Technationalism: China uses a cyber-security row with America to boost national champions

Technationalism: China uses a cyber-security row with America to boost national champions

May 31st 2014 | SHANGHAI | From the print edition

WESTERN fashion models have long been in high demand for catwalk shows and photo shoots in Shanghai and Beijing. However, dozens of them were rounded up recently on alleged visa infractions and chucked out of the country. Leggy beauties are not the only foreign models now under threat in China. Unsourced rumours are swirling of a forthcoming ban on state-owned enterprises (SOEs) buying Cisco telecoms equipment and IBM computer servers. This week the Financial Times reported that American consulting firms like McKinsey and Bain would be blocked from working for SOEs.

The American tech firms and consultants appear not to have been informed of any prohibition. The big SOEs say quietly that they have not received any written notice to cut off contracts. The state banks are unable to confirm the directive to chuck out IBM servers.

What is clear is that these rumours are coming in response to the news that America wants to prosecute five members of China’s People’s Liberation Army for alleged hacking of industrial secrets. This provoked outrage in China. Edward Snowden’s revelations of American hacking of Chinese targets have persuaded many locals that the Yanks are hypocrites.

One way to understand this recent flurry of rumours is as a calibrated political manoeuvre. On this argument, Chinese officials want to threaten to expel important American firms so as to force the United States to reconsider its new cyber-offensive. If America enforces any punitive sanctions then today’s rumoured bans will become tomorrow’s official policy.

Chinese officials are also understandably worried that American firms may be giving their spies backdoor access to snoop on Chinese targets. The National Development and Reform Commission, a powerful official body, plans to increase its scrutiny of foreign investments on grounds of national security. The State Internet Information Office, another official body, says it will establish a new vetting process to judge whether foreign information-technology products and services are compatible with national security.

However, there is a clear element of commercial opportunism, too. Officials hope to boost national champions, but the effort risks harming other Chinese firms. Some champions, like Huawei and Lenovo, have good products, though their kit is not yet as sophisticated as American rivals’. Other local firms make lousy knock-offs that big Chinese businesses would spurn. Inspur Group, a local maker of servers, has just unveiled an “IBM to Inspur” sales initiative. A new, confirmed ban on government purchases of Windows 8, the latest operating system from Microsoft, will merely encourage SOEs to use illicit copies. Technationalism is on the rise, and the risk is that both sides will lose out.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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