China May Write New Rules for US Businesses Selling Tech to Banks

A group of organizations representing American businesses last week requested urgent discussion and dialog with China’s government. They expressed concern about the possible adoption of a policy to ensure that any Internet and information communications technology products Chinese banks purchase from companies outside of China are secure and controllable.

The group sent a letter to the Chinese Communist Party Central Leading Group for Cyberspace Affairs, which reportedly is headed by China’s president, Xi Jinping.

Led by the American Chambers of Commerce in China and in Shanghai, the group includes the United States Chamber of Commerce, BSA | The Software Alliance, the National Association of Manufacturers, the Telecommunications Industry Association, and the US-China Business Council.

The policy, to be reviewed this week, would require products to contain local encryption algorithms and comply with Chinese national standards. It would restrict the flow of cross-border commercial data, the letter said.

Beijing has established an overarching “Cybersecurity Review Regime” to test and audit the security and controllability of Internet and ICT products and services, according to the letter.

The policy could be expanded to other sectors, the letter notes. If that were to happen, it would “unnecessarily restrict the ability of Chinese entities to source the most reliable and secure technologies, which are developed in the global supply chain.”

Achieving a secure and controllable ICT supply chain through complete indigenous production and control “is simply not feasible for any country,” the letter says.

Copy. Right.

China’s proposed policy would mandate that vendors file source code with the Chinese government, according to the American business group’s letter.

Right there, things might screech to a halt.

“Access to source code for a country known for copying software would allow high-quality clones to be created very quickly,” warned Rob Enderle, principal analyst at the Enderle Group.

Nothing to Fear but Fear Itself?

Claims that the policy would restrict the sourcing of the most reliable and secure technologies ring somewhat hollow, because the U.S. National Security Agency has forced U.S. hardware and software makers to implement back doors in their products.

Further, Beijing’s proposed rules may not impact U.S. businesses as much as feared, suggests the China National News. Beijing may relent somewhat, and banks may continue to opt for cutting-edge offerings from leading U.S. companies while testing domestic alternatives.

Protecting Their Own

The rules are China’s attempt at protecting domestic businesses that already have a strong market position, according to the China National News.

That could be seen as similar to what the U.S. International Trade Commission is tasked with doing under Section 337 of the U.S. criminal code.

Or perhaps not. China “has aggressively used local standards to promote domestic innovation for a range of technologies,” said Daniel Castro, a senior analyst with the Information Technology & Innovation Foundation.

“Most other countries try to work closer with international standards bodies,” he told the E-Commerce Times.

China’s Huawei and ZTE have been banned from selling their telecommunications equipment in the U.S., but such bans had their basis in security concerns, and not economic reasons, Castro pointed out. “China seems to use these types of barriers to trade as part of its economic policy.”

The Business Issues

U.S. companies “aren’t excited about [including NSA backdoors] and are trying to put a stop to this behavior because it hurts sales overseas,” Rob Enderle told the E-Commerce Times.

China is a key U.S. trade partner.

Many U.S. firms see the Chinese market as crucial to remaining globally competitive, the Congressional Research Service reported. Further, China is the largest foreign holder of U.S. treasury securities, which helps keep U.S. interest rates low.

The Chinese market has the greatest upside potential as a U.S. export market over the longer term, HSBC predicted.

“Both countries are tightly intertwined financially,” Enderle said, but “China may not blink this time.”

In the aftermath of the Snowden revelations about the NSA’s global surveillance activities, he pointed out, “they now have national defense arguments underlying their position.”