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  (Source: AFP/Getty Images)
America's top tech firms are seeing sales bans, service disruption, and government-supported piracy

Google Inc. (GOOG) is back in the doghouse with China, but this time it's not over internet censorship and anonymity.  Quite to the contrary, China's government is increasingly adopting a threatening posture towards top tech firms such as Google, Apple, Inc. (AAPL), and Microsoft Corp. (MSFT) over accusations that the U.S. National Security Agency spied on Chinese citizens and Chinese businesses.
I. Don't Spy on Me
The top two print mouthpieces of the China's ruling party lambasted American tech firms in editorials this week, calling for "severe" punishments.  The pieces -- written in the state-owned English language newspaper China Daily and the Chinese language People's Daily -- called upon Chinese electronics companies to work together to strengthen security against intrusions.
Writes People's Daily editor Liang Jun Bianji:

U.S. companies including Apple, Microsoft, Google, Facebook, etc. are all coordinating with the PRISM program to monitor China.  To resist the naked Internet hegemony, we will draw up international regulations, and strengthen technology safeguards, but we will also severely punish the pawns of the villain. The priority is strengthening penalties and punishments, and for anyone who steals our information, even though they are far away, we shall punish them!

The sharply worded criticism is an ironic twist for the U.S., whose government regularly accused China's military of commercial and military espionage efforts.  Some members of the U.S. Congress in late 2012 suggested a nationwide commercial ban on smartphones and routers from Chinese companies, including ZTE Corp. (SHE:000063) and Huawei Technologies Comp. (SHE:002502).

Chinese protesters
Protesters decry NSA spying on Chinese and American citizens, in a protest in Hong Kong.
[Image Source: AFP]

The effort was condemned by many within the U.S. -- and abroad – as people felt the proposed ban on Chinese goods was overly paranoid, protectionist, and anti-capitalist.  The justification by the proponents of the ban was that Chinese equipment could be used to one day spy on Americans.  But at the time, a report from the White House concluded that Chinese OEMs did not appear to be currently engaging in such spying.  Only last year did China and the rest of the world experience the ironic twist -- the U.S. apparently knew China wasn't spying because it was loading malware into Chinese electronics and exploiting the holes in the firmware itself.
In essence the U.S. is believed to already have been doing exactly the kind of digital attacks on China that members of Congress concluded China might one day use against America.  What is largely unknown is if Google, Apple, and others actually played a role in any domestic and international sabotage and spying efforts.
The threat isn't just hollow rhetoric.
The Chinese government and top Chinese businesses have already started to purge their networks of U.S. software and components, terminating or winding down contracts with Oracle Corp. (ORCL), International Business Machines, Corp. (IBM), and Cisco Systems Inc. (CSCO).  And this week Google and Apple reportedly began to experience disruptions in their web services in China, likely due to government interference.
Experts suggest that while the move could hurt China both in securing manufacturing contracts and in terms of cost of goods and services, the biggest impact may be felt by the American tech industry.  Getting shut out of the world's largest electronics market could cost American firms tens of billions of dollars or more.

Cisco China
Cisco is among the top American firms losing Chinese contracts. [Image Source: Suzhou China]

Google chief legal officer David Drummond pled in his company's defense this week, stating:

We cannot say this more clearly - the (U.S.) government does not have access to Google servers - not directly, or via a back door, or a so-called drop box.  We provide user data to governments only in accordance with the law.

Apple, meanwhile, pointed the press to an April statement by CEO Tim Cook to ABC News.  In that inteview he stated:

Much of what has been said isn't true. There is no back door. The government doesn't have access to our servers. They would have to cart us out in a box for that.

It's quite possible both sides are right.  According to the documents released by NSA contractor-turned-leaker Edward Joseph Snowden, the U.S. government does most of its data collection by intercepting and modifying device shipments or by tapping into oceanic data cables.  Either approach would not constitute a backdoor on the server itself, but would potentially give the NSA access to the data of Chinese users of these services.
II. Prodding the Sleeping Dragon
Tensions between the nations reached a boiling point after the U.S. Department of Justice charged five Chinese military officers with hacking U.S. companies to steal trade secrets.  The move was basically a publicity stunt by the U.S. government -- the officers in question are reportedly part of a Chinese military cyberwarfare unit (Unit 61398) stationed in Beijing, China.  China refuses to even consider the possibility of extradition and has harshly criticized the U.S. for the pointless charges.

Eric Holder
U.S. Attorney General Eric Holder charged five Chinese military officials with hacking earlier this month. [Image Source: Bloomberg]

A statement by China's Foreign Ministry condemned the charges, commenting:

It is widely known that the U.S. has for a long time been using its advanced technology and infrastructure to perpetrate large scale theft of secrets and eavesdropping against foreign political leaders, enterprises and individuals.

From WikiLeaks to the (Edward) Snowden incident, the U.S. hypocrisy and double standards have been abundantly clear. The Chinese PLA has been a serious victim of this kind of behavior from the U.S. Statistics show that in recent years the PLA's international internet terminals have suffered a large number of attacks. IP addresses show that a large number of those attacks come from the U.S.  China demands that the U.S. give a clear explanation of its internet theft of secrets and eavesdropping on China and immediately cease such activities.

The Obama administration's decision to prod China already appears to have brought serious economic consequences as it was shortly after the charges that the Chinese government ratcheted up rhetoric and restrictions against American firms.
Many top U.S. services have been banned in the past several months.  Facebook, Inc. (FB) has been blocked by Chinese censors.  And China last month announced its decision to "ban" Microsoft's Windows 8 from government networks.

Windows 8 in China
Former Microsoft Windows President Steven Sinofsky announces Windows 8 at an Oct. 2012 launch event in China. [Image Source: EPA]

China is expected to rely on a mixture of pirated U.S. software and local offerings as it transitions away from U.S. hardware, software, and services.

China workers
U.S. companies rely on China for cheap manufacturing. [Image Source: Southern Weekly]

For American tech companies it's a tough position.  The Obama administration appears to stand firmly behind ongoing NSA spying efforts, target both Americans and foreigners, including the Chinese.  At the same time tech companies have little means of punishing China, as many of them are heavily invested in and overly reliant upon Chinese manufacturing.  

Sources: China Daily, People's Daily, Reuters

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RE: Duh?
By amanojaku on 6/4/2014 5:11:07 PM , Rating: 3
You're joking, right? The US has been spying on China long before Obama got in office. And China has been spying on us, so let's not take the side of hypocrites.

This is nothing more than an opportunity for the Chinese government to deflect its citizens' attention away from it's own abusive actions. Come on, Reclaimer, you were all over China because of this a few years ago.

RE: Duh?
By amanojaku on 6/4/2014 5:32:05 PM , Rating: 3
Should also point out that the US isn't the only country confirmed to conduct mass surveillance, foreign and domestic.

RE: Duh?
By amanojaku on 6/6/2014 9:26:23 AM , Rating: 2
RE: Duh?
By Camikazi on 6/8/2014 2:25:02 PM , Rating: 2
Every country capable of it does it, knowledge is power and knowing the citizenship gives you the ability to influence them which all politicians want.

RE: Duh?
By Reclaimer77 on 6/4/2014 5:49:48 PM , Rating: 2
Yes we've been spying on China, and they've been spying back.

However Snowden with his NSA leaks have caused a public firestorm over the spying that we've never had to deal with before.

So how does Barrack Obama follow it up, now that he has egg on his face? He makes an unprecedented attempt to begin a legal action against Chinese hacking! Do you have any idea how hypocritical this makes us look as a country?

This is also happening at the same time he's actively destroying US/Russian relations.

I don't know if his timing sucks, he's just insane, or what. But just..hello?

RE: Duh?
By amanojaku on 6/4/2014 6:35:45 PM , Rating: 2
This is also happening at the same time he's actively destroying US/Russian relations.
No, Putin is doing that. Relations where so-so when BO came into office. His interactions with Dmitry Medvedev are what made the US-Russia ties friendly again. Then Putin lost his mind when he got his third term in 2012. It's been downhill ever since.

RE: Duh?
By tamalero on 6/4/2014 11:48:45 PM , Rating: 1
If Western interests really wanted to keep friendly nature with Russia, they shouldn't never have meddled with Ukraine and destabilize the country like they did.
Considering Ukraine is a buffer country between West interests and Russian interests.. A huge important interests for Russians as well (due of Sevastopol).

I hardly think this is "Only Putin's fault" like many love to point.

But if you see the whole progress in the past 10 years.
US interests and West, have waged war with Dictators and nations which were pro Russian buffer zones.

RE: Duh?
By amanojaku on 6/5/2014 1:09:16 AM , Rating: 5
Whaaaaaaaaaaat?!? The United States has enjoyed friendly relations with Ukraine since it declared its independence! We've stayed friends even when Ukraine stabbed us in the back with the Cassette Scandal. We didn't destabilize the government. Former President Viktor Yanukovych started to become a dictator, so the people revolted and Parliament impeached him. We've had every reason to strengthen the Ukraine, especially since the people ousted Yanukovych over his ties to Russia and the people wanted to get closer to Europe and the US.

RE: Duh?
By wordsworm on 6/4/2014 5:50:24 PM , Rating: 2
Isn't a part of this article indicating that the US government knows that China hasn't been spying due to it having resources in China which would have revealed such activity?

In essence, American propaganda in this instance is never forgotten by guys like Reclam, and is always touted as a reason for doing something anticompetitive against China.

Well, that'll teach the naive Chinese for trusting American imperialists. If not for Snowden, the world would still be ignorant about America's double standard.

RE: Duh?
By amanojaku on 6/4/2014 6:28:34 PM , Rating: 2
Isn't a part of this article indicating that the US government knows that China hasn't been spying due to it having resources in China which would have revealed such activity?
No. The article says China did not put spyware into electronic firmware. It does not clear China of spying charges, and actually links to an article confirming China was spying.

RE: Duh?
By Spuke on 6/4/2014 9:11:45 PM , Rating: 2
China is spying and has been doing it for decades. There is no refuting this. The issue here is that the US got busted doing it putting everyone's spy programs in the public eye. That's why they're "pissed".

RE: Duh?
By cloudrunner on 6/12/2014 6:56:04 PM , Rating: 2
^^^ this. Every government is a form of control and will use all means necessary at any time to be at the advantage.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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