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China limits use of foreign firms' security software

Experts say China’s ban of foreign computer security technology is a move designed to benefit Chinese companies by shutting competitors out and forcing them to hand over know-how.

Associated Press

Experts say China’s ban of foreign computer security technology is a move designed to benefit Chinese companies by shutting competitors out and forcing them to hand over know-how.

BEIJING — China has ordered its banks and other major companies to limit use of foreign computer security technology, setting up a possible trade clash with the United States and Europe while adding to strains over high-tech secrecy as some nations threaten to curtail BlackBerry service.

Beijing's restrictions cite security concerns but are also consistent with its efforts to build up Chinese technology industries by shielding them from competition and pressing global rivals to hand over know-how.

The United States and the European Union have raised questions to the World Trade Organization about the rules.

"These are legitimate security concerns, but the Chinese are going way too far," said Steven Kho, a trade lawyer for the law firm Akin Gump in Washington. "You cannot say from the outset, 'All foreign products are a security risk.' "

Washington and Europe, which hope technology sales to China will help drive their economic recovery, want Beijing to scale back plans to enforce the rules on a wide range of industries, including oil and gas, banking, utilities and telecommunications.

The rules, dubbed the Multi-Level Protection Scheme, or MLPS, come as Beijing tries to protect its fledgling technology companies by favoring them in procurement, promoting Chinese standards for mobile phones and prodding foreign competitors to disclose encryption technology.

The restrictions add to pressure on foreign companies that accuse Beijing of squeezing them out of key industries in violation of its free-trade pledges.

They cover products such as network firewalls and digital identity systems — a market dominated by Western companies such as Cisco Systems and Juniper Networks and Taiwan's Trend Micro.

The EU wants Beijing to apply the curbs only to companies involved in national security, EU's Beijing mission said in a statement.

China's security technology market is worth about $250 million this year and could rise to $340 million by 2014, according to research firm IDC. Sales can also lead to other future business as customers buy maintenance and support services.

The rules say Chinese companies' computer systems will be classified into five tiers of increasing sensitivity. Security technology for the top three tiers must be supplied by a company owned by Chinese citizens.

"The program appears to be aimed in part at putting a large part of the Chinese economy out of competition from foreign providers," said an American business group, the Information Technology Industry Council, in a report to the U.S. International Trade Commission in June.

Chinese-made technology cannot satisfy the demands of the top security tiers, according to a report by researchers Dieter Ernst and Sheri Martin of the East West Center in Hawaii.

That means those needs might have to be met by foreign products, but suppliers might be required to sell them through local partners and hand over technology, nurturing the growth of Chinese competitors.

FAST FACTS

Software ban

. THE BAN: China has ordered its banks and other major companies to limit use of foreign computer security technology. The move sets up a possible trade clash with the United States and Europe while adding to strains over high-tech secrecy as some nations threaten to curtail BlackBerry service.

. WHAT'S BEHIND IT: Beijing's restrictions cite security concerns but also are consistent with its efforts to build up Chinese technology industries by shielding them from competition and pressing global rivals to hand over know-how.

. REACTION: The United States has raised questions to the World Trade Organization about the rules. Critics say the move is an attempt to shut competitors out of a promising market.

China limits use of foreign firms' security software 08/25/10 [Last modified: Wednesday, August 25, 2010 11:59pm]

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