Posted by: Dexter Roberts on January 15, 2010
Google’s decision to come out swinging over what it says was “highly sophisticated” Chinese hacking into its computer systems is heightening concerns that China’s business environment is far less hospitable than many have hoped. Since the world’s largest search engine made its surprise announcement Jan. 12, Adobe Systems, Juniper Networks, and Rackspace Hosting have all said their securities systems had also been breached.
And illustrating just how carefully foreign companies still have to tread in China, Bloomberg reported today that Google approached other victims of the Chinese hacking, hoping to get them to join the search engine in publicizing the problem, but had been “frustrated by their reluctance to come forward.”
In the same Bloomberg report, Chip-maker Intel said it had no evidence of a “broad-based attack” on its systems, and networking equipment-maker Cisco was quoted saying that since it “doesn’t participate in the censorship of information by any government, we cannot comment regarding the specifics of any of our industry peers.” (It’s not clear whether either company was one of the 20 that Google earlier said were targeted.)
But worries about upsetting Beijing’s notoriously prickly regulators didn’t stop the American Chamber of Commerce in China from speaking out. In an announcement apparently pushed forward in response to the hacking brouhaha, the Chamber reported Jan. 14 that its 2010 Business Climate Survey (which has not yet been released) showed that member companies “are optimistic, but concerned, on China.” Amcham worries “about the security of commercial correspondence, data and networks,” and “the free flow of information, protection of intellectual property rights and uniform application of the law facilitating commercial activity for both Chinese and foreign companies,” the statement continued. Google, Intel, and Cisco are all Chamber members.
Worries about information security are hardly the only issue riling foreign investors in China. Just as egregious many believe, are government edicts requiring local governments to buy Chinese-made products whenever possible. This issue was highlighted by the American Chamber in its 2009 business climate survey last April and almost certainly will be again when the 2010 version is released later this spring.
Despite the concerns, the Chinese market is still too big to ignore: foreign direct investment in China doubled in December to $12.1 billion, China’s commerce ministry announced in Beijing today. “Yes, growth is up. Yes the Chinese economy is booming,” says Duncan Clark, chairman of BDA China, a Beijing-based Internet and telecom consultancy. “But this has been one of the most difficult operating environments for business I remember in my 15 years here.” Citing Beijing’s continuing plans to require foreign banks and other companies to use domestic encryption technology, the buy-local rules, and the hacking incident, Clark adds: “It seems like kicking foreigners in the teeth is in these days.”
That the Google brouhaha has sparked business concerns hardly comes as a surprise. Perhaps less expected, it has also provoked heated reaction from officials in both Beijing and Washington. At a commerce ministry press conference, spokesman Yao Jian had some conciliatory words for investors: “Any decision by Google to withdraw from China will not affect Sino-U.S. trade relations,” he said. But Yao then went on to accuse the U.S. of “backsliding” toward protectionism with its trade actions against Chinese tires and steel pipes, and also demanded that “multinationals’ parent countries, including Google’s home country, step up oversight of their companies’ overseas’ businesses,” Bloomberg reported.
Washington, for its part, is hardly sitting on the sidelines. U.S. officials are planning to issue a formal protest or demarche and demand an explanation from China about the alleged Google hacking incident. Deputy-assistant secretary of state for East Asia David Shear met with Chinese envoys in Washington Thursday to express concern and gather information, Bloomberg reported. And Obama’s top economics advisor Lawrence Summers weighed in yesterday with strong words of support for Google’s actions: “The principles that Google is trying to uphold are not just important in a moral or human rights framework but are also of very considerable economic importance,” Summers told reporters at the White House. As China develops further, it will “find that issues of information flow are economically very important,” he continued.