Clyde Prestowitz quoted in New York Times (01/27/05)
TECHNOLOGY; I.B.M. Deal in China Faces Scrutiny Over Security Issue
by Steve Lohr
New York Times (NY)
Copyright (c) 2005 The New York Times. All rights reserved.
January 27, 2005
I.B.M.'s plan to sell its personal computer business to Lenovo of China
hit a political speed bump yesterday.The chairmen of three House
committees urged the Bush administration to conduct a formal
investigation of the deal to determine whether it poses a risk to
In a letter to Treasury Secretary John W. Snow, the Republican
committee leaders said they were concerned that the deal could give
advanced technology to the Chinese government, and would leave a
company controlled by China responsible for handling some United States
The Lenovo Group, the parent company of Lenovo, China's biggest maker
of personal computers, is owned mainly by public shareholders. But a
government institution, the Chinese Academy of Sciences, holds 37
percent of the shares. If the acquisition is completed, the
government's holding will fall below 30 percent, while I.B.M. will take
an 18.9 percent stake in the company.
"Given the relationship between so-called private companies in
communist states and their government, we believe it is manifestly in
the public interest to extend the time for review" of the planned deal,
the letter said.
The letter was signed by Representative Henry J. Hyde, chairman of the
international relations committee; Representative Duncan Hunter,
chairman of the armed services committee; and Representative Donald A.
Manzullo, chairman of the small business committee.
The three men also requested a briefing by the administration on the
deal's impact on national security, technology licensing and government
The appeal by the committee chairmen, trade specialists said, could
prompt the administration to conduct an extended investigation of the
deal. But they said that after the review, which could last about two
months, the administration would almost surely approve the sale.
"The administration is not going to ignore some important House
committee chairmen, but their concerns don't stand up to scrutiny,"
said William A. Reinsch, a former trade official in the Clinton
administration who is president of the National Foreign Trade Council,
a group that promotes free trade.
The majority of I.B.M.'s personal computers are already made in China, where the company employs more than 4,000 workers.
"I would be stunned if the administration turned this deal down," said
Clyde V. Prestowitz Jr., president of the Economic Strategy Institute
in Washington and a former trade negotiator in the Reagan
Foreign purchases of American companies are routinely examined for
their possible impact on national security by the Committee on Foreign
Investment in the United States, an interagency group.
The committee includes representatives from the Homeland Security,
Justice and Commerce Departments, among others. It is headed by the
I.B.M. filed its explanation of the transaction with the foreign
investment committee at the end of December, three weeks after the
announcement of the proposed $1.75 billion sale -- $1.25 billion in
cash and stock, and $500 million in debt obligations Lenovo will
Under the law, the foreign investment committee begins reviewing a
proposed sale after it is formally notified. A formal investigation, if
deemed necessary, must begin no later than 30 days after it receives
notice of a proposed deal, so an investigation would have to start by
the end of this month. Any investigation must be completed in 45 days.
Then the administration has 15 days to decide whether to challenge a
foreign purchase or approve it.
A spokeswoman for the Treasury Department, Molly Miller Wise, said the
department "never comments on matters that may be pending" before the
foreign investment committee.