China drops leading US technology brands for state purchases
Exclusive: China drops leading technology brands for
state purchases
By Paul Carsten
BEIJING Wed Feb
25, 2015 8:47am EST
(Reuters) - China has dropped some of the world's leading
technology brands from its approved state purchase lists, while approving
thousands more locally made products, in what some say is a response to
revelations of widespread Western cybersurveillance.
Others put the shift down to a protectionist impulse to
shield China's domestic technology industry from competition.
Chief casualty is U.S. network equipment maker Cisco
Systems Inc, which in 2012 counted 60 products on the Central Government
Procurement Center's (CGPC) list, but by late 2014 had none, a Reuters analysis
of official data shows.
Smartphone and PC maker Apple Inc has also been dropped
over the period, along with Intel Corp's security software firm McAfee and
network and server software firm Citrix Systems.
The number of products on the list, which covers regular
spending by central ministries, jumped by more than 2,000 in two years to just
under 5,000, but the increase is almost entirely due to local makers.
The number of approved foreign tech brands fell by a
third, while less than half of those with security-related products survived
the cull.
An official at the procurement agency said there were
many reasons why local makers might be preferred, including sheer weight of
numbers and the fact that domestic security technology firms offered more
product guarantees than overseas rivals.
China's change of tack coincided with leaks by former
U.S. National Security Agency (NSA) contractor Edward Snowden in mid-2013 that
exposed several global surveillance program, many of them run by the NSA with
the cooperation of telecom companies and European governments.
"The Snowden incident, it's become a real concern,
especially for top leaders," said Tu Xinquan, Associate Director of the
China Institute of WTO Studies at the University of International Business and
Economics in Beijing. "In some sense the American government has some
responsibility for that; (China's) concerns have some legitimacy."
Cybersecurity has been a significant irritant in
U.S.-China ties, with both sides accusing the other of abuses.
U.S. tech groups wrote last month to the Chinese administration
complaining about some of its new cybersecurity regulations, some of which
force technology vendors to Chinese banks to hand over secret source code and
adopt Chinese encryption algorithms.
The CGPC list, which details products by brand and type,
is approved by China's Ministry of Finance, the CGPC official said. The list
does not detail what quantity of a product has been purchased, and does not
bind local government or state-owned enterprises, nor the military, which runs
its own system of procurement approval.
The Ministry of Finance declined immediate comment.
"We have previously acknowledged that geopolitical
concerns have impacted our business in certain emerging markets," said a
Cisco spokesman.
An Intel spokesman said the company had frequent
conversations at various levels of the U.S. and Chinese governments, but did
not provide further details.
Apple declined to comment, and Citrix was not immediately
available to comment.
SECURITY PRETEXT?
Industry insiders also see in the changing profile of the
CGPC list a wider strategic goal to help Chinese tech firms get a bigger slice
of China's information and communications technology market, which is tipped to
grow 11.4 percent to $465.6 billion in 2015, according to tech research firm
IDC.
"There's no doubt that the SOE segment of the market
has been favoring the local indigenous content," said an executive at a
Western technology firm who declined to be identified.
The executive said the post-Snowden security concerns
were a pretext. The real objective was to nurture China's domestic tech
industry and subsequently support its expansion overseas.
China also wants to move to a more consumption-based
economy, which would be helped by Chinese authorities and companies buying
local technology, the executive said.
Policy measures supporting the broader strategy include
making foreign companies form domestic partnerships, participate in technology
transfers and hand over intellectual property in the name of information
security.
Wang Zhihai, president and CEO of Beijing Wondersoft,
which provides information security products to government, state banks and
private companies, said the market in China was fair, especially compared with
the United States, where China's Huawei Technologies [HWT.UL], the world's
largest networking and telecoms equipment maker, was unable to do business due
to U.S. security concerns.
Local companies were also bound by the same cybersecurity
laws that U.S. companies were objecting to, he added.
The danger for China, say experts, is that it could leave
itself dependent on domestic technology, which remains inferior to foreign market
leaders and more vulnerable to cyber attack.
Some of those benefiting from policies encouraging
domestic procurement accept that Chinese companies trail foreign competitors in
the security sphere.
"In China, information security compared to international
levels is still very far behind; the entire understanding of it is
behind," said Wondersoft's Wang.
But Wang, like China, is taking the long view.
"In 10 or more years, that's when we should be
there."
(Additional reporting by Beijing Newsroom and Noel
Randewich in SAN FRANCISCO; Editing by Will Waterman)
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