http://www.nytimes.com/2006/04/09/business/yourmoney/09digi.html By RANDALL STROSS April 9, 2006 LOU DOBBS is a master of the sinister tease. Last month, he was in top form. Previewing a story, he told viewers of his nightly CNN newscast that when the State Department seeks secure network communications, it "turns to Communist China," and thus renders the United States "perhaps more vulnerable than ever." The story turned out to be another Lou Dobbs exercise in bashing immigrants, or, more precisely, bashing a single immigrant: Lenovo, the PC maker originally based in China that last year acquired I.B.M.'s PC division and is now based in Raleigh, N.C. Lenovo recently won a competitive bid to sell the State Department $13 million worth of personal computers. Mr. Dobbs, like some politicians on Capitol Hill, suggests that those PC's could provide shadowy spooks in the Chinese government with an ideal means of conducting espionage. Merely hinting at such a possibility is enough to hurt Lenovo's reputation. This is a potentially serious impairment in the highly competitive, commoditized PC business. What is happening to Lenovo, the most internationalized company in the industry, is a drive-by smearing. Mr. Dobbs is not the only practitioner of the hit-and-run attack. In his segment about Lenovo he called upon Michael R. Wessel, a member of the U.S.-China Economic and Security Review Commission, an advisory body to Congress. Mr. Wessel said that the State Department would use the Lenovo computers in offices around the world, potentially providing China access to "some of our deepest secrets," a "treasure trove of information they could use against us." Mr. Wessel's segment was too brief to explain how China's agents would be able to grab hold of the machines to install the software for clandestine data transmission back to the party's Central Committee. The Lenovo desktops headed for the State Department will be assembled in facilities in North Carolina, not a People's Liberation Army compound in China. Also unexplained was how infected machines would meet General Services Administration security standards and get past the State Department's two computer security groups, which oversee the administration of their own test suites and install firewalls and other security software. Last week, I spoke with Mr. Wessel to learn more about the basis for his alarm. It turned out that he was not able to describe how Chinese agents could gain access to the Lenovo machines, undetected, while they were being assembled. When I asked why he thought the State Department's security procedures were inadequate, he suggested that he could not say because the State Department had been less than forthcoming with him. "We don't fully know" what the procedures are, he said. But when I asked him if he had requested information from the department about its protocols before he publicly voiced his concerns about the Lenovo deal, he said he had not. Larry M. Wortzel, the chairman of the security review commission on which Mr. Wessel serves, was even more animated in asserting that there were security risks in the Lenovo sale to the State Department. When I spoke with him, he professed to be mystified as to "why the State Department would take the risk." What had the State Department told him about its security procedures? He, too, had yet to speak with anyone there; the commission's request for a briefing had been drafted but not yet sent. Both commissioners assume that Lenovo is managed by puppets whose strings are pulled in Beijing. Mr. Wessel said he was certain that "a major portion" of Lenovo was "controlled by the Chinese government." State enterprises are placed in the hands of "princelings," who are the children of government leaders, he began to explain before I interrupted. Princelings installed at the meritocratic Lenovo? When I asked Mr. Wessel to identify a Lenovo princeling, he said, "I haven't done a research of Lenovo." He said he had merely "raised questions" and had "never purported to have answers." This was similar to the reply from Mr. Wortzel when he was asked to substantiate his allegations with details. The fact is that Lenovo is a living repudiation of the system that these critics assume it represents. It was born in 1984 from un-Communist entrepreneurial impulses among a group of Chinese computer scientists who wanted to start their own company. Their employer, the Chinese Academy of Sciences, gave them $25,000 in venture capital, and off they went. It was among the first Chinese companies to issue employee stock options. The Academy of Sciences retains a minority ownership position, but so do I.B.M. and three American private-equity firms. The largest block of shares is owned by public shareholders. (Its shares are traded on the Hong Kong exchange.) Lenovo is headed not by a princeling but by an American, William J. Amelio - a former senior vice president for Dell, as it happens. Perhaps the security concerns could be validated by an authority on China's military. I spoke with James C. Mulvenon, deputy director of the Center for Intelligence Research and Analysis, which is based in Washington and run by Defense Group Inc. Dr. Mulvenon said he had many concerns about China's state-sponsored espionage activities, but Lenovo was not on his list. He described the controversy about Lenovo as "xenophobia and anti-China fervor dressed up as a technology concern." Rob Enderle of the Enderle Group, a technology consulting firm in San Jose, Calif., said he also saw the criticism of Lenovo as lacking in substance. With an executive staff split between Chinese and Americans, Lenovo is the most global company in the PC industry, he said. The real story, he said, was that these critics were "really torqued that China is out-executing the U.S." Lenovo is an inviting magnet for all sorts of free-floating American anxieties about global competition. The visceral nature of these concerns can be seen in other remarks by Mr. Wortzel of the U.S.-China Economic and Security Review Commission. He said, "As a taxpayer, I have a serious concern about why my tax money is spent on a computer made by a company owned by the government of the People's Republic of China." Why, he asked, couldn't the State Department place its order with a "100 percent American-owned company"? The cold-war template of us versus them, capitalist versus Communist, does not fit the geography of the globalized supply chain that underpins the computer industry. All players, even the "100 percent American-owned" vendors, have a major presence in China. Roger L. Kay, the president of Endpoint Technologies Associates, a consulting firm in Natick, Mass., said China had attracted so many companies based in the United States that the PC ecosystem there had reached a critical mass. Low-cost production is not the draw. "Now the reason you want to be in China," he said, "is because that's where everyone else is." Wishing wistfully for a return to the past - in which I.B.M. was still in the PC business — is not likely to improve American competitiveness here and now. Mr. Enderle said that ignoring the discomfiting fact that technology companies based in the United States are losing leadership positions to their counterparts in east Asia — not just China, but also Taiwan and South Korea - does not make the problem go away. "It's still going to hit us," he said. NEVERTHELESS, Mr. Dobbs and members of the U.S.-China Economic and Security Review Commission have tarred Lenovo with suspicion of espionage - and the State Department with being their willing dupe. Mr. Kay says the damage to Lenovo has been done, even if the State Department purchase proceeds. "The next time," Mr. Kay predicted, "the government bureaucrat will say: 'Do I want to go through this? No, I'll go with the company that is perceived as American.' " The smears will linger, he fears. "Facts don't matter," he said. "Perception matters." -=- Randall Stross is a historian and author based in Silicon Valley. 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