State Department Computer Purchase From China Draws Fire

[Ryan Ruck]

State Department Computer Purchase From China Draws Fire

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.

[Ryan Ruck]

US Group Wants China 'Spy' Probe

A US agency is calling for an official probe into Chinese computer firm Lenovo's contract to supply 15,000 computers to the US State Department.

The US-China Economic and Security Review Commission (USCC) said it feared the PCs could be fitted with bugging devices to spy on the US government.

Lenovo, which last year bought IBM's PC arm, said it had nothing to hide and would welcome the investigation.

Concern has been rising in the US over foreign companies buying US firms.

Political Opposition

Earlier this month United Arab Emirates-based docks company Dubai Ports World was forced to announce that it would sell all US ports it had inherited after it bought UK firm P&O.

The move by Dubai Ports World followed extensive opposition from US politicians.

Last year, Chinese oil producer CNOOC withdrew from the race for US oil firm Unocal last year, again in the face of strong US political opposition.

However, Jeff Carlisle, vice president of government relations for Lenovo, said his firm had "nothing to hide".

Mr Carlisle added that no investigation was warranted and voiced concerns that Lenovo could be put at an unfair disadvantage regarding future US government contracts due to the controversy.

The State Department is spending about $13m (£7m) on the Lenovo computers, which are assembled at factories in North Carolina and Mexico.

Mr Carlisle added that the circuit boards are originally made in US ally Taiwan, and not mainland China.

Foreign Intelligence

Yet USCC member Michael Wessel said the opportunity for intelligence gathering through the computers was "enormous".

Larry Wortzel, head of the USCC - whose membership is appointed by the US Congress - said he expected US lawmakers to begin a probe.

"If you're a foreign intelligence service and you know that a [US] federal agency is buying 15,000 computers from [a Chinese] company, wouldn't you look into the possibility that you could do something about that?" he said.

[Ryan Ruck]

US Diplomats Alerted Over Chinese Computers

American diplomats have been instructed not to keep classified material on 16,000 newly purchased computers because the manufacturer is partly-owned by the Chinese government.

Richard Griffin, the assistant secretary of state, told Congress he would ensure that the machines did not "compromise our information and communication channels".

The row erupted when a congressman raised questions about the purchase of machines from Lenovo, the world's third biggest personal computer maker. The company is 28 per cent owned by a state-controlled Chinese entity.

At least 900 of the computers were to be used by diplomats at embassies around the world and would have been used to access classified material.

Some that had been installed are being removed and all will undergo "inspection and verification". The State Department said that in future it would track the ownership of computer manufacturers.

Frank Wolf, a Republican congressman, said the purchase was a mistake. "This decision would have had dire consequences for our national security.

"It is no secret that the United States is a principal target of Chinese intelligence services."

It had been suggested that the computers may have some sort of electronic eavesdropping mechanism installed. But the company's spokesmen denied that there was any risk in using their machines.

"We are absolutely confident in the security of our manufacturing process," said Jeffrey Carlisle. "These computers do not present a risk to US security."

Fears about Chinese espionage are fast rising in America. Numerous operations aimed at high-tech industries have been uncovered in recent years and the FBI has greatly increased its counter-intelligence operations.

This week, a Chinese businessman pleaded guilty in Florida to trying to purchase fighter jet engines, air-to-air missiles and long-range, nuclear capable cruise missiles for Beijing. He faces 30 years in prison.