China’s new tech rules upset US firms

 

While the Obama administration will almost certainly complain that China’s new rules are protectionist in nature, the US has also made it virtually impossible for Huawei to sell its products in the US. PHOTO: REUTERS

JANUARY 30, 2015

HONG KONG — The Chinese government has adopted new regulations requiring companies that sell computer equipment to Chinese banks to turn over secret source code, submit to invasive audits and build so-called back doors into hardware and software, said a copy of the rules obtained by foreign technology companies that do billions of dollars’ worth of business in China.

The rules, laid out in a 22-page document approved at the end of last year, are the first in a series of policies expected to be unveiled in the coming months that Beijing says are intended to strengthen cybersecurity in critical Chinese industries.

As copies have spread over the past month, the regulations have heightened concern among foreign companies that the authorities are trying to force them out of one of the largest and fastest-growing markets.

In a letter sent on Wednesday to a top-level Communist Party committee on cybersecurity, led by President Xi Jinping, foreign business groups objected to the new policies and complained that they amounted to protectionism.

The groups, which include the US Chamber of Commerce, called for “urgent discussion and dialogue” about what they said was a “growing trend” toward policies that cite cybersecurity in requiring companies to use only technology products and services that are developed and controlled by Chinese companies.

The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and technology policy.

While the US has accused Chinese military personnel of hacking and stealing from American companies, China has pointed to recent disclosures of the US snooping in foreign countries as a reason to get rid of American technology as quickly as possible.

Although it is unclear to what extent the new rules result from security concerns and to what extent they are cover for building up the Chinese tech industry, the Chinese regulations go far beyond measures taken by most other countries, lending some credibility to industry claims that they are protectionist. Beijing also has long used the Internet to keep tabs on its citizens and ensure the Communist Party’s hold on power.

Chinese companies must also follow the new regulations, though they will find it easier since for most, their core customers are in China.

China’s Internet filters have increasingly created a world with two Internets, a Chinese one and a global one. The new policies could further split the tech world, forcing hardware and software makers to sell either to China or the US, or to create significantly different products for the two countries.

While the Obama administration will almost certainly complain that the new rules are protectionist in nature, the Chinese will be able to make a case that they differ only in degree from Washington’s own requirements.

The US has made it virtually impossible for Huawei, a major Chinese maker of computer servers and mobile phones, to sell its products in the US, arguing that its equipment could have “back doors” for the Chinese government.

The documents released by Mr Edward Snowden, the former National Security Agency contractor, revealed a major effort by the agency to enter Huawei’s systems, both to figure out who controls the company and to create back doors that the US could exploit.

Recent calls by the director of the Federal Bureau of Investigation, Mr James Comey, to assure that the US has a key to decrypt information stored on iPhones and other devices will doubtless be used by the Chinese to argue that all governments need access to sensitive computer systems.

For multinationals, the Chinese market is simply too big to ignore. China is expected to spend US$465 billion (S$628 billion) this year on information and communications technology, said research firm IDC, which says the expansion of China’s tech market will account for 43 per cent of worldwide tech sector growth.

Analysts said new Chinese policies, such as the bank rules and an anti-terrorism law that is still in draft form, would make doing business increasingly difficult in China for foreign hardware and software companies.

“I think they’re obviously targeting foreign vendors that are operating in China,” said Mr Matthew Cheung, a researcher at the analytics firm Gartner. “They are promoting the local technologies so that local providers who have the capabilities to provide systems to these enterprises can get more market share.” THE NEW YORK TIMES