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US regulators could scupper the $1.25bn sale of IBM's PC division to China's Lenovo - on grounds of national security.

Both vendors have expressed their willingness to co-operate with any regulatory investigation into their proposed deal. But the US Justice Department and the Department of Homeland Security, both of which sit on the Committee on Foreign Investments in the United States (CFIUS), have issues with the sale, according to anonymous sources cited by Bloomberg.

Their chief fear is that Chinese staffers could use IBM PC assembly facilities in the US to stage industrial espionage operations, the newswire reports.

CFIUS approval is required for the deal to proceed smoothly. Without the committee's thumbs-up, IBM and Lenovo would face a formal investigation into the deal and the need for Presidential approval. The committee has until the end of this month to rule on the deal or begin an investigation. IBM and Lenovo are believed to have filed notice of the deal with the CFIUS on 29 December.

Bloomberg notes thatCFIUS has blocked relatively few such deals, but of those it has rejected, plenty involved deals with Chinese companies.

The newswire's sources suggest IBM is currently in negotiations with the CFIUS to seek ways to allay the committee's fears.

IBM agreed to sell its PC operation to Lenovo on 7 December. ®

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