US tech companies have not done well in China since Edward Snowden leaked the extent of the NSA’s spying operations. China’s state-run firms stopped buying computer hardware and software made in the US for fear that backdoors have been built in to these products to aid the NSA that make them vulnerable to security threats. This practice has been proven to be part of the NSA’s active toolkit, as revealed in documents released by Snowden.
As a result, US tech companies have taken a hit in the region. IBM has seen their sales in China fall by 20% or more in each of the last 3 financial quarters. Cisco has experienced an 8% drop of sales in China in the most recent quarter.
On Monday, May 19th, the Obama administration indicted 5 Chinese military officers for hacking US companies and cyber espionage. While this move does address a serious problem, the end result may actually hurt the very companies that may have been hacked in the scandal.
James McGregor, chairman for the advisory firm APCO, expressed that these indictments are warranted, but could also hurt US tech companies:
“The environment in China for U.S. technology companies is not very good right now, and this won’t make it better. There’s always a risk of retribution in China. But if they’re losing their intellectual property to cyber hacking they probably see this action as necessary and worrisome.”
Retribution is what US companies are afraid of in this situation. It wouldn’t be the first time the Chinese hurt US businesses in retaliation for US foreign policy that excluded the Chinese.
In 2012, the US barred Chinese communications giants Huawei Technologies Co Ltd and ZTE Corp from participating in the building of US telecommunications infrastructure. In direct response, Chinese state-run companies avoided using US contractors for some of their projects.
Time will tell if this measure has any longstanding effect on the dismal state of cyber security between these two world powers to be worth its financial cost to the IT sector in the US.