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American Tech Firms & Their Role in China

epa03443289 Guests try out the Microsoft Windows 8 operation system on touchable screens of desktop computers during the preview show of the new operation system and tablet computer Surface in Shanghai, China, 23 October 2012. It is the first event of a series of global celebration of the new operation system, which will be officially globally available on 26 October. EPA/AN TU CHINA OUT

The United States and China have encountered privacy issues involving cyber-snooping from both parties. In recent weeks the Obama administration has threatened to impose sanctions on China for supposedly spying on American firms; these allegations have been denied by China’s president. The United States has not been free of blame either. In 2012, an American congressional committee accused Huawei, a Chinese telecoms-equipment firm, of spying with no evidence to support their claims. It was then revealed that the NSA spied extensively on Chinese targets, which included Huawei, and that American tech firms may have helped them. The two countries have since tried to negotiate a treaty that would ban cyber-weapons, but the defectiveness of such a deal is uncertain.

These issues have led China to try to implement regulations on international firms in China. They have tried to propose making foreign investors follow that laws of local firms as well as tried to get banks to use IT that is safe and controllable. Neither of these attempts have been received well, especially concerning the banks. Foreign firms would have to turn over source codes and encryption keys to the Chinese government, which has caused quite the uproar.

Despite these issues and the dislike American tech firms have for Chinese policies, the firms continue to do business in China. The markets for their products are too large for them to pass up. The market for selling technology products to China’s government and businesses is forecasted to be $136 billion this year, and that is before counting sales of items such as smart phones to Chinese consumers. However, sales of American tech firms in China have been decreasing in recent years, so these firms are partnering with Chinese companies in order to increase business one again. Cisco, which helped build the backbone of China’s internet, has pledged to invest $10 billion into China in the next several years, partnering with Inspur Group, a local maker of computer servers. Microsoft has announced two new deals in China. One being a joint venture with Tsinghua Unigroup, a chipmaker, and the other being a deal with China Electronics Technology. Even Google is said to be reconsidering its 2010 decision of closing many of its operations on China’s mainland.

The worries of geopolitics between the United States and China is still high. If conflict were to break out, foreign firms in China would feel the heat. For now, however, business and commercial ties are holding out strong over the conflict between the two countries.

Source: The Economist

http://www.economist.com/news/business/21667924-american-tech-firms-may-dislike-chinas-policies-they-cannot-resist-its-market-cards

Photo: http://time.com/2825853/china-escalates-its-war-on-american-tech-firms/

Courtney Newcomb

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