Why China is kicking foreign tech firms off its government procurement list

Yesterday, Reuters published an exclusive report on the banishment of some major US tech firms from China’s approved government procurement list. In short, government-run departments and agencies in China will are no longer allowed to buy equipment from Apple, Cisco, and Intel’s McAfee, among others.

The question many are asking: "Is it a security measure, or is it protectionism?" Reuters gives equal voice to both Chinese authorities, who claim to have eliminated these companies over security concerns stemming from Edward Snowden’s high-profile PRISM leaks, and the western firms, who allege China is using Snowden as an excuse to implement protectionist economic policies.

I’m inclined to side with the latter. China has used similar tactics before, and they’ve proven effective. China has been weening its internet and tech infrastructure off of foreign firms for the past few years, replacing them with homegrown alternatives as they arise. Reuters reports Cisco had 60 items on the procurement list in 2012, which dwindled to zero in 2014.

The method has been most effective with shutting out enterprise firms – Cisco, IBM, EMC, Oracle, SAP, etc – because they rely more heavily on contracts with government bodies and state-owned enterprises and get less public attention than, say, Apple. Cisco even helped China build its advanced web censorship system, known as the Great Firewall.

Keeping the cyber security row in the news indirectly but significantly benefits the Chinese counterparts to these western companies, whose stock prices jump whenever the spat escalates. Recent headlines from Xinhua, China’s state-run news agency and propaganda mouthpiece, include commentary on US "hypocrisy" regarding cyber security, a Chinese Foreign Ministry spokesperson telling the US to stop pointing fingers, and a US security official advocating for "front door" access to digital products.

But pushing out western firms is a proven strategy for bolstering domestic ones, and seems to me to be China’s real motivation, rather than the much-flaunted cyber security argument. In May last year, China beefed up its security review system for foreign IT firms with broader scope and more vague criteria. Besides the immediate economic benefits, China also gets greater control over its internet, more influence over the future development of global IT trends, and a generation of valuable intellectual property.

Eliminating foreign competition to make way for domestic rivals isn’t new. Facebook, Twitter, and Google were censored in China in the name of cleansing the internet of harmful content, which in turn gave local alternatives like Weibo and Baidu room to grow into the behemoths they are today. More recently, smartphone chipset maker Qualcomm coughed up nearly US$1 billion after a long investigation for monopolistic business practices, during which time officials urged support for local chipset brands like Leadcore and Spreadtrum.

China runs a risk of taking a step backwards in the short run by forcing companies to use less sophisticated local products, but in the long run those products will be forced to mature and might even spread beyond China’s borders.

See: How deliberately crippling its 4G rollout will help China bust a global monopoly and make billions

No1 shouldb surprised by China's moves. Sadly doesn't look like much us firms/govt can do, and can you really argue beijing is unjustified?

— Bill Bishop (@niubi) February 26, 2015