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.