is headquartered.
IBM's PC division hasn't made money in
over three years now. It posted a net loss of $139
million in the six months ended June 30 and its
shares have fallen 3.9% since. During the past
four years, IBM's PC operation has lost about $1
billion, according to a Securities and Exchange
Commission regulatory filing. IBM has not been
manufacturing its own PCs for many years now,
getting most of its products made by partners
largely in China. But despite operating at a loss,
IBM was supposedly the third-largest vendor
worldwide for PCs in 2004, with 5.5% market share.
The combined Lenovo/IBM was expected to command a
market share of about 8%, making it the
third-largest PC supplier worldwide. Lenovo is 57%
controlled by Legend Group, which was established
in 1984 by the Chinese Academy of Sciences, a
government institution.
Lenovo is now
raising $1.2 billion to help it complete the deal.
Lenovo, along with China Eastern Airlines Corp
that's seeking $225 million to purchase planes,
epitomizes the growing transnational ambition of
Chinese companies. Chinese companies spent $4.1
billion buying overseas companies last year, up
from $2 billion in 2003.
Reports of the US
hurdle, surprisingly, pushed up shares of Hong
Kong-traded Lenovo by 5%. Lenovo's shares have
shed around 20% since it announced the deal last
month as the market has generally viewed the deal
negatively because of IBM's recent history of
losses in its PC venture.
(Copyright 2005
Asia Times Online Ltd. All rights reserved. Please
contact us for information on sales, syndication and republishing.) |
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