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China ratchets up regs on US tech companies

Stan Ward

Stan Ward

February 2, 2015

China is at it again, poised to shoot itself in the proverbial foot by attempting to impose bold new sanctions on US companies operating there, according to a recent article in the Guardian . I wonder if these new restrictions and censorship in the name of cyber security or national security are meant to divert attention away from the dismal economic growth prospects recently forecast. Or is this just another in a long list of repressive cyber measures?

We have chronicled its past behaviour numerous times in numerous blogs and over a variety of issues, but it is still a head- scratcher that China seems willing to choose censorship over economic improvement when, after all, economic growth translates to real political security – an obvious paramount aim for any government.

Beijing is exerting its influence and power in an attempt to force American companies to reveal software source code, and employ encryption approved and dictated by them. The source code is the command component that creates programs for most computing and network equipment. Understandably US firms are protesting, and their lobbies have responded with alarm at these moves which include their adopting encryption algorithms specified by the government, and have urged them to be postponed. No immediate response from the US government was forthcoming or, as a matter of fact expected, given the recent ratcheting up of restrictions by China.

For a long time, Beijing has been paranoid at the progress and penetration of US businesses, and has considered its reliance on foreign technology to be a national security weakness. This fear was heightened by the revelations of Edward Snowden and others that the NSA routinely implanted codes in US companies’ software to spy on overseas targets, and as a result, Cybersecurity has been a significant irritant to China, and an impediment to friendlier ties with the US.

America has in turn accused China of snooping abuses, and last November seriously considered that the Sony hack now attributed to North Korea was too sophisticated for the Hermit Kingdom and was in fact orchestrated by Beijing. Meanwhile, US vendors such as Cisco and Microsoft are facing increased pressure from the Chinese government to undergo rigorous security checks before their products can be purchased by their vast state-run financial institutions. Whether the US will hold China to a similar standard at home is unclear.

In a letter to China’s top cybersecurity policy group dated January 28, the American Chamber of Commerce (ACC) said their proposed new rules would be a hindrance to smooth business continuity and require “intrusive” security testing and the disclosure of sensitive intellectual property. The group to which the letter is addressed is headed by none other than the president of China, Xi Jinping. The American business groups warned that an “overly broad, opaque and discriminatory approach to cybersecurity policy” would harm China’s economic growth (and of course US companies and the US stock market!).

In addition to the proposed steps US companies would have to take relating to software and encryption, firms planning to sell computer equipment to Chinese banks would have to set up research and development centers in the country, and would also have to get special permits for workers servicing technology equipment and build “ports” that enable Chinese officials to manage and monitor the data processed by their hardware.

The ACC contends this is anti-competitive, a too onerous a burden for US companies to comply with, and is fraught with danger for consumers.

It once again brings into focus the myopia of the Chinese government regarding the effects of regulation vis a vis economic growth, and raises the question whether Beijing will ever reach the economic summit or, if they get there, how prolonged or sustained their reign will be.

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