Lenovo decision attracts ‘cold war’ accusation

China has hit back at the US State Department’s decision to limit its use of PCs from Chinese computer maker Lenovo over security concerns, accusing it of “cold war thinking.”

Meanwhile, IBM has brought forward the date that it can sell its 15 per cent stake in Lenovo, setting the stage for it to cut its ties with the Chinese company late next year.

In a statement, China’s Ministry of Commerce condemned what it called the “unfair treatment” of Lenovo by the US State Department. This month, the department said it would not use for classified work any of the 16,000 computers it recently ordered from the Chinese PC maker.

In a sign that it could
also limit its purchase of machines from the company in future, the State Department said it would make changes to its purchasing practices in the light of the “changing ownership” of technology companies. The action followed pressure from a group of anti-China hawks in Washington.

“It is very unwise and betrays free trade principles of fair competition to . . . be spurred on by cold war thinking to take national security as a reason for adopting discriminatory policies toward Lenovo Group’s legitimate corporate activities,” the Chinese commerce ministry said.

Lenovo, part owned by a research institute under the Chinese government, has said there was no reason for security concerns.

Meanwhile, investors in the Chinese company yesterday shrugged off the news that IBM is now allowed to sell its near 15 per cent stake in China’s biggest personal computer maker six months earlier than planned. In spite of the potential sell-off, shares in Lenovo rose 1.1 per cent to HK$2.35 (US$0.30) in Hong Kong yesterday because most analysts do not expect IBM to dispose
of its shares immediately.

“IBM was never intended to be a long-term investor,” said Viktor Ma, analyst at Morgan Stanley. “Most importantly, I believe IBM would be sensible enough not to sell its shares at this price now.”

IBM received 1.31bn Lenovo shares, valued at the time at HK$2.675 each, in 2005 when it sold its PC unit to Lenovo for US$1.75bn. The original agreement allowed IBM to sell one-third of its stake after May 1, 2006, another third from May 1, 2007 and all of its shares after May 1, 2008. Under an arrangement with Lenovo announced yesterday, IBM can now sell two-thirds of its shares immediately, and all from November 1, 2007.

“[It] will allow IBM to reduce its shareholding in the company in an orderly manner, so that  . . .  the company can minimise the regulatory burdens associated with adapting the relationship to meet the company’s evolving needs,” said Lenovo.