A Cisco advertising panel at the Mobile World Congress in Barcelona on Feb. 27, 2014. China has dropped some of the world's leading technology brands from its approved state purchase list, including Cisco. (Albert Gea/Reuters)
BEIJING — China has dropped several top U.S. technology companies, including Cisco and Apple, from a list of brands that are approved for state purchases, amid a widening rift with the United States about cyberspace.
The move, reported by the Reuters news agency Thursday, comes in the aftermath of Edward Snowden’s revelations about a massive U.S. cyber-espionage program code-named PRISM. It also comes as China is energetically bolstering what it calls its “cyber-sovereignty.”
The latest action can also be seen as part of the wider cyberwar between China and the United States — a tit-for-tat response to the U.S. government’s accusations that the Chinese army was spying on American companies. The U.S. accusations ruptured a dialogue between the two countries about cyber issues.
An element of protectionism was also likely behind the move: Government procurement in China often tends to favor local companies, and the delisting can be seen as a way of supporting China’s technology sector.
A Reuters analysis of Central Government Procurement Center lists showed that the chief casualty was Cisco Systems, the U.S. maker of network equipment, which in 2012 had 60 products listed but by late 2014 had none.
Other companies dropped included Apple, Intel’s McAfee security software firm, and network and server software company Citrix Systems. Hewlett-
Packard and Dell products remained on the list.
Packard and Dell products remained on the list.
“The main reason for dropping foreign brands is out of national security. It’s the effect of Snowden and PRISM,” said Mei Xinyu, a researcher with the Ministry of Commerce. “When it comes to national security, no country should let their guard down.”
But Mei said that Apple may have also suffered because its products are generally much more expensive than Chinese equivalents.
“Apple products are rare on government procurement lists to begin with, and even more so now that there’s this anti-corruption campaign going on,” he said, referring to an ongoing government crackdown on graft. “What would the public say if they see our officials use Apple products?”
James Zimmerman, chairman of the American Chamber of Commerce in the People’s Republic of China, said that in the high-tech sector in particular, “restrictive policies and standards made it more difficult for foreign companies to participate in government procurement.”
“AmCham China urges the Chinese government to not apply these standards to all government procurement, but only to those projects and areas where such standards are essential,”
Zimmerman said. “We also recommend that the choice of technologies in government procurement should be performance-based and technology-neutral in terms of [intellectual property] origins.”
Zimmerman said. “We also recommend that the choice of technologies in government procurement should be performance-based and technology-neutral in terms of [intellectual property] origins.”
The list covers regular spending by the Chinese central government up to an order value of 500,000 yuan ($80,000), but not larger orders which would typically go to competitive tender.It is not binding on local governments, state-owned firms or the military, which runs its own procurement system.
In 2013, Snowden revealed the existence of a global cyber-
surveillance program run by the National Security Agency with the cooperation of European governments and telecommunications companies. And last year, the atmosphere between the United States and China deteriorated sharply after the Justice Department charged five People’s Liberation Army members with spying.
surveillance program run by the National Security Agency with the cooperation of European governments and telecommunications companies. And last year, the atmosphere between the United States and China deteriorated sharply after the Justice Department charged five People’s Liberation Army members with spying.
Noting declining earnings in China, Cisco chief executive John Chambers said in late 2013 that Snowden’s revelations and “the challenging political dynamics” in China had hurt business there. The company’s business fell 19 percent in 2014, but Cisco said it could still compete for government business through competitive tenders.
“Cisco is allowed to sell to all Chinese government, enterprise, and commercial customers. Any suggestion otherwise is false,” spokesman Nigel Glennie said on Friday. “We have served our customers in China for more than 20 years, and we look forward to continuing to do so.”
Apple did not respond to requests for comment.
State-owned China Daily reported on Friday that China was set to drop foreign technology products as part of national strategy, citing Miao Wei, chief of the Ministry of Industry and Information Technology, as saying that self-developed IT products were critical to improving information security.
Reuters reported that the number of foreign tech brands on the procurement list fell by a third, while less than half of those with security-related products survived the cull. The European Union Chamber of Commerce in China said it was “concerned” and was analyzing the effect that the move might have on its members.
As part of its national security policy, China has been building up its cyberdefense systems; bolstering its system of Internet censorship, known as the Great Firewall; and demanding that foreign technology companies operating in China play by its rules.
Last month, U.S. business and technology groups — including the American Chamber of Commerce in the People’s Republic of China and the U.S. Chamber of Commerce — wrote to the Chinese government to protest new rules that would force companies in the banking and telecom sectors to hand over secret source code and use only “secure and controllable” information-technology services, meaning services the Chinese government can monitor.
An ongoing review of cybersecurity in general, which includes the testing and auditing of foreign IT firms and services operating here, threatens to widen those restrictions.
Thanks to the growing mistrust, not all Chinese companies enjoy an easy ride in the United States either. Technology and telecom giant Huawei is effectively excluded from the U.S. market because of concerns that it could be a vehicle for Chinese cyber-espionage.
This week, Chinese computer maker Lenovo said its Web site had been hacked, days after the U.S. government warned consumers to remove preinstalled software called Superfish from the company’s laptops on grounds that it made users vulnerable to cyberattack.
Some experts said China could be hurting itself by relying on local technologies, which may be more vulnerable to cyberattack, and by cutting itself off from the rest of the world.
“One unfortunate and unintended consequence of over-restrictive policies on information security is to potentially marginalize and isolate China technologically from the rest of the world, and the end result of that may be to limit access to cutting-edge technology and innovation,” Zimmerman said. “This is something that is not in China’s best interest as it manages its economic growth.”
But Mei played down these concerns.
“Our domestic brands are perfectly capable of replacing the foreign ones. For instance, two of the five largest telecommunications equipment companies in the world are Chinese companies, Huawei and ZTE,” he said.“Of course, we don’t know how things will turn out in the future, but U.S. companies and their government need to make the effort to show that they are trustworthy.”
Xu Yangjingjing contributed to this report.
Simon Denyer is The Post’s bureau chief in China. He served previously as bureau chief in India and as a Reuters bureau chief in Washington, India and Pakistan.
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