Thursday, March 04, 2010

Risks of tech business in China

It is nearly two months since Google threatened to pull out of China but there are few signs that either side, the Chinese government nor the Internet search giant, have made any progress in secret talks aimed at solving issues the raised. Google has issued few statements and the state propaganda machine has quietened in its vociferous rhetoric. But problems still remain.

Google declared in January that it had been the subject of a "highly sophisticated and targeted attack" on its network, and some reports suggest that the Chinese military had some involvement, though this has been strongly denied by the Chinese [FT]. Even some western reports have claimed the attacks on Google and other western interests were amateurish, exploiting holes that were old and well known. Atlanta based cybersecurity firm Damballa described the techniques as "old school" and "amateur" in a report released this week [Forbes]. Google have said they stand by their original statement and added that Damballa has "no firsthand knowledge of the investigation." The Damballa report may well be highly speculative. Google have after all kept the details of the attacks very vague and only cooperated with the National Security Agency in the US.

Whatever is happening behind the scenes, the attacks have been taken seriously enough to raise questions in the US senate. In the last few days it has even been suggested that the Obama administration might take the issue of China's censorship of Google to the World Trade Organization since it represents an unfair barrier to trade [Business Week]. This may well raise diplomatic tensions, but given China's belligerence when it comes to technological companies, the US may have few cards to play.

It is not the first time the idea of raising the issue with the WTO has been discussed. Last November the the European Centre for International Political Economy (ECIPE) released a report saying that censorship was a inhibitor of trade. "Censorship is the most important non-tariff barrier to the provision of online services, and a case might clarify the circumstances in which different forms of censorship are WTO-consistent," said the study by Brian Hindley and Hosuk Lee-Makiyama [Australian].

In respect to possible US involvement the Trade Representative's office is consulting with industry groups about China's Internet policies, spokeswoman Carol Guthrie said. Two groups with links to Google, the Computer & Communications Industry Association and the First Amendment Coalition, have told the trade office that China's restrictions on Internet access and content discriminate against US Internet companies and online commerce.

"There is a little bit of a Cold War going on here," said Michael DeGolyer, a professor of government and international studies at Hong Kong Baptist University. "This is a way of putting pressure on China in a way that is going to be popular with many countries."

But it isn't just the Internet which is restricted in China. Technology companies are "feeling less welcome and finding it increasingly difficult to do business in China", according to John Neuffer, vice-president for global policy at the Information Technology Industry Council, a lobby group. An evolving regulatory regime, targeting information technology-related products, is the chief cause of this sentiment. "Once every bit of the organisational infrastructure falls into place and every rule is implemented, there will not be much of a China market left for us," says the regional head of a foreign semiconductor company.

It started in 1999 when Beijing declared that all providers of encryption-related software would be required to disclose their source code. But fears were allayed the next year when the government issued a "clarification", saying the rule would only apply to products whose "core function" was encryption. Since 2006 Beijing has put in place the Office of Security Commercial Code Administration (OSCCA), responsible for supervising and certifying encryption-related products and their suppliers. This has placed Chinese institutions and companies under pressure to buy information security products only if they have domestic certification. It is a requirement that foreign suppliers often cannot satisfy.

"The stuff the Chinese government is asking for is stuff we don't give to governments," says a US executive. "If we were to comply and it became known that we disclosed our source codes to Chinese labs, it would damage our standing in other markets" [FT].

In a country which routinely ignores copyright and intellectual property rights, the risks are clear. Western companies have been lured by the apparently open and lucrative market China offers, but many well may have ignored the risks doing business here might lead to.

As for talks between Google and the Chinese authorities, they appear to be ongoing, but so far little has been revealed publicly. In its most recent statement Google said they were still seeking to bring about changes which would allow the company to operate without censoring its search engine. "We are firm in our decision that we will not censor our search results in China and we are working towards that end," Google vice president and deputy general counsel Nicole Wong told a congressional hearing on "Global Internet Freedom and the Rule of Law" recently. She said, "We are reviewing our business operations (in China) now," but added that the seriousness and sensitivity of the issue made the negotiations difficult. "We want to get to that end -- of stopping censoring our search results -- in a way that is appropriate and responsible," Wong said. "We are working on that as hard as we can but it's a very human issue for us." [SMH].

It is not just China which has sought to inhibit Google services however. Wong said YouTube had been blocked in at least 13 countries since 2007; China, Thailand, Turkey, Pakistan, Morocco, Brazil, Syria, Indonesia, Iran, Saudi Arabia, Myanmar, Bangladesh and Turkmenistan. The Google blogging platforms Blogger and BlogSpot had been blocked in at least seven countries in the last two years; China, Spain, India, Pakistan, Iran, Myanmar and Ethiopia. And the social networking site Orkut has been blocked recently in Saudi Arabia, Iran and the United Arab Emirates. But China's censorship is far more extreme and as a major part of the global economy its constriction of the Internet and technology can have far wider implications.

tvnewswatch, Beijing, China

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