UPDATED 10:42 EDT / JUNE 03 2014

The “real” impact of China’s war on US tech

small__5812275975-300x240The row between the US and China over cyber-espionage allegations could cause some real headaches for American firms, fostering suspicions and mistrust that could impact on tech trade between the two nations.

That much was evident last week when China turned up the heat on IBM, announcing it was “reviewing” whether local banks should dump the company’s servers in favor of alternative suppliers. The move followed an earlier warning from China that it intends to start vetting all US-made technology in the future, and comes after the country banned certain government agencies from buying Microsoft’s Windows 8 operating system, without specifying any reason.

Are these moves a prelude to all-out war on US technology firms? And if so, should US firms be worried?

The Cyber-Cold War thaws out

 

If anything, China’s recent moves are just the latest salvo in feud that’s been dragging on for almost five years. Current cyber-tensions between the two nations can be traced back to December 2009, when China was alleged to have carried out cyber-attacks on 33 US finance and defense companies, as well as Google. This was followed by accusations from security firm Mandiant that China’s PLA Unit 61398 was carrying out illegal cyber-espionage operations against the US on an industrial scale.

China bitterly denied this of course – then along came Ed Snowden with his stories of NSA spying, which allowed China to take the moral high ground and claim that it too, was a victim of spying. This prompted Chinese officials to announced an investigation into IBM, Oracle, and EMC back in August 2013, citing “security concerns” as the reason. Later, in March of this year, China’s President Xi Jinping formed a new, high-level committee to tackle cybersecurity matters, leading to new fears the country is about to erect trade barriers against US technology firms.

Can China live without US tech?

 

small__6094298060It’s hard to say if China’s motives are dictated by security fears or something else, but there’s no doubt that tighter regulations could impact US tech firms. It’s no secret that China looks to support domestic IT vendors when it can, and now analysts believe it’s about to accelerate its drive away from foreign tech.

“This is certainly going to impact US technology providers,” said Ben Cavender, an analyst with China Market Research Group. “Replacing some of the foreign providers will be difficult but at this stage there are more and more home grown solutions that China can rely on.”

Forrester analyst Bryan Wang warned about this danger several months ago. “Local vendors like Huawei, Inspur, and Lenovo will likely benefit from the NSA/Snowden issue,” he wrote in a blog last December. “They will gain share mostly in the hardware space, including server, storage, and networking, in 2014.”

But it’s unlikely China will ever be able do away with US technology completely. For one thing, the government may not get its own way. Numerous American firms still see China as one of their biggest opportunities for growth, and those who’re aggresive enough should still be able to cut themseleves a piece of the pie.

“American companies are not about to turn their back on that opportunity,” said David Berlind, Editor-in-Chief of ProgrammableWeb.com, via email. “With the exception of Google, they’ve already jumped through all sorts of hoops in order to do business in places like China and Russia and my expectation is that whatever “vetting” has to take place, American companies will figure out ways to survive that vetting and get on whatever approved lists are necessary.”

After all, where there’s a will there’s always a way, and many people – American and Chinese alike – will contend that US-made technology is often superior to that of its Chinese counterparts. While government agencies may not be given a choice in the matter, it’s likely US solutions will still be favored in many cases by China’s private sector.

“I think we may see more situations where the government pushes for reliance on domestic alternatives for hardware and software,” said Cavender. “But in the corporate sector we are going to see continued demand for the solutions provided by US firms.”

photo credit: Eric Constantineau – www.ericconstantineau.com via photopin cc; Herve “Setaou” BRY via photopin cc

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