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National Security Panel Will Evaluate IBM Deal

By Paul Blustein
Washington Post Staff Writer
Saturday, January 29, 2005; Page E01

The pending sale of International Business Machines Corp.'s personal-computer business to a Chinese company will be investigated by the Bush administration to determine whether the deal threatens national security, according to administration and congressional sources.

The investigation was launched by an interagency committee in a relatively rare exercise of administration authority over foreign purchases of U.S. businesses, said the sources, who would not speak about the issue publicly because the panel's work is confidential.

IBM's sale of its PC unit faces scrutiny because the buyer is Chinese. (Daniel Acker -- Bloomberg News)

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At issue is the $1.75 billion sale of IBM's PC business to Lenovo Group Ltd., China's largest computer maker, announced last month. a sign of China's emergence as a global economic power.

The panel, the Committee on Foreign Investments in the United States (CFIUS), usually clears such purchases within 30 days of a relatively simple review. That period would expire this week.

But the deal will now be subject to more-thorough scrutiny for an additional 45 days, after which the committee may recommend to President Bush whether to allow it. Alternatively, CFIUS may be able to insist on modifications.

A number of sources familiar with the investigation predicted this week that the administration will eventually clear Lenovo to buy the IBM assets, perhaps with some modest changes in the terms. The manufacture of PCs, which IBM pioneered, has become a low-tech commodity business, and IBM has long hinted that it would leave the field to focus on high-margin government and corporate consulting contracts.

But the prospect for a full-scale CFIUS investigation became a virtual certainty after three House committee chairmen expressed alarm about the deal in a letter on Tuesday to Treasury Secretary John W. Snow, who chairs CFIUS. The lawmakers are Henry J. Hyde (R-Ill.), chairman of the International Relations Committee; Duncan Hunter (R-Calif.), chairman of the Armed Services Committee; and Donald Manzullo (R-Ill.), chairman of the Small Business Committee.

The IBM-Lenovo deal "may transfer advanced U.S. technology and corporate assets to the Chinese government," the letter said, noting the often cozy ties between " 'private companies' in communist states and their government." The transaction "may result in certain U.S. Government contracts" currently held by IBM "being fulfilled or participated in by the Chinese government," the Republican chairmen said.

Some proponents of deeper economic engagement with China have scoffed at such fears, arguing that PC technology is widely dispersed around the world and that opposition to the deal stems in part from anti-Beijing sentiment.

"I was surprised at how visceral the reaction has been," said Brett B. Lambert, a consultant at DFI International, a firm that advises companies on the CFIUS process.

Others worried that tumult surrounding the deal might chill other foreign investments that could provide U.S. jobs. "We are not objecting to the deal going through the investigation phase," said Nancy McLernon, deputy director of the Organization for International Investment. "However, when members of Congress start issuing press releases, the process becomes politicized and deals can be delayed, even if they are finally approved."

Ed Barbini, an IBM spokesman, said, "We believe that the CFIUS process is an appropriate and effective way to address the national security interests of the United States. IBM is cooperating fully, and we are confident in the process and its outcome."

Staff writer Mike Musgrove contributed to this report.

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