Nation won't yield on IT security

US objections seen as unjustified complaints from lame-duck Obama administration

Although United States Treasury Secretary Jack Lew's recent visit to Beijing yielded signs that China may delay in demanding that companies such as IBM Corp and Oracle Corp turn over key data, the country still intends to ensure national security with tighter controls on the information technology sector. So it is too soon for US-based technology companies to exhale with relief.

China, a top market for international IT providers, will be choosy about awarding contracts when it comes to government procurement, where tens of billions of dollars are being spent annually to keep hardware and software up to speed with the growing economy.

Overseas multinationals scent an opportunity, but they also fear that pending regulations could block them from the lucrative market.

Legislators are drafting China's first counterterrorism law. That statute will allow the authorities to demand critical data from all IT companies operating in China in the name of national security. Local companies have no problem with that, but overseas giants fear that the effect of the law, and perhaps its actual purpose, is to oust foreign technology.

Lobbyists representing the interests of US tech enterprises in China clearly got US President Barack Obama's attention as senior US officials have repeatedly accused China of violating the principles of fair play. One of the top reasons for Lew's visit was to raise the issue with Chinese negotiators.

Diplomatically, forcing the US to include IT restrictions in high-level bilateral talks was an unlikely success for China. The nation is still overmatched by the US in the sector, and key industries still depend on US companies for premium technologies.

But China saw the issue as another way to keep Washington on the defensive, and indeed it may have been a method of gaining leverage there to get the upper hand somewhere else.

China and the US are trying to meet halfway on more pressing issues such as the yuan's role in the international financial system and the US attitude toward the China-led Asian Infrastructure Investment Bank.

The IT issue could be sufficient to upset the balance in the overall dialogue.

If the US continues to push China on the IT issue, Washington may score a short-term victory on the counterterrorism law while ceding ground to China in other areas.

Pushing China on this issue seems shortsighted. Information security is a long-term, strategic matter for China. Achieving a temporary rollback in technology restrictions does not indicate that influence from the US will steer Chinese officials away from establishing a more controlled IT environment in key sectors.

Viewed from this perspective, the country is more likely to beef up than scale down IT security controls in all industries that China sees as "strategically important". These may include banking, energy, biotechnology, advanced manufacturing, telecommunications, cloud computing and many others.

China raised IT security concerns after the mass surveillance scandal that damaged the US' global credibility less than two years ago. China has repeatedly stepped up its defenses against the US in terms of Internet espionage and other areas. And China will not yield its increasing sway in Internet governance and other sectors just because of complaints from the lame-duck Obama administration.

That said, China never shuts the doors to negotiations. Wu Haitao, an ambassador-level official who oversees Internet-related affairs at the Ministry of Foreign Affairs, said that China welcomes a "candid exchange of views" with the US as long as it does not threaten China's sovereignty.

For overseas multinationals, it is time to carefully reconsider their role in China.

It is understandable that foreign companies are having second thoughts on cooperating with the Chinese government. A safer way to maintain their presence in China would be to team up with local players who could endorse the security of software and hardware.

Many companies are already doing just this. IBM has a partnership with Inspur Worldwide Services Ltd, EMC Corp is looking at Lenovo Group Ltd to sell high-end storage and Hewlett-Packard Co is close to making its fully owned communications equipment subsidiary H3C Technologies Co Ltd a US-China joint venture.

Deeper cooperation in advanced technology research will also help these companies secure market share in the long run.

If you cannot beat China, join it.