China’s New Encryption Rules Favor Homegrown Vendors

As if to illustrate the point I made in my earlier post today about China’s far-reaching industrial strategy in the technology sector, the Wall Street Journal reports that Cisco will be among the companies affected by new rules that will require vendors of six categories of technology products — including smart cards, firewalls, and routers — to disclose encryption codes to Chinese authorities as a certification precondition for sales to government accounts.

As the WSJ reports, encryption codes are closely guarded by technology vendors for both competitive and security reasons. Although the product categories covered by the new encryption rules account for, at most, hundreds of millions of dollars in sales to the Chinese government — a small fraction of what China’s government spends on technology — the dispute is the latest flashpoint between China and foreign technology companies.

Quoting from the article:

Industry observers who follow the issue say that the regulation appears to be part of a broader effort by Beijing to promote domestic enterprises. Foreign executives say such regulations make it increasingly difficult for foreign companies to compete fairly in one of the world’s most important markets.

Assuming Cisco does not acquiesce to the new rules, it would be one of the companies most affected. Cisco has declined to comment on the matter.

The WSJ reports that, as of last night, a government list of companies certified under the new rules included — surprise! — only Chinese companies. Foremost among those companies was Huawei and Leadsec Technologies Co., an Internet-security subsidiary of Lenovo Group Ltd.

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