This is China! blog

Foreign IT companies are feeling less welcome than ever in China as the national government feels the country’s own sector is muscular enough to go it alone. On May 1, 2010 foreign companies that want to tender for government contracts will have to release their source code and security keys to government agencies for scrutiny. Central government wants to make its own information infrastructure secure against foreign intrusion, possibly pilfer leading-edge technology, and lock up its own domestic market to the exclusion of foreign players.

John Neuffer, vice-president for global policy at the Information Technology Industry Council, a lobby group, said: “The looming choice for many of our companies is to create costly bifurcated product lines, one for China and one for the rest of the world, or to ponder less ambitious trade and investment choices in that market.”

As China continues its turn inward, it endangers its ability to share in the information exchanges that flow through countries boosting Innovation. Ming Dynasty emperors did very much the same thing in breaking up the great commercial fleet of Zheng He, the shipyards in which the ships were built, and restricting the flow of activity across the Silk Road. Six hundred years later we may be hearing history’s echo.

Further reading: FT

Previous posts:

The Clever, the Genius and the Just Plain Dumb

Elementary, Watson

China’s Innovation Blowback

I have this dark vision that one day in China I will attempt to log onto the web in China and it simply won’t be there. Only the People’s Daily appears, and perhaps handful of official mouthpieces as well. Every other website is down – foreign and domestic – and email no longer sends or receives messages.

I have an uncomfortable feeling that someone somewhere in Beijing has his finger on an “internet button” that will simply shut the entire super-network down here in China, just as they were able to in Xinjiang. Of course, you may be thinking, that would be madness. And it would be. But seldom have I ever seen or experienced a situation in which common sense trumped control – it’s usually the other way around, with Power self-destructing in a final, incindiary show of narcissim.

Xinjiang’s economy grew nearly a percentage point less than the country’s as whole, while its total trade volume was nearly twenty percent less than its provincial cousins. Still, central government keeps the electronic screws on the region, perhaps irreperably hurting the economy. It’s certainly affected Chinese investment in the region, as entrepreneurs throughout Xinjiang have been crippled as much as indigenous businesses.

Power disrupts; absolute power disrupts even itself.

Further reading: NYT

Previous posts:

Broken Web

Keeping Tabs on Netizens

When Big Brother Might Be Your Own Brother

How to be picked up by a Techno-chik in China

After witnessing the synergy between people power and media technologies in Iran, China’s leadership has been especially leary of the same sort of upset happening to their rule. The more militarily-minded are especially concerned about frontal assaults on their internet security. The Communist Party’s Global Times wrote in December last year that an unsuspecting government worker opened an email that let loose a worm that sucked away information specific to a submarine program.

The New York Times reports that for the last two years the Chinese national government has been investing more heavily in local hardware and software. The article notes that the effort is somewhat contradictory (this is China, after all), in that the state-of-the art equipment and programs come from the West, while China’s are very much still a work in promise (recall Green Dam blocking software, which was riddled by security holes).

In addition to wanting to control the content Chinese users receive, the leadership also wants to make sure that the next generation infrastructure and protocols allow them to keep their committee-finger on the button. In other words, if they feel they need to completely shut down China’s internet in, for instance, time of war or extreme social discontent, they will be able to as effectively as they had Xinjiang last summer.

Western businesses invested in China should be sure they have frequent back-ups of their financial and operational data to their home countries, lest the PRC decide international business be damned, political survival takes precedence. The economic testosterone coursing through arthritic arteries in Beijing believing it can go it alone, if it must.

But then again, just because they’re paranoid, doesn’t mean someone isn’t out to get them.

Past posts:

Broken Web

Wired for Addiction

The Internet Opens Up to the World

One Country, Two Webs

Keeping Tabs on Netizens

China’s Identity Wars

When Big Brother Might Be Your Own Brother

The Human Flesh Search

How to be picked up by a Techno-chik in China

Virtually Blocked

My access to google (.cn and .com) are still intact, so the Chinese government has yet to retaliate against Google’s face-losing (for the government) accusation that the government sponsored a Spectre-like attack (for you Bond fans) on Google customer accounts (including, most recently revealed, several foreign journalists in Beijing). The Google gauntlet the multinational has thrown at the feet of China’s leadership has highlighted the concerns other multinationals have about their cyber-security. If Google’s email accounts can be hacked by a shadow organization in China, then certainly theirs can be, as well. At least, I hope that’s how their thinking goes. A recent poll showed that members of the American Chamber of Commerce in China (Beijing) stated, “we are concerned about the security of commercial correspondence, data and networks.”  The cyber-kerfuffle has also exacerbated a blow-back State-side, in which Chinese companies are increasingly under suspicion of being launch pads for cyber-attacks on American companies. Whether the Chinese government actually directed the attacks on Google accounts (as well as a score other American companies), the government must be increasingly cognizant of Newton’s Theory of Globalization: for every action there is an equal and opposite reaction (well, maybe it’s a corollary).

Though I do expect a rapprochement between Google and the Chinese government, I don’t expect the powers that be to end its cyber-intrusions into personal and commercial spaces. Companies based in China, then, should work into their IT controls frequent all-data back-ups to headquarters in their home countries. One never knows now when China-based systems might be compromised, and a blanket blackout Xinjiang-style might be placed on commercial hubs in China.

There may come a point when control becomes mightier than the Yuan.

Read more: Cyber attacks aimed at defense groups; US to increase scrutiny of China companies

Also see:

Googling Africa

Will China be In-grown or Grown-Up?

Broken Web

Are Your Employees Trustworthy?

Googleplexed

About Face the About Face

Protecting Copying Rights

A Chinese minister recently likened Google’s promise to stop self-censoring links the Chinese government considers illicit to Chinese companies polluting and exploiting their way through Africa without consideration for African mores and laws. It’s a comparison that badly misfires. The Minister chose to compare Google’s behavior in China with the clear and wanton exploitation of entire nations on the continent. Though at surface China’s investment in African infrastructure has benefited some communities, many African nations are beginning to put the breaks on Chinese laissez faire investment that sees a one-way extraction of natural resources with little else than roads to show for a debit that can never be repaid to the bit of Mother Nature for which they are charged as stewards. From accusations of Chinese companies bribing entire governments through shoddy workmanship, Chinese companies are not endearing themselves to African citizens to the same extent Google has opened up the world to Chinese internet users. Should one of China’s oil companies threaten to pull out of Nigeria, for instance, will African citizens lay flowers at thesteps of the oil company’s Africa office? I doubt it.

Read more: WSJ

See also:

Chinese Overseas Direct Investment Hits a Wall

New Prescription Needed: Blurring a Bi-polar World

African Terms of Endearment

Better information might have helped Marie

I’ve come to realize in recently having had my China visa renewed just how much more strict authorities have become in their dealings with foreign residents than in the past. Westerners that live here believe Chinese leniency for the sloppiness and/or laziness of Westerners ended as the 2008 Olympics approached. Now, with the leadership having steered the economy from the Scylla of global financial meltdown, it’s been bolder about the place of foreign investment in China. It sees no Charybdis.

Tom Friedman wrote recently in the New York Times that China’s government elite has a choice in whether it will permit its society to participate in the global Flow of information that will be the competitive fount for the 21-century’s innovative companies, or whether – by shutting Google down in the country – it will choose to close in on itself, so starving its home-grown companies from the vitality of ideas and perspectives circulating through the world wide web. Will the leadership be in-grown or grown-up?

I have very seldom seen leadership cliques surrender up power and wealth to forces they could not control, without first ensuring they would not lose the wealth they had accumulated and without making sure their power would dissipate into historic obsolescence. Usually, power-cliques that run companies and societies will sacrifice evolution  of the organization in favor of maintaining and consolidating power, if evolution means the new condition dissolves some of their power. Of course, we all say from the outside, “that’s suicidal.” “No organization wants to suicide.” The management of American corporations is based on this precept; hence, we allow listed companies to choose and pay for their own auditors; we imagine that the masters of the universe on Wall Street would never do anything to endanger the markets; and we believe societies would never attack other countries.And yet we have Enrons, Arthur Andersons, Wall Street, a couple of world wars and regional conflagrations that seem unending. The dissolution of apartheid in South Africa is one of the rare instances in the world in which the elite chose to devolve its power.

Consistently, when events come down to the power-clique deciding whether it should survive or its ward should evolve beyond it, the clique has chosen self-preservation. So, though I do believe the CCP and Google will actually come to a rapprochement during this round, I expect the powers that be to continue on the path its set itself to accrete wealth and power, and to consolidate it for the forseeable future, albeit more softly-softly than before.

Though China is nowhere close to melting itself down, the leadership’s entrenchment and refusal to diffuse power – even to its technology vanguard – can only lead to a China increasingly detached from the world.

Previous post: The Enron Effect and China

It was Andrew Hupert, adjunct professor at New York University’s Shanghai campus and author of the China Solved blog, who first brought up to me China’s trend toward what he called the Fractured Web, at a cafe in Shanghai during the summer of 2009. He saw the powers that be as having no interest in lifting the blocks on such Western internet institutions as Facebook, Youtube, Blogger and others. Indeed, bending the internet inward with the Great Firewall of China would relieve its fledgling internet companies a leg up on international competition, and reinforce the level of self-censorship the Party desires in the burgeoning information age.

Google’s revolt against cyber-intrusions and censorship has brought a spotlight on the degree to which apparatchiks have been able to bend internet space and fold China’s engagement with the world in on itself. The Financial Times, in particular, has an extended article on the evolution of China’s internet self-involvement, which, though certainly has government impetus, is also driven by cultural preferences and linguistic shortcomings.

As the FT rightly points out, though, “In spite of heightened censorship in the past year – leading to Google’s complaints – the internet is still the freest space in Chinese society.”

Past blog post: One Country, Two Webs

The possibility that Google employees were involved in facilitating the cyber-attack on their own company brings up serious questions about the security of companies overall that operate in China. Is your company safe from your own employees?

With the dissolution of Communist ideology in a profane society, most Chinese have taken on the mantle of nationalism to fill a collective existential void. The basis of this form of nationalism is the wrong that other countries have done China in the past. That includes the Opium Wars;the 21 powers that entered Beijing’s gates after the Boxer Rebellion in 1900;  plus Japan, with the  the atrocities its soldiers committed during its War of Aggression. Daily and nightly television programming and state-run papers in China rabbit on about the incursions as though they had happened just yesterday; meanwhile, most of the rest of the world has moved on to other challenges and to creating new chapters of history. Still, the leadership drones on in Cultural-Revolution fashion about building a strong, self-sufficient nation – even if it is at the expense of the trust other countries place in the Chinese experiment.

Companies in highly sensitive industries – especially those in which technology development has an abiding relationship with their home-country’s national interests – perhaps should be concerned with vetting employees a little more closely than in the past, and with creating monitoring systems and internal controls that act as firewalls against complete enterprise compromise.

It seems Western brands of open-ness and sense of “fair play” may not fit snugly in China’s chip on its shoulder.

Further reading: Reuters, CNET

Tom Friedman recently wrote an Op-Ed piece in the New York Times in which he believed that James Chanos, the man who short-sold Enron and made a bundle, is wrong to bet against the bubbles that are developing in China. Friedman gives a litany of reasons why he believes China is a sure bet, including: a government that has the will and the resources to tackle any problem that comes society’s way; millions of gear-heads in colleges and universities; sea turtles educated abroad who are returning to China to lay their eggs; and the expansiveness of China geographically, allowing it to maintain its manufacturing base indefinitely.

I think I understand, though, why Chanos is willing to short-sell China – and attempt to make another bundle: the fundamentals on hand about China’s economy do not add up.

Malcolm Gladwell wrote an article in The New Yorker some years ago about how Enron was able to fool American regulators, customers, its own middle managers and employees that it was a sound, viable albeit hugely successful company, right up until the day before the whole thing collapsed (bringing down Arthur Anderson, the audit giant, as well).

Gladwell wrote:

“If things go wrong with a puzzle, identifying the culprit is easy: it’s the person who withheld information. Mysteries, though, are a lot murkier: sometimes the information we’ve been given is inadequate, and sometimes we aren’t very smart about making sense of what we’ve been given, and sometimes the question itself cannot be answered. Puzzles come to satisfying conclusions. Mysteries often don’t.”

Most economists and investors approach China as if it was a puzzle to be solved. Those of us who have lived and worked here long enough understand China is a mystery. Though auditors and regulators were flooded for years with information from and about Enron, they all got it wrong, because Enron was essentially opaque – a mystery. But because Enron had a lot of gear heads running and working in it, everyone thought it could do no wrong.

China’s leadership increasingly thinks the same of itself. Investors shouldn’t buy the propaganda.

One of the charms of modernization that has caught hold of China is internet addiction. A recent FT article tells the story of a 17-year old boy who poisoned his parents for keeping him from the local internet cafe. Internet cafes are a major location for socializing and plugging into cyberspace – no matter if it is China’s internet is increasingly curving in on itself. McKinseyconsultant Yuval Atsmon, based in Shanghai, attributes the hold the internet is gaining on China’s youth to overnight, full-on access to instant messaging, video streaming, online gaming and interactive media. Fully 34% of China’s more than 330 million netizens are under the ageof 19 years, according to China Internet Network Information Centre. They don’t have much disposable income, and internet cafe’s costs pennies for hours of ir-reality.

But are Chinese youths necessarily more susceptible to the endorphin rush of internet addiction than those of other countries? Yes and No. “Internet Addiction in Asia: Reality or Myth,” a paper by Ma. Regina M. Hechanova and Jennifer Czincz International Research Development Center indicates that on average Chinese youths are less prone than their Asian neighbors to internet addiction. Hong Kong kids have very serious addiction rates, according to their survey of surveys.

chart from “Internet Addiction in Asia: Reality or Myth”

Meanwhile, a paper in the Journal of Cyberpsychology and Behavior cites Chinese youth as more addicted to the internet than American youths, with 14% of the study’s sampling of Chinese heavily addicted compared with 4% of American youths.

Nevertheless, internet addiction is a phenomenon that afflicts every wired nation.

Further reading: FT, “A Comparative Study of Internet Addiction between China and the United States”