A $465B Fight: On PRC Purging US IT Firms

Bye-bye, Big Blue...in China?

I've posted about China's efforts to encourage government agencies and state-owned enterprises to "buy Chinese" instead of American or European electronics brands. This is especially true in the financial services sector which, in China at least, is dominated by state banks. With things ramping up in 2015 with new regulations, American firms are crying foul and are asking for support from their government:

U.S. business groups are seeking immediate action from the Obama administration to reverse “troubling” Chinese security requirements they say will block foreign software, servers and computing equipment from the country.

If fully implemented, the policies threaten the ability of U.S. companies to participate in China’s $465 billion market for information technology products, 17 business groups wrote in a Feb. 4 letter to U.S. Secretary of State John Kerry and other government officials. The appeal by the U.S. Chamber of Commerce, National Foreign Trade Council and U.S. Information Technology Office followed similar correspondence last week to Chinese President Xi Jinping’s cyberspace security panel.

“These business groups see the writing on the wall,” Mark Natkin, managing director of Marbridge Consulting, said by phone Friday in Beijing. “They have realized this is not a quick campaign that’s going to blow over. It’s going to impact their business here over the long term.”

It is nothing less than an e-Xtermination of US hardware and software purchases by those entities the PRC has control over. Meanwhile, the purge continues apace:

Chinese regulators summoned bank officials for a meeting last month to stress the need to carry out a nationwide directive to cut China’s reliance on foreign technology, people familiar with the matter said. That directive was a follow-up to a broad national strategy, reported by Bloomberg News in December, to purge most foreign technology from banks, state-owned enterprises and the military by 2020. Rules and regulations for screening information technology products would take effect this year, Peng Bo, deputy director of the Cyberspace Administration of China, said Jan. 21.

To me it's just tit-for-tat. Discriminatory actions against Chinese electronics manufacturers are very common Stateside. Witness the red herring of Huawei and to some extent ZTE being branded as extensions of the People's Army despite no evidence whatsoever that they place spying devices in their telecommunications hardware. Actually, it's the other way around: Chinese firms spying on the US government remains an unproven accusation, but the NSA spying on Huawei is proven:

But even as the United States made a public case about the dangers of buying from Huawei, classified documents show that the National Security Agency was creating its own back doors — directly into Huawei’s networks.

The agency pried its way into the servers in Huawei’s sealed headquarters in Shenzhen, China’s industrial heart, according to N.S.A. documents provided by the former contractor Edward J. Snowden. It obtained information about the workings of the giant routers and complex digital switches that Huawei boasts connect a third of the world’s population, and monitored communications of the company’s top executives.

One of the goals of the operation, code-named “Shotgiant,” was to find any links between Huawei and the People’s Liberation Army, one 2010 document made clear. But the plans went further: to exploit Huawei’s technology so that when the company sold equipment to other countries — including both allies and nations that avoid buying American products — the N.S.A. could roam through their computer and telephone networks to conduct surveillance and, if ordered by the president, offensive cyberoperations.

So while I regret the discriminatory actions against American technology firms operating in China, the US government's actions do help justify what the Chinese are doing. Not only are Chinese firms being discriminated against in selling equipment Stateside, but the Snowden revelations certainly have a "pot calling the kettle black" aspect to them. Despite China being a party to the WTO's Information Technology Agreement, it concerns tariff reductions to zero, not non-tariff barriers like what the Chinese are applying to foreign electronics.