Foreign fintech firms shut out by Chinese regulations

hardware

Tech companies are showing concern over regulations requiring firms selling computer equipment to Chinese banks to reveal secret source code and build back doors into their products.

The new rules, which also require companies to submit to invasive audits, are part of an attempt to strengthen cybersecurity in critical Chinese industries, the Chinese government has said. But companies are concerned that Beijing is trying to force them out of one of the industry’s largest and fastest growing markets.

The new banking rules say 75 per cent of technology products used by Chinese institutions must be classified as “secure and controllable” by 2019, The New York Times reported. In order to reach this classification, foreign companies must turn over source code to Chinese officials – a requirement that has raised company concerns over intellectual property, security and, in some cases, United States export law.

Companies that want to sell to banks must also to set up research and development centres in China, obtain permits for workers servicing technology equipment and build “ports” to allow Chinese officials to manage and monitor data processed by their hardware, NYT added.

The new regulations could split the technology industry further, forcing multinational corporations to only sell to China or the US, or create significantly different products for each market. China’s technology sector and requirements cannot be ignored by multinational corporations. The country is expected to spend $465 billion in 2015 on information and communications technology, according to the research firm IDC, which says the expansion of China’s tech market will account for 43 percent of worldwide tech sector growth.

Several foreign business groups including the US Chamber of Commerce have called for a discussion with Xi Jinping’s government over what they see as a growing trend of cybersecurity policies forcing Chinese companies to use only home-grown technology products and services.

China has previously pointed towards instances of the US spying in other countries as a reason to reduce its reliance on American technology. According to whistle-blower Edward Snowden, the National Security Agency previously made a major effort to enter Chinese mobile company Huawei’s systems, both to figure out who controls the company and to create back doors that the United States could exploit.

For now, the Chinese banking industry cannot immediately do away with reliance on foreign tech, as Chinese companies cannot yet produce some of the higher-end servers and mainframes they rely on. But while local brands only made up a 21.3 per cent of the Chinese market share in 2010, experts expect that number to have made a huge jump to 43.1 per cent in 2014.

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