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Google’s Move: The Business and National Security Angles

14 January 2010

by Daniel Michaeli

Google’s threat to exit the Chinese market, which I discussed here yesterday in the context of human rights and Google’s corporate interests, has two other important dimensions.

First, there is growing and universal concern in the business community about unfair Chinese business practices (this was previously limited to the manufacturing sector).

Second, we should all be deeply concerned by the massive cyber espionage program China has been developing and deploying, which is aimed at learning inside information on foreign companies and governments.

Yesterday’s reports from Chris Nelsonthe Cable at FP, and the Daily Beast make China’s espionage efforts and increasingly unfair business practices difficult to ignore. The Daily Beast reveals the estimate of a recent classified FBI report that “since 2003, the Chinese Army has specifically developed a network of over 30,000 Chinese military cyberspies, plus more than 150,000 private-sector computer experts, whose mission is to steal American military and technological secrets and cause mischief in government and financial services.”

In the business world, just a year or two ago it would have been difficult to imagine uniting business groups across the spectrum in manufacturing and services in criticism of the Chinese government. But in December, 35 highly influential organizations issued a joint letter protesting China’s government procurement policies, which the letter said “run counter to free and open trade and to fostering collaborative innovation.”

Unfortunately, the business community has only limited leverage in blocking Chinese protectionism and cyber-attacks. The truth is that the greatest threat foreign companies can employ–that of leaving China altogether–could even contribute to China’s goal of developing its “national champions” and keeping out foreign competition. Further, it would have only limited impact on China’s ability to continue to gain access to commercial intelligence through foreign acquisitions–and continued cyber-attacks.

For foreign companies to threaten China by offering to compete less with Chinese companies, even as China has continued access to foreign technology, is silly. Such a threat is meaningless to the top ranks of a ruling party far more interested in political and social stability than economic liberalism. (This is why I argued yesterday that Google’s decision will be costly for Google, not for the Chinese government.)

Meanwhile, countering espionage is difficult for any government or company; all the more so when the espionage takes place over the Internet, supported by a foreign government that has been given complete access to Microsoft’s source code. (Though, in light of the sheer number of programmers working on finding security holes, blocking access to that inside-information source code is unlikely to provide much added security at this point.) The United States is working to develop a greatly expanded cyber security program, one that works with external corporations as well as the U.S. government to block and detect intrusions.

Meanwhile, as China’s domestic market expands–which the rest of the world should support to facilitate global economic rebalancing–the West will hold less and less leverage with which to block protectionism by the Chinese government. The countries that have expanding leverage are the energy exporters: the China Daily reported today that 52% of China’s oil consumption in 2009 came from oil imports, and this is expected to rise to 65% by 2020. But energy exporters are likely to be of no help. They simply need China’s economy to keep humming along–but they don’t care how or why.

What options do U.S. companies have left if they want to continue to compete in China?

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3 Comments »

  • Kevin Slaten said:

    Hey Dan,

    On the security issue, the FBI report you mentioned (via the Daily Beast article)is interesting for more than just Chinese capabilities, I think. I quote the article here:

    “Cyber warfare is part of every developed country’s 21st century arsenal. Although no U.S. official will admit it, the Pentagon, CIA, and NSA regularly probe and try to hack into China’s military and industrial computer networks to obtain the information that years ago were brought back by the James Bonds of spy services. The U.S., and many of our European allies, try to find ways to wreck some havoc in the Chinese computer grid if a conflict ever takes place. The difference is that the Chinese are better than anyone else and lead the way in technological breakthroughs for the cyber battlefield.”

    While I understand that, naturally, Chinese capabilities are a concern, I think the attention needs to be directed farther and deeper in the line of causality. The real problem is that cyberwarfare is a totally unregulated, socially young field. Where physical warfare has all sorts of repercussions in international norms and laws, cyberwarfare is being fought by the world’s most powerful countries — in broad daylight — without many voices yelling “stop!”

    If the US wants to undercut Chinese — or any other country’s — efforts to infiltrate or otherwise harm US cyber-assets, then the US ought to be looking into making this field much more transparent and regulated, in terms of international relations.

    If attacks can be traced back to origins, then that is a start. This creates evidence. All you need is the law and this can become an international precedent to regulate future circumstances.

    Physical wars used to be fought daily or annually by kingdoms and daimyo. This is unthinkable today. Yet the cyberworld has seemed to turn back time.

  • carl said:

    dear Experts ; technical,scientific and political,
    id like to contribute this thought .
    the chinese nsa has collected a large amount of expertise from our biz and tech corp’s.do ye think they are learning new things via studying all the worlds collected computer techniques-by seeing them all at once collected from in their unprecedented espion. program?maybe we already have people with all this insight from the googles,and all of the other most successful programs n products of our top companies?on our side?i hope so…thank you.

  • Talking Cyber Strategy with China – Daniel Michaeli: Asia Ruminations said:

    […] and deeply linked with broader worries about state-sponsored intellectual property theft (like the Google mess of 2010). So long as Chinese firms benefit more from state-sponsored industrial espionage than they stand […]

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