[Mb-civic] Compter purchase from China draws fire

[Harold Sifton]

More overreaction to foreign investors in America?

HS


State Department computer purchase from China draws fire 
By Keith Bradsher The New York Times 
FRIDAY, MARCH 24, 2006 
HONG KONG A U.S. State Department purchase of more than 15,000 computers produced by Lenovo Group, a company controlled by the Chinese government, is starting to draw criticism in the latest sign of American unease about the role of foreign companies in the American economy.

The computers, worth more than $13 million, are coming from factories in Raleigh, North Carolina, and Monterrey, Mexico, that were part of the personal computer division that Lenovo purchased from International Business Machines last May.

Sean McCormack, a State Department spokesman, said at the department's daily media briefing on Wednesday that the computers were intended for unclassified systems and would be serviced by the former IBM division.

The cost of the contracts was carefully scrutinized, he said, without discussing security issues in any detail.

"The United States takes its responsibilities seriously in terms of getting the best value for the dollar whenever we spend American taxpayer dollars," he said.

The computer contracts are nonetheless drawing criticism from the diverse group of liberal and conservative critics who have been warning about China's growing power for years. These critics have been encouraged by the congressional scrutiny given to a plan by a company controlled by the royal family of Dubai in the United Arab Emirates to acquire operations at six American ports; the company has since agreed to relinquish those operations.

The critics warn that the computer deal could help China spy on American embassies and intelligence-gathering activities by planting extra hardware and software in the computers.

"The opportunities for intelligence gains by the Chinese are phenomenal," said Michael Wessel, a member of the U.S.-China Economic & Security Review Commission, which was created by Congress to monitor and report on the bilateral relationship.

Larry Wortzel, the panel's chairman, said in an interview two weeks ago that while he would not be concerned if Airbus moved an aircraft production line to China, he would be worried if Lenovo ever started to sell computers to U.S. government agencies involved in foreign affairs. Responding Thursday to the Lenovo deal, he said, "Members of Congress, I think, will react very strongly when they see a deal like this come through."

Lenovo has been combining the former IBM operations with its own, and the company announced on March 16 that it would eliminate 1,000 jobs in North America, Europe and Asia.

Lenovo is a publicly traded subsidiary of Legend Holdings, which was started by the Chinese government in 1984 and is still controlled by the government. Lenovo declined on Thursday to comment on the computer sales to the State Department.

Word of the deal began to trickle out Monday when a Lenovo distributor, CDW Government, a wholly owned subsidiary of CDW Corp., sent a press release to business media announcing its success in winning contracts to help the State Department modernize its information technology systems.

CDW, based in Vernon Hills, Illinois, said that it had been carrying out an $11.65 million contract to supply more than 15,000 Lenovo ThinkCentre M51 desktop computers, plus a $1.35 million contract to provide nearly 1,000 Lenovo ThinkCentre M51 minitower computers.

Max Peterson, vice president of federal sales at CDW Government, said that the State Department had approved a list of specific computer models, including the Lenovo models, and had asked computer systems integrators to bid for contracts to meet the department's needs and make their own choices among approved models. CDW won the contracts and chose to begin delivering Lenovo computers at a pace of 500 a week starting in November, he said.

Chinese ownership of Lenovo was never discussed with the State Department through the contract process and the computer deliveries, Peterson said. He noted that the Committee on Foreign Investment in the United States, led by the Treasury Department, had approved the Lenovo acquisition of the IBM division more than a year ago.

The same committee cleared the Dubai ports deal, Wessel said, adding that the panel had no procedures for following up on acquisitions later to see if they had affected national security.

Peterson said that with $1.8 billion in annual public procurement contracts to supply information technology to the federal government and other public bodies, CDW Government was supplying Lenovo computers to a wide range of federal agencies every day. He declined to provide examples of these agencies.

David Barboza in Shanghai contributed reporting for this story
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