Fearful of cyberspooks, China struggles to break its Microsoft habit

As Beijing and Washington trade accusations of cyber-espionage, China is trying to curb some of America’s biggest information technology firms here. But it is a long way from breaking its dependence on giants such as Microsoft and IBM, local analysts say.

That means that though Beijing has been talking tough in recent weeks – lashing out at US companies that China says have helped the National Security Agency to spy on Chinese officials and citizens – its options are few.

“There have always been efforts [by China] to displace western technology,” points out Duncan Clark, chairman of BDA, a Beijing-based consultancy specializing in the tech sector. “But there have been no local alternatives.”

Since Edward Snowden’s revelations about the NSA’s massive data collection programs, Chinese officials have complained bitterly that Beijing has been a prime victim of US cyber-espionage. The US Department of Justice, meanwhile, last month unsealed indictments against five Chinese military officers, accusing them of hacking into US companies’ computers in order to steal trade secrets.

That prompted quick retaliation. China said foreign technology companies would be vetted for possible national security breaches – a move that could hit US firms’ sales in the biggest PC market in the world.

A few days earlier China had announced that it would forbid the use of Microsoft’s Windows 8 operating system on government computers; the state-run Xinhua news agency said the decision was designed “to ensure computer security” without further explanation.

At the end of last month, Bloomberg News cited four sources as saying that government agencies are pushing Chinese banks, which are largely state-owned, to replace their IBM servers with a locally made brand.

And as the website of the ruling Communist party’s youth wing decried what it called Cisco’s “disgraceful role” in China as a tool of the US government, the Chinese authorities released a report finding that “the nine major US software and hardware providers offer core technology support to US intelligence.”

Microsoft OS upgrades

Microsoft's ubiquitous software is widely used – and pirated – in China. It is not clear which operating system the Chinese government will choose to replace Windows XP, the outdated OS that most government computers currently run on but which Microsoft no longer supports.

Windows 7 appears the only option, since Chinese scientists have not managed to develop an operating system to match Microsoft’s products. But it raises the same dilemma: Should China's government rely on a software platform that is US designed and controlled?

A news item broadcast on state-run television last week questioned Windows 8 security and warned that “whoever controls the operating system can control all the data on the computers using it.”

China has developed its own homegrown platform: computers in some branches of the Chinese military and a few government departments run on an operating system developed by a Chinese firm, Zhongbiao. But it is less stable than Windows and has made little headway in the consumer marketplace says Dai Xiangjun, a security expert at CCID, a Beijing IT consulting firm.

“It is hard to say” when a local firm might develop a computer operating system to rival Windows, adds Mr. Dai. “But it will take a long time.”

Servers for bankers

Likewise, no Chinese firm has yet built a high end mainframe server that could compete with IBM products, meaning that the reported order to replace IBM servers in Chinese banks with servers built by Inspur, a Chinese company, is an empty threat, for now.

Inspur’s spokesmen did not respond to calls for comment, but staff in the sales department could not name any company product that might compete with IBM’s mainframes.

“Core banking operations and mission-critical systems can only run on IBM servers,” says Wang Pei, a cyber-security analyst at IDC, another Chinese IT consultancy. “Inspur does not have the same technology.”

Though the Chinese authorities are worried about their cyber-security, says Mr. Wang, their recent angry words and actions “are a response to the Snowden scandal and the five PLA officers being charged,” he believes. “These are tit for tat reactions.”

“These have been a rough few weeks for US technology companies,” says Mr. Clark. “I hope it turns out to be more rhetoric than reality.”

Dai expects it will. “80 percent of all this is because of US-China politics and 20 percent is about technological concerns,” he says. “The technological problems are actually not hard to solve, but the politics can get very complicated.”