Monday, August 04, 2014

China tightens policies over use of foreign tech

Beijing is going to war with Western tech giants, tightening regulations, imposing bans and openly criticising companies for spying on Chinese citizens and the state. The moves could have serious repercussions as China attempts to create a self sufficient market, less reliant on foreign technology.

Currently China represents about 10% of the global technology market, and accounts for 15% to 20% of global hardware demand, according to the CLSA. The bank says Chinese companies control about 70% of the domestic market for telecommunications gear, but Western companies account for roughly 70% of sales of computer servers.

But things may change rapidly as the Chinese government pushes Western technology companies to the sidelines.


In the last few years China has increased its criticism of mainly US technology companies, accusing them of espionage, bad business practices and of being a security risk.

This week it targeted firms Symantec and Kaspersky saying they posed a security risk.

According to the People's Daily, software from these leading companies was now banned from government computers. As a result Beijing's approved list of anti-virus software providers were all Chinese; Qihoo 360 Tech Co, Venustech, CAJinchen, Beijing Jiangmin & Rising.

The People's Daily emphasised that the latest decision to exclude Symantec and Kaspersky was not related to allegations by former US intelligence contractor Edward Snowden of snooping by the US National Security Agency, though that is unlikely to wash with most commentators [Reuters / Business Week / Business Spectator].

Microsoft criticised

Symantec and Kaspersky are just the latest in a long line of companies hit by Chinese bans and regulations. In late July, China's anti-monopoly agency announced an investigation into US tech giant Microsoft for allegedly operating a monopoly.

That followed an announcement in May this year that Microsoft's Windows 8 operating system would be banned from all new government computers.

Uncomfortable relationships

For years China has been criticised for its believed involvement in large scale hacking enterprises, something it has continually denied.

It has not reacted kindly to such criticism either. When Google essentially accused the Chinese government of launching concerted hacking attacks on its systems, China reacted angrily.

As well as statements of denial there were many manoeuvres behind the scenes. Within news organisations internal memos were distributed informing reporters that any articles about the US tech giant must be vetted, and that only government approved articles would be published.

Google eventually uprooted its China operations, moving its search engine to Hong Kong and all but closing its Beijing offices.

Google made a stand about censorship and the hacking of itself and other US companies. But others kept quiet about such concerns, not wishing to affect business opportunities in the Middle Kingdom.

Growing rift

However, the writing was clearly on the wall. And as more criticism of Beijing mounted up and the Snowden revelations became public, China began to exert its muscle and strike against Western tech companies [V3 / WSJ].

Microsoft, Apple and other tech companies now became a target.

In 2013 Apple was openly criticised over its warranty policy which China said flouted Chinese law. Apple CEO Tim Cook responded by apologizing to Chinese consumers and changed the policy, a move seen as unprecedented by a company not recognised for admitting mistakes easily [NYT]. Criticism of the company did not end however. Only last month the iPhone was branded a security risk which could expose state secrets [WSJ / ZDNet].

A month later Microsoft too was targeted with the Chinese government issuing a ban on the Windows 8 operating system being installed on government computers [BBC / Fox News].

China's state news agency Xinhua said security concerns related to foreign operating systems had led to the move and that Beijing had felt "compelled" to make the decision after Microsoft ended security support for its Windows XP operating system, which is still widely used in China.

Weeks later, critical reports suggested the new operating system could threaten the security and privacy of ordinary Chinese citizens [BBC].

Just in the last few days an anti-monopoly investigation into US technology giant Microsoft was launched [BBC / FT].

Growing list

And it wasn't just the well known names being targeted.  China's anti-trust regulator said that Qualcomm, one of the world's biggest mobile chipmakers, had also used monopoly power in setting its licensing fees.

Other companies are also in the gun sights of Chinese regulators and authorities. Last year, a Chinese magazine with ties to the Communist party suggested some of the biggest US tech companies doing business in China were spying on China [WSJ]. The cover of the June 2013 issue of China Economic Weekly declared that US a number of US companies had "seamlessly infiltrated China" [WSJ].

"He's Watching You," declared the cover of the China Economic Weekly, under an image borrowed from a World War II propaganda poster [].

Companies named in the article included Cisco Systems, IBM, Google, Qualcomm, Intel, Apple, Oracle and Microsoft.

Tit for tat

China may be justifiably concerned. Snowden's revelations have certainly raised worries that ordinary civilians, businesses and nation states could be under continual surveillance by the NSA.

Evidence published by the Guardian and other news outlets claims the NSA had access to many hi-tech companies' computer infrastructure.

The Snowden leaks were welcome news for China. It enabled China to point a finger at the US, who had, in the past, readily criticised China for launching concerted cyberattacks and engaging in cyberespionage.

With Chinese players like Huawei Technologies and ZTE largely shut out of the US over security concerns, China is now repaying in kind by impeding US companies' operations in the country.


Google was clear as to its position, something which has cost the company its place in the Chinese market. Google search is almost unusable inside mainland China, due to censorship and web blocks, and many other services are restricted. Even Google's mobile operating system Android has brought little revenue for the tech giant despite its meteoric rise. While many phones in China use Android, all traces of Google, including its app store, are stripped out meaning Google is unable to make money from Chinese mobile phone users.

Other companies have been more reticent in airing their opinions. Many worry about angering Beijing and affecting Chinese business operations. But many of the responses could be described as kowtowing.

Criticism of Apple brought apologies whilst Microsoft has said it will cooperate with investigations. In an emailed statement to Reuters the company said, "Our business practices in China are designed to be compliant with Chinese law" and that Microsoft "will address any concerns the government may have."

Symantec have also been measured in their response to the latest bans and restrictions. "We are investigating and engaging in conversations with Chinese authorities about this matter. It is too premature to go into any additional details at this time," the company said in a statement. "Symantec does not put hidden functionality or back doors into any of its technologies -- not for the NSA or any other government entities." [ZDNet]

Meanwhile, Kaspersky spokesman Alejandro Arango said, "We are investigating and engaging in conversations with Chinese authorities about this matter," adding that it was "too premature to go into any additional details at this time." [Guardian]

Fighting back

China has sustained a continual barrage of criticism by the US from accusations of hacking attacks to indictments of five PLA members for conducting cyber espionage against US firms and utilities.

Revelations about NSA surveillance has not helped Washington, and indeed China has accused the US of double standards and hypocrisy.

Following the indictments in May this year, a spokesman for the Chinese government told the People's Daily, the official newspaper of the ruling Chinese Communist Party, that if the US presses the charges "China will take measures to resolutely fight back" [Business Insider].

It is clear that China's "fight back" has well and truly begun.

tvnewswatch, London, UK

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