Suspicion Complicates Technology Deals

Published on Author mackayj17

Trade restrictions set on foreign technology companies by the Chinese Government have created a tense situation in US-China economic relations.

Recently, China has had increasing problems with US software and technology companies that are looking to take full advantage of an enormous, and growing, market for internet services and technology products in China. These US corporations have taken offense to Chinese “security measures” that require heavy scrutiny of software, and backdoor access into programs by Chinese officials.

Chinese internet cafe: The internet is being more widely used in China and US technology companies are looking to grab a part of the market.

US companies are reluctant to hand over access to private information and data to the Chinese government. At the moment, these regulations apply only to banking software, but plans are in the works for more and more parts of the technology sector will be asked to capitulate in the future. The same companies, while displeased with the idea of giving access to government officials, have enormous incentives to give in and gain access to Chinese markets. They have asked the US government for help in addressing the issue in trade talks – but these talks have been unproductive and illuminate the distrust that the respective governments have in each others trade negotiations.

US companies will have to play each government carefully to achieve success in this circumstance. They need the support of the US government to maximize their own interest and privacy as companies, but cannot risk offending the Chinese government to the point of having large restrictions placed upon them, cutting them out of the huge profits to be made – ceding a niche to growing Chinese competition.

The growing protectionism of Chinese companies is troubling to foreign businesses. For years western countries have enjoyed relative dominance in Asian markets – especially those centered around technology. The growing competition is unwelcome, more so with the support of the Chinese state.

At this point, talks have been largely ineffective and stymied by allegations of monopoly and spying (especially after the NSA and Snowden scandals). Progress may come in the form of larger trade deals, but these have not come to pass.



3 Responses to Suspicion Complicates Technology Deals

  1. I wonder how much of a competitive advantage US companies would lose by abiding to China’s cyber policy. Or even how to quantify the advantage now. How much does the US stand to lose by ceding private information and how much does China stand to gain? Does that loss outweigh exposure to the massive Chinese market? I imagine if any losses incurred through the policy would only encourage the US to continue clandestine surveillance and data collection in China.

    • I believe that US companies are worried about the backdoor access component of Chinese technology policy. It is not attractive to investors if a large, historically, shady government has access to information (primarily financial). Investors may be worried that China will exploit this information, or use Chinese customers information to exploit them.

      Capitulating would not be an immediate detriment to US companies competitive advantage – but it could lead to Chinese companies learning of secretes that the US companies hold tight.

      Additionally, I doubt that any US company wants to have additional oversight by another large, and very different government body than the one they are already used to.

  2. To what extent are companies not complying with Chinese requests? Yes, those who have no chance at sales will want to blame someone other than themselves. How about firms that do have a presence?

    See early posts/comments on the issue of monopolies.

    Be careful not to read too much into “tense” relations in foreign policy pronouncements. There’s always some adjective before “relations”! Furthermore, it’s not clear that the existence of issues in one corner of international actions spills over to others short of crossing some high threshold, e.g., military action or seizure of assets. That’s particularly the case when most interactions — trade, tourism — are leading to robust profits and good travel experiences.