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US Misreads China’s New Cyber Rules

May 15 , 2015
  • Li Zheng

    Assistant Research Fellow, CICIR

The Chinese government is working on new rules about information security, and that has become a latest flashpoint between Beijing and Washington. The US government is strongly against it, believing it will directly undermine American corporate interests. President Obama has personally expressed concern, saying he had conveyed such concern to Chinese President Xi Jinping.
Such high-profile opposition against Chinese information security rules has the following reasons. First, US authorities take it as trade protectionism in disguise. According to media reports, the majority of Chinese financial institutions and large corporations, especially their large-scale internal databases, are using American information products and services. Washington worries some American firms may have to leave the Chinese market because of inability to satisfy requirements of the new rules, and Chinese competitors will take their places. The new rules have reminded Washington of the Google incident in 2010.

Second, Washington believes the new rules’ coverage will extend from government offices and major state firms to the entire society. Compared with government offices and state firms, American firms are more interested in the rapidly growing private sectors and middle class in China. For instances, Apple Inc.’s revenues in China alone reached $37 billion in 2014; more than 75% of smartphones in China run on Google’s Android systems; and 97% of personal computers operate on Microsoft’s Windows systems. American firms’ commercial values will shrink dramatically if they lose Chinese users due to the new rules.

Third, Washington sees the rules as a part of the Chinese government’s mega strategy of seeking political and economic gains through cracking down on foreign firms. Even if American firms accept corresponding stipulations, they will still expect to be subject to other unfair treatments in other aspects. Such anxiety derived from the National Development and Reform Commission’s anti-monopoly probes against American firms Qualcomm and Microsoft, as well as several German and Japanese firms in 2014. Qualcomm was ultimately found guilty, and a $1-billion fine was imposed. Some American China hands have acerbated misgivings among their government’s decision-makers. In his new book, Michael Pillsbury assumes that China is adopting a “hundred-year marathon” strategy, attempting to finally defeat the US using the tactic of “trying fair means before resorting to force”.

Fourth, Washington worries other countries may follow China’s example. Shortly after China launched anti-monopoly investigations against Qualcomm, the Republic of Korea and European Union also initiated similar probes. If developing countries follow suit, it will be more difficult for American firms to enter emerging markets.

Based on the above concerns, Washington considers China’s attempt to improve information security as closely related to US national interests, and may even erode its Internet hegemony. However, Washington has failed to fully appreciate the background factors of such a move and the tremendous changes taking place in China. In fact, the new rules will not cause troubles for American firms’ operation in China. On the contrary, they may bring new opportunities for cooperation between Chinese and American technology firms.

First, China’s attempt to draft new information security rules is aimed at guaranteeing domestic cyber security. China is one of the world’s foremost victims of cyber attacks, the fundamental cause of which is the absence of corresponding Internet legislation. Awareness of cyber security remains extremely weak in Chinese enterprises and the general public. And the home market is rife with IT products with potential security risks and malware. China needs to introduce rules and regulate the market, leaving no safe haven for shoddy products. Beside, like the US, China is also vulnerable to cyber terrorism. Cyber security protection for government offices and major infrastructures has been brought onto the official agenda in China. There is indeed a pressing need to re-evaluate security conditions of the equipment and services these institutions are using, and plug the loopholes.

Second, this mechanism is an integral part of China’s endeavor to promote rule of the law as well as domestic reforms. The system will not become a “black box”. It will feature explicit contents and strictly defined coverage. It will not go against China’s principle of reform that emphasizes decentralizing government powers and allowing the market to play a bigger role. It will not become a new tool for the government to interfere with the market. Judging from reform measures that have been adopted lately, both supervision and appraisal will be entrusted to third-party professional institutions, and firms to be examined will have sufficient channels and opportunities to safeguard their own rights and interests.

Last but not least, American technology firms will eventually benefit from the new rules, instead of being victimized. Since the US government will not change its Internet monitoring policies in the near future, the Chinese government and public share security concerns about IT products from American firms. Once crises arise in Sino-US relations, such concerns may very likely evolve into spontaneous actions. That is the last thing American firms want to see. Accepting China’s new rules will to the greatest extent reduce the Chinese public’s worries about the US government monitoring their personal privacy, as well as prevalent theories of US conspiracy in public opinions. The new rules will encourage American technology companies to strengthen collaboration with Chinese companies, creating fresh joint ventures and models of cooperation, facilitating localization of American firms. Localization will present new profit points and market for foreign companies. Toyota Motor Corp.’s localization in the US in the 1990s was a successful example. Such American companies as IBM and Apple Inc. that have considered accepting the new rules are not succumbing to the Chinese government. They have instead seen the underlying significance.

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