Business

Is Lenovo a security risk? Old concerns resurface as trade war heats up.

Lenovo has a plant in Whitsett where workers assemble its products and a U.S. headquarters in Morrisville that the Chinese company built after buying IBM's PC business in 2005.
Lenovo has a plant in Whitsett where workers assemble its products and a U.S. headquarters in Morrisville that the Chinese company built after buying IBM's PC business in 2005. hlynch@newsobserver.com

Amid the mounting trade tussles between the U.S. and China, Lenovo is once again coming under fire in Washington, being called a "cyberespionage risk" and one of the Chinese-controlled companies the U.S. government ought to keep a closer eye on when buying computer gear.

The company is "a similar case" to two other Chinese tech firms, Huawei and ZTE, that a U.S. House committee has urged both the federal government and companies to steer clear of, consultants hired by the U.S.-China Economic and Security Review Commission said in a new report.

The report drew a firm response from Lenovo, which is based in Beijing but has its U.S. headquarters in Morrisville where it operates PC and server businesses it bought from IBM in 2005 and 2014.

Lenovo "respects the laws and regulations of the countries where we do business," said Kristy Fair, a company spokeswoman. "We are currently reviewing the U.S.-China Economic and Security Review Commission’s report and will meet directly with the commission and its third-party researcher to correct the numerous inaccuracies in the report."

The report, drafted by consultants working for or with Virginia-based Interos Solutions, says the the company "has been linked to Chinese state-led cyberespionage efforts," citing reports that suggest its equipment is on the outs with key military, intelligence and diplomatic agencies in the U.S. and other countries. However, those reports have been disputed by U.S. agencies in the past.

The Interos report started making the rounds in Washington and business circles earlier this month. It argues that the federal government needs to step up and centralize efforts to track where U.S.-based tech firms like IBM and Cisco obtain parts for the gear they sell to the government.

Given that China "is not a U.S. ally and is unlikely to become one any time soon," the worry is that its government can exploit its business ties to either spy on the U.S. or "otherwise compromise the confidentiality, integrity or availability" of federal computing systems, the report stated.

Congress set up the U.S.-China Economic and Security Review Commission in 2000 to "monitor, investigate and report" back to it about "the national security implications of the bilateral trade and economic relationship" between the U.S. and China. The panel is bipartisan; Congressional leaders appoint the members and generally look to people with ties to Congress, the military and academia.

It submits a report to Congress each year on the gamut of U.S.-China relations and hired Interos "to support its deliberations" in-house and "promote greater public understanding of the issues."

Interos specializes in "supply chain risk management." The team behind its report includes people with past or current ties to a pair of conservative think tanks, the American Enterprise Institute and the Heritage Foundation.

IBM-Lenovo deals passed muster

China-U.S. business ties are sensitive because military and foreign-policy analysts fear the two countries are fated to clash at some point.

The U.S. built its security and economic position in the Pacific basin in the 19th and 20th century while China's fortunes were at a historic low thanks to more than a century of internal chaos and civil war. But China's political leadership stabilized in the late 1970s, and the country's economy has been on the rebound ever since.

It now presents the U.S. a quandary: how to deal with a rival power that has both a dynamic economy and a population nearly four and a half times bigger than its own. Congressional leaders, including North Carolina U.S. Rep. Robert Pittenger, a Republican who represents the state's 9th District, want the government to pull the reins on business ties with China.

Pittenger said the Interos report dovetails with a bill he's sponsoring that would expand the authority of the president and the government's Committee on Foreign Investment in the United States to restrict or veto deals like the ones Lenovo made with IBM.

"The essence of that report is the basis of why I've authored" that bill, "to address the very focused interest of the Chinese to acquire our military capabilities," Pittinger said this week.

Lenovo's purchase of IBM's PC business was reviewed by the U.S. Committee on Foreign Investment in 2005, after some Republican members of Congress raised security concerns. The committee reviewed the company again in 2014, when it wanted to buy IBM's server business. Both times the company passed muster.

Pittenger critical of deals

The U.S.-China Economic and Security Review Commission urged Congress last year to bar Chinese "state-owned or state-controlled entities" from buying U.S. assets. The Interos report pegged Lenovo, the world's second-ranked PC maker, as state-owned.

Pittenger also authored a March opinion piece in the Wall Street Journal that criticized such Triangle-based companies as IBM and General Electric for agreeing to sell to the Chinese technical know-how that has both civilian and military applications. And in 2016, he told the Journal this country's trade with China "took a garden snake and made it into a boa constrictor."

The chairman of a Congressional task force on terrorism and unconventional warfare, Pittenger is a longtime Lenovo critic and figured in one incident that made it into the Interos report.

In 2016, an internal U.S. Air Force email surfaced that said Lenovo's wares were "being removed from the approved products list and should not be purchased for" use in the U.S. Department of Defense. But the Air Force quickly backpedaled, and in doing so triggered Pittinger's ire. He complained, through a spokesman, that the incident signaled either that the Air Force was putting out inaccurate information or that the Department of Defense wasn't taking Air Force security concerns seriously enough.

Interos consultants also cited a 2013 Australian media report that government security agencies in the U.S., Britain, Canada, Australia and New Zealand had sworn off Lenovo machines for use on networks that relay highly classified information for fear the machines' have hardware or software back doors.

Australia's defense department disputed the accuracy of that report, but in terms that didn't exactly clear things up.

The Interos report comes as tensions between the U.S. and China over trade are escalating. President Donald Trump's administration has slapped tariffs on steel and aluminum imports. Trump also has called for up to $150 billion in additional tariffs on Chinese goods as punishment for intellectual property theft.

Last month, Trump blocked Singapore-based Broadcom's proposed takeover of Qualcomm, citing national security concerns.

Pittenger acknowledged that Lenovo is a major employer in North Carolina. About 2,700 people work at its Morrisville facility and it also has a manufacturing facility in Whitsett in Guiford County.

"I’m clearly concerned for all those who are employed" there, he said. "Our interest is a national security aspect. We want to continue to do everything we can to continue to have strong international relationships with partners from all countries, China and otherwise, and at the same time protect our national security. When we have issues brought to us, we need to address it."

Ray Gronberg: 919-419-6648, @rcgronberg

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