China Subjects Tech Imports to Heavy Security Scrutiny

China is investigating the encryption and data storage features of technology products sold there by large foreign companies such as Apple, The New York Times reported this week.

Authorities apparently are focusing on whether the products pose a security threat.

A committee associated with the Cyberspace Administration of China reportedly is conducting reviews that include interviews of company executives and other employees.

Other countries, including the U.S. and the UK, do review some tech products, but they tend to focus on those to be used by the military or government departments involved with security. Beijing apparently is looking at consumer software and gadgets as well.

In addition to ensuring that the products aren’t being used in espionage, the reviews could be used to siphon off technological knowledge, according to the Times. They might be used to block the import of products or to extract trade secrets in exchange for access to China’s market. Tech knowledge so obtained might be passed on to Chinese companies competing with foreign ones, or expose vulnerabilities that could be exploited by hackers in China.

Pingpong Antidiplomacy

In March, China was the second biggest U.S. trading partner behind Canada, accounting for nearly 15 percent of America’s foreign trade, while Canada chalked up just over 15 percent, according to the U.S. Census Bureau.

U.S. exports to China totaled just over US$25 billion of the $128 billion bilateral trade between the two countries, according to the Census Bureau.

Yet both countries have been cracking down on this trade for years.

In 2010, Google threatened to pull out from China over hacking and censorship concerns and got the U.S. government involved.

Last year, U.S. business groups asked China to postpone new rules for American businesses selling technology to banks there.

Meanwhile, Microsoft is facing antitrust scrutiny in China. Apple’s iBooks and iTunes Movies servicesshut down in China in April — but Apple has just invested $1 billion in China’s answer to Uber,Didi Chuxing.

The U.S. has imposed restrictions on Chinese companies Huawei and ZTE, and in May the U.S. Department of Commerce imposed a ban on ZTE for exporting U.S. tech to Iran. The ban was lifted after two weeks in exchange for ZTE’s pledge of cooperation with the department’s investigation.

China Pushes Back

“The U.S. has created various roadblocks for Chinese infrastructure companies such as Huawei and ZTE to compete effectively, citing national security concerns,” said Brent Iadarola, VP of mobile and wireless communications at Frost & Sullivan.

“The Chinese are attempting to level the playing field or at least plant the seed that, if the U.S. continues to subject Chinese commercial products to harsh review and regulatory requirements under the pretense of national security,” they will retaliate, he told the E-Commerce Times.

Since NSA whistleblower Edward Snowden’s revelations about the agency’s spying activities, “U.S. products are assumed to be compromised much like Chinese products were before that,” noted Rob Enderle, principal analyst at the Enderle Group.

The NSA’s and FBI’s insistence on including encryption backdoors in high-tech products may have provided grounds for concern over espionage activities.

“These efforts by the three-letter agencies are foolish and damaging” and are “badly damaging U.S. technology exports across a broad number of firms,” Enderle told the E-Commerce Times.

On the other hand, “China has a pattern of abusing the intellectual property rights of foreign companies,” said Daniel Castro, vice president at theInformation Technology and Innovation Foundation.

“Any actions by the Chinese government that force companies to unnecessarily disclose proprietary business information are cause for concern,” he told the E-Commerce Times.

The goal of China’s increased scrutiny, at least initially, Enderle maintained, is to reduce U.S. tech imports.