By Carlos Tejada
BEIJING--China is calling for U.S. technology companies to turn
over sensitive material and submit to intrusive inspections,
according to U.S. business groups, which are calling on Beijing to
postpone the plan and come to the negotiating table.
In a letter dated Wednesday and addressed to Chinese
cybersecurity officials, the U.S. groups said that the new rules
involve turning over sensitive intellectual property, such as
source codes, to the Chinese government. The products most also
undergo "intrusive security testing" and would be required to use
Chinese encryption algorithms. The rules would also restrict
cross-border flows of commercial data.
Stricter cybersecurity standards could limit the range of U.S.
products that would be available to Chinese businesses, it
said.
The letter said the rules were recently proposed for the Chinese
banking sector, but the groups worry they could be expanded to
other sectors.
"An overly broad, opaque, discriminatory approach to
cybersecurity policy" would isolate Chinese companies and worsen
cybersecurity issues, it said. It called for China to further
discuss potential new rules.
The letter was signed by the U.S. Chamber of Commerce, the
American Chamber of Commerce in China, the Information Technology
Industry Council and the Telecommunications Industry Association,
among others.
Officials at the Cyberspace Administration of China didn't
respond to requests for comment.
The letter comes at a time of escalating tension between the
U.S. and China over cybersecurity issues, fueled by mutual
suspicion on both sides, especially in the wake of disclosures of
U.S. cyberspying efforts by former U.S. contractor Edward Snowden.
In a conference call this week, Microsoft Corp. Chief Executive
Satya Nadella said its operations in China fell short of
expectations and cited "geopolitical issues," without elaborating.
Experts have said cybersecurity concerns have hurt results in China
for Cisco Systems Inc., International Business Machines Corp. and
others.
"The Snowden snowball keeps getting bigger," said Duncan Clark,
chairman of investment advisory firm BDA China.
Shortly after the allegations became public, state media sounded
warnings about American "guardian warriors"--U.S. tech companies
like Google, Microsoft, chip maker Qualcomm and computer networking
giant Cisco Systems--having infiltrated China.
Several of the companies have since run into trouble in the
country. Microsoft was subjected to an antitrust investigation,
Google has seen virtually all of its products blocked, and Qualcomm
has said it faces "significant challenges" in China, including an
antitrust investigation of its own. In July, China's state
broadcaster China Central Television called the location-tracking
function on Apple Inc.'s iPhone a "national security concern."
Microsoft and Qualcomm have both said that they are cooperating
with the investigations and don't believe they violated Chinese
laws. Google has said problems with accessing its products in China
exist on the Chinese side. Apple, which saw its revenue for the
greater China area including Hong Kong and Taiwan grow 70%
year-over-year in the most recent quarter, has said it doesn't
track iPhone users or share their locations.
Washington has repeatedly accused Chinese hackers of stealing
data from U.S. companies and has blocked efforts of Chinese telecom
equipment makers Huawei Technologies Co. and ZTE Corp. to expand
their business in U.S., citing national security concerns. In May,
the Justice Department indicted five Chinese military officers on
charges of hacking U.S. companies' computers to steal trade
data--the first time the U.S. government publicly accused employees
of a foreign state of cybercrimes against American firms.
Huawei and ZTE have both denied that their equipment poses
security risks to the U.S. China's foreign ministry has dismissed
the Justice Department indictments as being based on "fabricated
facts."
Cybersecurity has come up often in meetings between U.S. and
Chinese officials, including when Barack Obama met Chinese
President Xi Jinping in Beijing in November, but U.S. officials say
privately that little progress has been made. A U.S.-China working
group on cyber issues that was dissolved following the Snowden
disclosures has yet to be restarted.
China's proposed rules for the banking sector could constrict
access to a major market for U.S. makers of IT equipment and custom
software. At the same time, it isn't clear how banks would replace
foreign technology if manufacturers refused to submit to the
security checks.
The core functions of China's banking sector largely run on
foreign-made servers and other equipment, according to Chinese
banking executives. "Even though we have the will to replace the
foreign brands with domestic ones, we just can't find any homemade
ones that could be as reliable and secure as the foreign brands,"
said one of the executives, who works at a big state-owned bank in
Beijing.
Since last year, Chinese banks have been accelerating their
plans to upgrade the kind of banking cards used in the country. A
key component of the plan involves replacing magnetic stripe cards
with smart cards to enhance security. Again, according to the
banking executives, chips made by foreign technology companies,
like Samsung Electronics Co., are dominating the transition.
Wednesday's letter was addressed to the Chinese Communist
Party's central leading group for cyberspace affairs, which is led
by President Xi Jinping.
The letter was reported earlier Wednesday by the New York
Times.
Write to Carlos Tejada at carlos.tejada@wsj.com
Corrections & Amplifications
U.S. business groups are asking China to postpone a new
cybersecurity review process in a letter dated Wednesday. An
earlier version of this article incorrectly said the letter was
dated Tuesday.
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