Mainland security checks on hi-tech systems could favour domestic suppliers

Little impact expected as analysts say it will take a while for mainland vetting process to be ready

PUBLISHED : Saturday, 24 May, 2014, 1:52am
UPDATED : Saturday, 24 May, 2014, 1:52am

Beijing's plan for more stringent checks of information-technology products and services is not expected to be implemented soon, but analysts see the potential of major government and business purchases favouring domestic suppliers.

The new procedures, announced on Thursday by the State Internet Information Office, are likely to put further strain on the relationship between China and the United States, days after Washington indicted five Chinese military officers for industrial cyber-theft.

State media said the vetting would bolster national security by preventing the use of high-technology products "to illegally control, disrupt or shut down their clients' systems, or to gather, store, process or use their clients' information".

Xinhua said products that failed the checks would be banned from the mainland.

There’s no need to panic because the procedures have not yet been executed

In separate statements to the South China Morning Post yesterday, global networking equipment market leader Cisco Systems and business software giant SAP said they expected the new vetting policy to have no impact on their mainland operations.

Analysts said time was on their side. "There's no need to panic because the [new] procedures have not yet been executed," said Charlie Dai, a principal consulting analyst at Forrester Research in Beijing.

Alberto Moel, a senior analyst at Bernstein Research, said: "It will probably take them years to sort out the vetting process and the testing framework. But the checks would serve as some kind of bureaucratic speed bump in procurement, which may favour some vendors over others."

Dai said state-owned enterprises, especially those in sensitive industries such as energy, health care and banking, "will more likely adopt domestic [information-technology] products and services" once the new process was put in place.

The internet information office "has been considering this vetting for years", Xinhua said.

The checks will apply to foreign and domestic suppliers. A spokesman for Huawei Technologies declined to comment.

German firm SAP, the world's top supplier of business-management software, is likely to monitor the vetting system's progress as its "cloud computing" service with China Telecom expands on the mainland. Their service delivers software over the internet to corporate subscribers.

"We have very high security standards in our cloud business. We are absolutely transparent as China Telecom is our trusted partner," SAP Greater China president Mark Gibbs said.

Michael Gazeley, the managing director at security services firm Network Box, said China's enterprise technology market - the world's third-largest behind the US and Japan - could either slow because of the checks, "or be stimulated as organisations scramble to replace the products and services that fail the vetting".

Forrester estimates the mainland's government and business expenditure in hi-tech products would reach US$124.5 billion this year, excluding consumer technology spending and corporate telecommunications services.