Shares in Beijing, China-based Lenovo rose over 7% on the Hong Kong stock market following reports that the proposed $1.75 billion deal could be impacted by US national security concerns.

Bloomberg reported that members of the US Committee on Foreign Investment in the US, CFIUS, are concerned that an IBM facility in North Carolina due to be sold to Lenovo under the proposed transaction might be used by Chinese operatives for espionage.

The CFIUS includes representatives of the Justice Department and the Department of Homeland Security and would need to approve the proposed transaction if it is to avoid a formal investigation and the referral to President Bush for clearance.

The CFIUS has some history of blocking the acquisition of US businesses by companies with Links to China. In 2003 Hong Kong-based Hutchison Telecommunications withdrew its offer to buy a stake in carrier Global Crossing after US politicians raised national security concerns.

President Bush later approved the sale of Global Crossing to Singapore Technologies Telemedia, despite protestations from some Federal agencies and US rivals that STT is part owned by the Singapore government.

Both Lenovo and IBM are reported to be cooperating with CFIUS on members’ concerns, but the reaction of shareholders to the report indicates that there are major concerns about the deal.

The company’s shares rose to HKD2.175 in early trading on Monday after the publication of the report, having closed at HKD2.025 on Friday. The shares are still well below the level (HKD2.675) they were trading at before the deal was announced.

Concerns about Lenovo’s ability to deal with the cultural complexities involved with acquiring a global business have combined with the IBM PC business’s poor financial record to push down Lenovo’s share price in recent weeks.

Figures provided by IBM to the Securities and Exchange Commission at the turn of the year show that IBM’s PC Division made a loss of $139 million in the six months to June 30, 2004, on revenue of $5.2 billion. That six-month loss alone would be enough to wipe out the $134 million income Lenovo generated in its full year ended March 31, 2004, on revenue of $2.97 billion.