US Tech Firms Under Increasing Scrutiny in China

BEIJING (Los Angeles Times/MCT) -

The Silicon Valley economy is hot these days, but U.S. tech firms are feeling a chill in China.

Anti-monopoly investigators have raided Microsoft’s China offices, and the government has banned Windows 8 from state computers. San Diego-based chip maker Qualcomm may face more than $1 billion in fines for allegedly overcharging customers for smartphone patent licenses. And the government is encouraging Chinese businesses to abandon IBM systems in favor of local products.

It seems that no large tech company is escaping government scrutiny.

Google services such as Gmail and Maps have been increasingly stifled this year by China’s “Great Firewall” – the country’s censorship-and-surveillance program – while Facebook and Twitter remain blocked on the mainland. Last month, state-run media aired a report on the iPhone’s tracking feature that suggested the devices could be used to expose state secrets.

China says it’s simply enforcing antitrust rules and looking out for national security. But the regulatory moves – coupled with increasingly heated rhetoric against Silicon Valley giants and strong calls by Chinese leaders for homegrown tech innovation – are raising fears of a tougher business climate and a new burst of protectionism.

“U.S. tech companies are in the horizontal and vertical cross hairs,” said Duncan Clark, chairman of BDA China, a Beijing investment-advisory firm specializing in the tech sector. “They’re between a rock and a hard place right now.”

It’s not just U.S. tech firms like Microsoft and Qualcomm feeling the chill in China. These days, foreign companies of all kinds – including Japanese and German carmakers and European drug manufacturers – are being ensnared in anti-monopoly investigations.

A number of experts say that’s the natural result of China ramping up enforcement of its anti-monopoly law, which is just 6 years old.

“China has been way behind the West in terms of antitrust law, but they’re rapidly accumulating more experience in interpreting and enforcing the law,” said Huang Yong, a professor at Beijing’s University of International Business and Economics and member of the State Council’s anti-monopoly committee advisory panel.

But the Chinese government is casting high-tech companies as a particular threat as the two countries trade cyberspying and hacking allegations.

China’s suspicions about American companies were heightened in the wake of the Edward Snowden revelations, Clark noted, and Beijing is furious about Washington’s allegations that China’s military is stealing secrets from U.S. firms.

Meanwhile, the state-run media has been bashing Silicon Valley stars for months.

“American companies, including Apple, Microsoft, Google, Facebook, etc., are all coordinating with the Prism program to monitor China,” the Communist Party mouthpiece, People’s Daily, said about the National Security Agency’s electronic-surveillance data-mining program in June. “To resist the naked internet hegemony, we will draft international regulations and strengthen technology safeguards, but we will also severely punish pawns of the villain.”

Last month, state-run media aired a report on Apple iPhones’ “Frequent Locations” feature – which enables Apple to track a handset’s position – and cited a researcher saying the devices posed a serious risk. Anyone with access to the data could gain knowledge of “state secrets,” the expert said – a charge that Apple denies.