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Obama administration continues its strategy of provocation against its fellow spy state

The ongoing spat between America and China over spying accusations could sink a deal involving a pair of prominent electronics firms.
I. Great Expectations
China's Lenovo Group, Ltd. (HKG:0992) appeared poised to seal a deal to purchase American electronics giant International Business Machines Corp.'s (IBM) server unit.  The deal -- worth $2B USD in cash and roughly $300M USD in stock -- was lauded by analysts who felt it was high time for IBM to divest its server business which had grown a bit long in the tooth in recent years, as IBM's gaze drifted to bolder visions of self-contained supercomputing boxes.  
Recently having celebrated its hundredth anniversary, IBM was looking to continue the bold moves that have helped it survive the last century, while Lenovo was looking to emulate IBM's achievement in the century to come with its mastery of the volatile consumer market.  The deal would only cover IBM's low-end/run-of-the-mill commercial servers, not its high end supercomputing boxes like Watson that are today its chief focus.

IBM sign
[Image Source: Reuters/Rick Wilking]

Alberto Moel, a Hong Kong-based analyst at Sanford C. Bernstein & Comp. LLC, remarked:

Everybody wins because even if IBM could double the profitability it's still not good enough for IBM. On the other hand, Lenovo doubling the server business margins is a good deal for Lenovo.

With a deal reached, optimism was high, as Lenovo seemed a natural fit.  It had already bought IBM's PC business in 2005 for $1.75B USD ($1.25B USD cash, $500M USD in debt payoffs).  Lenovo's PC unit purchase had been a terrific success.  It was quite a bold move at the time, but it would set a precedent of Chinese firms buying struggling American brands to strengthen their global sales via a familiar name.
The unit has ascended to become the top-selling PC brand in the world, passing America's Hewlett Packard Comp. (HPQ) [Q2 data from Gartner, Inc. (IT)].  According to the Interactive Data Corp. (IDC), Lenovo was also the fastest growing tablet maker, with 224 percent growth year-to-year and a fourth place sales ranking in Q1 2014.  The IDC's smartphone report for Q1 2014 shows Lenovo holding fourth place in that market as well.

Lenovo Ashton

But for all the hope, things quickly showed signs of struggling.  Ironically enough, IBM employees in China began striking over the prospect of working for Lenovo.
Things went from bad to worse this week when the Committee on Foreign Investment in the United States (CFIUS) decided to halt approval of the deal while it investigates potential national security concerns, according to an unconfirmed report in The Wall Street Journal.
II. The World's Top Two Spy States Face Off
The CFIUS is a little known branch of the U.S. Department of Treasury (DOT) tasked with policing sales of American owned businesses to foreign firms.  Since the emergence of China as the chief manufacturer for American electronics makers in the 1990s, China has seen a growing financial friendship with the U.S. and increased mutual business.  Despite that, the CFIUS remains wary of China, likely due to the ongoing economic rivalry between the two nations.

Obama bowing
President Obama has been polite in meetings with Chinese officials, even humbly bowing to the prime minister of China at a 2010 press event.  But in the last several months much has changed.
[Image Source: Reuters]

As a piece of an executive branch department, CFIUS sees its policy trickle down from the President of the United States.  Under the Obama administration, scrutiny has reached new heights; 2012 set a record for most CFIUS probes according to a Dec. 2013 report to Congress.
But this year could set an even higher record, as the U.S. and China's relationship has recently taken a turn for the worse.  Ironically, the source of the contention is one of the countries' strongest points of common ground -- their quest to eliminate privacy and spy on the world.
Both countries have spied on many of their allies in Europe -- and each other.  Both spy on their domestic population recording citizens' emails, "metadata", and internet traffic.  Both nations' unprecedented, Orwellian efforts have been enabled in recent years from strong nationalistic rhetoric at a national government level, that has left much of the population in each country largely apathetic to their nation's growing identity as surveillance states.
When it was revealed that the U.S. was recording hundreds of millions of emails and phone conversations -- virtually every unencrypted communication in at least five nations, including the U.S. -- China remained largely silent (and for good reason, at that). But when recent leaks indicated that the U.S. National Security Agency (NSA) had been exploiting routers and other products from Chinese-owned firms, America's largest manufacturing partner broke its silence.
III. Obama Administration Continues Strategy of Provoking China
The U.S. Department of Justice (DOJ) recently charged five Chinese military officers with hacking U.S. companies to steal trade secrets.  As these officers resided in China and allegedly were part of the military, this was pure theater.
China responded earlier this month by threatening "severe" punishments against American firms and has already cut some contracts with IBM, Oracle Corp. (ORCL), and Cisco Systems Inc. (CSCO).  The threat has some American companies like Microsoft Corp. (MSFT) -- fearing losing billions due to the President's decision -- literally pleading that they weren't complicit in the government spying.

The Obama administration claims Lenovo might spy on the Pentagon. [Image Source: CNN]

The official line from the CFIUS is reportedly that it's "concerned" that IBM's x86 servers, which are found in many U.S. data centers and communications network hubs, could be subverted by Lenovo on behest of the Chinese government.  The CFIUS report says that the servers could then become a military threat, targeted at spying on the Pentagon.
The Obama administration believes it knows a thing or two about such tactics, as it has used similar malware intrusions to spy on China and other nations.  It says, however, that China should not be allowed the same rights to spy on and globally sabotage electronics as America does.

IBM servers
The CFIUS reportedly claims IBM x86 servers could be made into spy devices if purchased by China's Lenovo. [Image Source: IBM]

It also reportedly expressed concerns that China could make a really big supercomputer with all those servers, which could aid China's military.  Last, but not least, it complained that Lenovo could abandon support for American customers.
IBM and Lenovo are desperate to try to win over regulators.  They've reportedly re-filed their proposal to give the CFIUS more time to complete its probe.  Lenovo has also reportedly promised in a filing to support IBM's customers "for an extended period" of time following the sale.
The pair must now wait to see if the CFIUS is satisfied with whatever message it was trying to send, or if it decides to take things a step further in the Obama administration's "national security" spat with China.

Obama spying smirk
Observers are watching if the Obama administration decides to shoot down the IBM server unit purchase as another provocative gesture in its spat with China. [Image Source: Reuters]

The probe will likely be closely watched by much of the American tech industry, which is wary of the growing political rift with China.  Much of the tech industry was already opposed to the Obama administration's ongoing efforts to penetrate their networks and spy on their customers.  Those efforts have damaged trust with clients in Europe, South America, and other regions worldwide, costing the U.S. tech industry literally billions in lost revenue, according to analysts.

Sources: WSJ, Reuters

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Pot, meet Kettle.
By GotThumbs on 6/27/2014 11:40:56 AM , Rating: 2
The Obama administration believes it knows a thing or two about such tactics, as it has used similar malware intrusions to spy on China and other nations. It says, however, that China should not be allowed the same rights to spy on and globally sabotage electronics as America does.

Seems Obama Admin doesn't like to play in the same sand box. This is the issue with aggressively spying on other nations, it only serves to force the other nation to do the same.

I don't know about you, but if someone attacks me, I don't simply smile and say thank-you. I'll defend myself anyway I feel is necessary.

Obama Admin is an Epic FAIL IMO. Can't wait till 2016 Elections. I'd rather have had Hillary than this incompetent fool. </Rant>

RE: Pot, meet Kettle.
By Spuke on 6/27/2014 12:48:20 PM , Rating: 5
What's funny is we both have been spying on each other for decades AND we both know about it. But politics makes everyone act "shocked".

RE: Pot, meet Kettle.
By JasonMick on 6/27/2014 1:08:50 PM , Rating: 5
What's funny is we both have been spying on each other for decades AND we both know about it. But politics makes everyone act "shocked".
I despise comments like this, as they are highly misleading. Although I'm sure your intentions are good, I think your commentary misses on one crucial mark.

While it's true that political and even economic espionage is nothing new, even at the height of the cold war it was limited by manpower and technology.

Today the spying truly is something new in one regard -- its reach.

The NSA can today intercept virtually every unecrypted piece of data and metadata, including emails, text messages, phone calls, and internet website requests. All of this is carefully compressed and stored, eventually extracted by scripts which perform some degree of automated attacks and/or elevate data for inspection by federal agents. Literally hundreds of millions of peoples' data -- if not billions is being recorded.

That is very new.

Let's acknowledge the facts -- most nations spy in an "orthodox" way, sending agents, paying for information, even planting high tech bugs in rival political leaders buildings or affects. Most European nations do this.

But when it comes to recording hundreds of millions of peoples' every digital action and communication, that's truly unprecedented. It was never done in the Cold War. Would the intelligence officials back then have done it if they could? Perhaps. But it simply was not feasible.

The kind of spying that is going on today was science fiction in years past -- George Orwell's 1984.

Today three decades later, in 2014, 1984 is reality.

Only a handful of countries are believed to have pursued these kinds of Orwellian ubiquitous spying. I've only seen any sort of evidence that of major industrialized nations only China, America, Britain, and perhaps Russia have the technology needed and choose to spend money to spy on millions of their people.

Further, when it comes to Russia and China, most likely the majority of this traffic is directed at their homeland -- keeping their population in line. That's also true in the U.S. and UK -- HOWEVER we have completed an even greater technological feat, cutting oceanic cables and pressuring our overseas businesses to install interception centers.

The cable cuttings were well documented (rather mysterious) major events. Now we know what was happening. Leaked documents indicate the U.S. used its deep sea submarines to cut or modify the cables, planting highly sophisticated bugs along the lines.

At the same time our ability to install a foreign surveillance center in Germany is thanks to our strong high tech sector (which is unfortunately paid back with the financial fallout even if they were strong armed). Only China, the U.S., and UK have that kind of global influence (here, Russia arguably falls off).

So what is going on is indeed unprecedented , and there's only a few nations doing it. Traditionally we've characterized China and Russia as villainous opponents of democracy and freedom, who police their own people ruthlessly and seek to spread their despotic vision upon the world.

Well, for all the rhetoric, there's some truth to that claim. Now we see that our country's government is operating in an identical manner. It developed these capabilities in very late 1990s and has only been using them on this scale in the last decade. Now the U.S. government has become perhaps the strongest instance of the evil that it once condemned.

America has become the leading anti-privacy police state, surpassing even China, who would be a close second.

RE: Pot, meet Kettle.
By Spuke on 6/27/2014 1:59:48 PM , Rating: 2
Jason, do you have an account I can PM you at over on Anandtech?

RE: Pot, meet Kettle.
By JasonMick on 6/29/2014 12:12:29 PM , Rating: 2
Just message me @ jason.mick at dailytech dot com

...I read AnandTech a bit but don't have an account on their forums. :)

RE: Pot, meet Kettle.
By Reclaimer77 on 6/27/2014 2:35:01 PM , Rating: 1
I and others read 1984 as a cautionary tale of Government overreaching.

Clinton and Obama thought it was an instruction manual.

RE: Pot, meet Kettle.
By room200 on 6/27/2014 6:58:04 PM , Rating: 5
And this arshole skips over Bush. LOL

RE: Pot, meet Kettle.
By TSS on 6/27/2014 9:32:51 PM , Rating: 5
Missing Patriot act Bush from that list thar. Actually just throw in everybody since Reagan.

Anyway, 1984 wasn't about the government overreaching. They will do that regardless. The real message was about how the government could do so, and *win*. As in, no happy end, no popular uprising to restore freedom. No action from the proles. Just perpetual misery.

Remember it was ment as a comentary on nazi facism/soviet union at the time of joseph stalin. Neither of those states where brought down by their own people.

That was the warning: When it gets that far nobody will stop big brother (wether they can or not). Which is true. Just imagine how many people right now would rise up against the US government and put their lives on the line for the future. And the time really is now, all the NSA needs to sift through everybody's private data en masse is 1 declaration of martial law (they have it already but they're not "looking" yet). Which at this point is just an economic collapse and a few riots away. After that any digital communication would be simply suicidal. If there's anything vital to organised resistance, it's communication.

But then again. If history teaches us anything, it's that nobody learns from history.

RE: Pot, meet Kettle.
By Bad-Karma on 6/29/2014 3:44:51 AM , Rating: 2
Missing Patriot act Bush from that list thar. Actually just throw in everybody since Reagan.

Blah, blah blah.....Bush.

Until you realize that the Patriot Act is almost word for word taken from the Omnibus Counterterrorism Act of 1995. introduced by.....ding , ding ding, Our friendly neighborhood Joe Biden . The Co-sponsors are almost all down the liberal left.

RE: Pot, meet Kettle.
By Monkey's Uncle on 6/30/2014 9:28:50 AM , Rating: 3
You don't see the huge gaping hole in that?

Bush, a conservative, taking and more importantly implemented, a proposal from his 'supposed' rivals - the liberals.

Proof positive that no matter what side of the tracks you live on and no matter what party is in control, each and every one of them will strive to strip your rights away.

The only difference between the parties is who is doing the selling the same steaming pile of crap at the time (the last party to win an election) and who is trying to oppose it (the last party to lose the election).

RE: Pot, meet Kettle.
By Reclaimer77 on 6/30/2014 12:02:01 PM , Rating: 2
Uhhh can you explain to me how the Patriot Act ripped our rights away? Or even show me someone who's been affected by it wrongly?

Comparing the Patriot Act to Obama's NSA rampage on our rights and his IRS scandals and who-knows what else he's doing, is intellectually wrong.

RE: Pot, meet Kettle.
By wordsworm on 6/30/2014 12:33:46 PM , Rating: 2
I don't know why you think Bush's shit smells like roses.

on the one hand, you've got Americans who will give up a lot of anonymity for the sake of security. Maybe Bush did what he was supposed to do (as a representative of the will of the people). Maybe torturing people was really about making Americans better rather than getting critical information out of Taliban. Yeah, that was Bush. He was the little red dude on America's shoulder.

The little black dude on America's shoulder also seems to react to what people want. He killed Osama--something Bush's lackeys were too dumb to do--'Duh... I couldn't find him anywhere in Iraq with his WMDS... duhh... let me paint myself in my bathtub. Duhhhh....'

Obama had to make sure that America wouldn't get a repeat of 9/11. That's what Americans want more than anything. But as time goes on, people will begin to forget, and the tech that big brother is putting to work will seem worse and people will fight it. Successfully? Hard to say.

I would have liked to have seen Obama take some legal action against the former government, but it seems to be something all presidents do: have each other's back, no matter what. And when America does shit like it did for 8 years under Bush, everyone can point the finger at him and blame him for losing its head.

Obama is an intellectual. Or, are you just ignorant about his CV? Your problem is that you don't think clearly about politics. You're not concerned with its substance, but are wholly consumed by the superficial party colours and the colour of the man. You would rather impeach a man for getting blown by an consensual adult woman rather than a president who authorized water boarding, sexual molestation, and bombing the crap out of people because of WMDs which were proven prior to invasion of being in his imagination.

RE: Pot, meet Kettle.
By Reclaimer77 on 6/30/2014 1:29:22 PM , Rating: 2
Obama had to make sure that America wouldn't get a repeat of 9/11.

We've NEVER been closer to a 9/11 repeat than we are now, thanks to Obama's careless and reckless foreign policy agenda.

Not only is the enemy not vanquished, they're thriving. Just look at how fast Iraq went to crap under Obama. Then we have Syria, where Obama is actually funding and arming the enemy.

Obama is an intellectual.

I know you Liberals love to gauge the worth of a President by how intelligent he is perceived, but Obama is about as intellectual as fungus. If everything king Midas touched turned to gold, everything President Obama has touched has turned to pure sh*t.

You're a sad cardboard cutout of the same BS Leftist talking points that's been said about Bush for the past decade. In the end we're simply no better off with your Savior than we were before. He tortures, he makes up ridiculous excuses to involve the military, he hasn't closed Guantanamo or completed ANY of his campaign promises. Now he's starting a new Cold War against Russia and China over nonsense.

On the domestic front he's slagged economic growth, enslaved every American with his healthcare mandates, and continues to prop up Wall Street to the detriment of Main Street's across the country. He's just a big fatcat crooked cronyism junkie who preaches one thing, then does another.

but are wholly consumed by the superficial party colours and the colour of the man.

Ah yes, the racist card. If we had a dollar every time one of you idiots played that one we would be rich. Seriously doesn't it get old being so shallow?

RE: Pot, meet Kettle.
By wordsworm on 6/30/2014 6:26:41 PM , Rating: 2
He never closed Guantanamo. Too bad. What he did do was end state sanctioned torture: water boarding, raping, etc.

He did bring in Obamacare, and no it's not working, but it wasn't working before he was in office. All tax paying Americans contribute towards the research that goes on into medical research, but only some Americans can afford it. Does it make sense to you?

I don't like how doctors in the US and Canada, Europe, and many Asian countries, have hijacked medicine and made themselves a self regulating system. I don't see Obama taking the 'prescription' out of 'medication' and allowing folks to choose a doctor or forget the doctor and go to the pharmacist without one and still get the medicine that they need.

No, Obama didn't fix the problem. He tried, and failed. But, to his credit, he has done more to fix it than anyone else. For as long as the state gives the medical community a monopoly over medicine, then the state ought to pay for the medicine that everyone has had to pay for to get developed, only to watch it get swallowed up by patents, pharmaceuticals, and prescription fee hungry doctors.

In Canada, I have to go to a stupid doctor to get my eyes checked. In Korea, I just have to go anywhere they sell glasses to get a free checkup. Would you believe that that's illegal up here? I don't know if it's the same down there, but it's retarded that I cannot even prescribe my own glasses for myself or go into a shop. Then, after I have to pay those extortion fees, the glasses themselves usually cost +3x more than they would in Korea.

During my first year of teaching there I could go to a pharmacist to get my own drugs in Korea when I was sick, which was great, because the doctors there are idiots just like they are here and in the US.

I don't know if you're a racist or not. I assume you are because of your political stripes. The Cons have put a lot of effort into degrading him on the basis of colour. If he had been white, the rancour against him would not be as great.

RE: Pot, meet Kettle.
By Bad-Karma on 7/2/2014 1:59:38 AM , Rating: 2
I make no excuses for either party. To me both are as morally corrupt as can be. The only real question between the two is which way you prefer to be bent over as they continue to further rape our rights.

But I do take issue when someone like TSS does little more than spout "Insert party name here" lines without knowing the facts behind what he's saying.

Most people only parrot what little they've heard without using their brain as to what may be behind it and why.

So despicable
By tayb on 6/27/2014 10:18:22 AM , Rating: 3
We'll roadblock a legitimate sale in a competitive market but allow absolute anti-competitive nonsense such as Comcast/TimeWarner and AT&T/DirecTV to happen.

What a sham. We deserve our pending economic misfortunes.

RE: So despicable
By JasonMick on 6/27/2014 11:08:52 AM , Rating: 2
We'll roadblock a legitimate sale in a competitive market but allow absolute anti-competitive nonsense such as Comcast/TimeWarner and AT&T/DirecTV to happen.

What a sham. We deserve our pending economic misfortunes.
I agree.

It reminds me of this powerful quote:

"I call on the young men of America who must make a choice today to take a stand on this issue. Tomorrow may be too late. The book may close. And don't let anybody make you think that God chose America as his divine, messianic force to be a sort of policeman of the whole world. God has a way of standing before the nations with judgment, and it seems that I can hear God saying to America, "You're too arrogant! And if you don't change your ways, I will rise up and break the backbone of your power, and I'll place it in the hands of a nation that doesn't even know my name. Be still and know that I'm God.""

— Martin Luther King

When I read that it brings literal tears to my eyes thinking how our nation's great leaders and thinkers tried to warn us against allowing the kind of tyranny that is slowly killing America's economy and civil liberties. Oh, what a legacy to squander!

But there is time yet. Freedom, populism, and meritocracy are like the hydra. For every dream and voice the plutocracy and its political foremen kill or silence, scores more will grow in its place firm in their defiant proclamation -- "We will not fight wars and spill our blood for your fortune. We will not accept a manipulated market controlled by money and not merits. We will not accept your taxation in exchange for corrupt representation. We will not allow you to take our money to spy on our husbands and wives, children and grandchildren. No longer can you rob us of our free speech, due process, freedom of religion, the right to keep private that which we choose to, and freedom to assemble peaceably."

Leaders like Dr. King and Gandhi showed us that for all wealth and violence tyrants wield to try to enforce their dying, corrupt empires such tools are no match for the people once they awaken and cry out in a peaceable, resolute demand for freedom.

It is a voice growing not just in America but across every human being living on this planet. Freedom is the future.

RE: So despicable
By Reclaimer77 on 6/29/2014 12:49:47 PM , Rating: 2
Quoting a socialist with ties to Communism.... maybe not the best example on the topic of Freedom and limited Government :)

RE: So despicable
By tamalero on 6/30/2014 2:00:54 PM , Rating: 2
Anything that opposes US Expansionist, invasive measures or calling their gov in anyway, is automatically a "commie" nowadays.. just fyi.

Luther King was a visionary who fought for personal freedom.

Some ideals are perfect in word but not in action.
Because, when people with personal interests and agendas start to skew these ideas.. you get our current "capitalism" that only favors an elite few or the current "Communism" that is an total tyranny of a few selected ones against millions.

RE: So despicable
By wordsworm on 6/30/2014 6:40:36 PM , Rating: 2
I think he doesn't like the fact that King wanted both white and black people to be able to live together in harmony. That's got to be communism, right?

By Shawn on 6/27/2014 2:25:10 AM , Rating: 2
So if Lenovo buys IBM's server division, what will IBM have left?

RE: IBM???
By atechfan on 6/27/2014 8:08:20 AM , Rating: 2
Only the x86 server division. The Big Iron is staying IBM.

RE: IBM???
By LRonaldHubbs on 6/29/2014 3:59:27 PM , Rating: 2
This. IBM is keeping System p and System z which are Power-based. Lenovo is only trying to buy System x, which is the lower-margin x86 server unit.

RE: IBM???
By KFZ on 6/27/2014 11:29:44 AM , Rating: 2
A Death Star built out of patents.

By YearOfTheDingo on 6/26/2014 11:50:23 PM , Rating: 3
If the Chinese want to do business in our country, then they got to play by our rules. The behavior of Lenovo so far is nothing short of appalling. According to, the company spent a paltry $140,000 on lobbying last year. For an industry giant, the amount is ridiculous. It's basically a slap in the face. Google spent $14 million by comparison. Yup, a hundred times more.

By Cluebat on 6/27/2014 9:28:57 AM , Rating: 2
We all know that the chinese are culturally averse to graft.

By Flunk on 6/27/2014 9:23:20 AM , Rating: 2
Seeing as all American computer brands just contract out production to Chinese OEMs now there really isn't any difference anyway. If the Chinese government wants to bug them it will.

“So far we have not seen a single Android device that does not infringe on our patents." -- Microsoft General Counsel Brad Smith

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