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U.S. Panel Clears IBM Deal With Chinese Firm

National Security Issues Reviewed

By Mike Musgrove
Washington Post Staff Writer
Thursday, March 10, 2005; Page E05

International Business Machines Corp. announced yesterday that a Bush administration panel has cleared the company's sale of its personal-computer business to Chinese manufacturer Lenovo Group Ltd.

IBM announced plans in December to sell its PC business to China's biggest computer maker, but the $1.75 billion deal drew concern from some on Capitol Hill who worried that the sale might allow advanced U.S. technology to leak to the Chinese government.


The $1.75 billion deal with China's Lenovo Group concerned some lawmakers, who worried about leaks of U.S. technology to the Chinese government. (Ng Han Guan -- AP)

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The Committee on Foreign Investments in the United States (CFIUS), a panel that includes representatives from 11 government agencies, such as the Commerce, Defense, Justice, State and Homeland Security departments, reviewed the deal and raised no objections.

CFIUS regularly reviews sales of U.S. businesses to foreign companies and has the power to bar such sales if it finds a risk to national security interests. Tony Fratto of the Treasury Department, the spokesman in charge of CFIUS-related media queries, declined to comment on the matter.

Under the terms of the IBM-Lenovo deal, IBM would get a 19 percent equity stake in Lenovo. Lenovo, in turn, would become a preferred supplier for computers to IBM's corporate clients and acquire the right to use the IBM brand name on its computer lines for five years.

Lenovo is partly owned by the Chinese government; its acquisition of IBM's computer business would make it the world's third-largest player, behind Dell Inc. and Hewlett-Packard Co.

That IBM would want to part with its PC business is the latest upshot of a computer industry that has matured into a low-profit-margin business; the deal also gives fresh evidence of China's arrival and ambitions as a global economic power.

Though most analysts predicted that CFIUS would sign off on the sale, the deal met with resistance from influential House committee chairmen who expressed alarm over the deal on the grounds that it could result in a transfer of advanced technology to the Chinese government.

Rep. Henry J. Hyde (R-Ill.), chairman of the International Relations Committee; Rep. Duncan Hunter (R-Calif.), chairman of the Armed Services Committee; and Rep. Donald Manzullo (R-Ill.), chairman of the Small Business Committee made that argument in a January letter to Treasury Secretary John W. Snow, chairman of CFIUS.

Manzullo said yesterday that he was satisfied with the government review, but he urged CFIUS to pay greater attention in the future to the impact of such deals on the nation's economic security. "The Chinese are going to be encouraged to buy more U.S. companies and here we go, we'll see what happens," he said.

Another opponent of the sale, Michael R. Wessel, commissioner of the U.S.-China Economic and Security Review Commission, had argued that the Chinese government could use an IBM facility in North Carolina as a jumping-off point for corporate espionage in the United States. Yesterday, Wessel called for a "comprehensive review of the statute that provides the underlying authority for CFIUS."

Proponents of the deal have argued that desktop and notebook computers contain nothing but ubiquitous or "commodity" technology, one reason that American firms have had difficulty making profits in this area in recent years. IBM, for example, is leaving the PC business behind to pursue profits in corporate consulting; its consulting business is one of the largest in the world.

Clint Roswell, a spokesman for IBM, said yesterday that the company expects the deal with Lenovo to be completed in the second quarter of 2005.


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