US wary of China’s growing technology clout

Agence France Presse

Washington, January 26:

A US government decision to probe IBM’s planned sale of its PC business to a top Chinese electronics firm reflects American concerns over China’s increasing acquisition of civilian technologies that could add to its military and economic might, some analysts say.

American technology giant IBM’s $1.75 billion deal with China’s largest personal computer-maker Lenovo was announced in December, and is one of the top technology stories of the past year. But it was only this week that the transaction attracted the wary eyes of US regulators reportedly concerned over national security.

It is not known how long it would take for the Committee on Foreign Investments in the United States (CFIUS), a high-powered interagency panel that may review mergers or acquisitions, to scrutinize the deal.

“As China develops its more competitive civilian sector, there are pretty large concerns in the United States right now about civilian technology bleeding over to the military side, and this review is symptomatic of that,” said Adam Segal of the influential US Council on Foreign Relations. There have been instances where so called “dual-use” — civilian and military — technologies stemming from mostly hi-tech sales to civilian groups in China had reportedly ended up with the military. US companies involved in satellite launches have previously been warned by Washington about passing such sensitive technology to Chinese companies.

“We cannot just rubber stamp this transaction, especially after concerns have arisen over dual technologies. There is also the possibility of industrial espionage,” said Michael Wessel, a member of the Congress sanctioned US-China Economic and Security Review Commission.

The panel has pushed for a tough US approach to China on trade and security issues. “PC making may involve just basic technology but there could be technologies and R&D within IBM which could be sensitive and that could assist the Chinese militarily and economically,” Wessel said. IBM has long indicated its desire to ease out of low-tech, low-margin PC-making to focus on high-end operations. Lenovo’s purchase of IBM’s PC-making operations would propel it to the number three maker in a market that the US technology giant helped pioneer.

Even if IBM has any sensitive technology in its PC making operations that may have national security implications, it would have already transferred that to some other part of the company before the transaction, said Nicholas Lardy of the Institute for International Economics, a US think tank.

“It sounds like complete and utter nonsense” the argument that China could make an incredible technology leapfrog by purchasing IBM’s PC making business, he said. Lardy’s bigger concern is why the deal is being investigated now when IBM had claimed a month ago that it had already received clearance from the US government. IBM also said it had already informed the US authorities of the nature of the proposed investment, he claimed.

“So my question at this point is now — weeks and weeks later — what has changed that all of a sudden somebody decides there needs to be a review,” he said. IBM spokesman Edward Barbini declined comment on whether the company had received any preclearance.

“IBM is following all the normal and routine procedures in the review of the transaction,” he said. IBM’s PC manufacturing is primarily done in China but the sales and development activities are coordinated from its North Carolina facility, Barbini said.