Pandanomics Protectionism

Amidst a fast growing economy and prominence as an upcoming economic Super Power, China is still very uneasy of the great dominance of Microsoft as world’s most influential if not monopolistic computer software platform provider.

The Diplomat story:

China Has a History of Not Trusting Microsoft on Cybersecurity

‘China has never been comfortable with being dependent on Microsoft products.’

By Adam Segal
August 02, 2014

Reports of China investigating Microsoft for possible violations of anti-monopoly laws have tied the action to continuing tensions over cybersecurity. In response to the Department of Justice’s indictment of five alleged PLA hackers, as well as revelations in some of the documents released by Edward Snowden that appear to expose the NSA hacking into Chinese targets, Beijing has increased focus on the security of the products of Microsoft, Cisco, Oracle, Intel, and others. Newspaper articles have called these companies the “guardian warriors,” highlighted the alleged vulnerabilities that China’s reliance on these companies creates, and pushed for banks, government offices, and others to shift to Chinese competitors.

There seems little doubt that the Chinese are exploiting the Snowden revelations for commercial advantages. But it is good to remember that there is a history here. China has never been comfortable with being dependent on Microsoft products:

In 2003, to assuage security concerns, Microsoft shared part of the Windows source code with China and fifty-nine other countries.
In 2005, China’s National Development and Reform Commission announced that it would promote Linux products over Microsoft ones in order to promote local competitors and boost security.
In 2008, some local governments forced internet cafes to replace Windows with Red Flag Linux.
The same year, Microsoft’s Windows Genuine Advantage and Office Genuine Advantage, upon detecting a pirated version of Windows, temporarily blackened computer screens. This enraged many Chinese PC users and alarmed policymakers, who asked themselves what other controls over and access to Chinese computers Microsoft had.
For at least the last two decades, Beijing has searched for policy tools to reduce dependence on the United States and other developed economies for critical technologies and to create the conditions for indigenous innovation—for Chinese companies to move up the value chain from labor-intensive to high-technology products. And cybersecurity has also always been a priority and a worry.

In the past, because China still needed them, Beijing and the technology companies came to agreements that everybody could live with. The Chinese government squeezed, but the companies got continued access to the market and made large investments in R&D in China to show the government that they were collaborative partners. China still needs the tech companies, but that dependence, or at least Beijing’s view of that dependence, seems to be lessening. If that is the case, then the anti-monopoly investigations and the broader pressure on American companies are both part of a larger history and the start of something new.

Adam Segal is a Maurice R. Greenberg Senior Fellow for China Studies at the Council on Foreign Relations. This post appears courtesy of CFR.org and Forbes Asia.”

************

And Tech Times story:

China interest in Microsoft may go beyond antitrust concerns

By Quinten Plummer, Tech Times | August 2, 12:15 AM
MSCNRoughly 100 officers with the Chinese government launched a surprise investigation at Microsoft’s offices in China. Antitrust allegations may be veiling an attempt to hinder operations of foreign tech firms in favor of Chinese companies, tech analysts say.
(Photo : MIXEvent | Creative Commons)
The Chinese government has kicked off an investigation of Microsoft for allegedly violating the country’s antimonopoly laws, but the allegations could be part of a larger tactic aimed at cripping outside companies in favor of national organizations.

The Chinese government was said to have confiscated two computers, copied numerous financial documents and collected an undisclosed volume of computer data when the officials showed up at four of Microsoft’s offices in Shanghai and Beijing the week of July 28. Microsoft responded to the probe by stating that it has adhered to every element of Chinese law.

“Microsoft complies with the laws and regulations of every market in which we operate around the world and we have industry leading monitoring and enforcement mechanisms in place to ensure this,” stated Microsoft. “Our business practices in China are designed to be compliant with Chinese law.”

It wasn’t the first time the tech company has been accused of wrongdoing by the Chinese government and Microsoft isn’t the only foreign organization to be the target of such allegations.

Earlier in 2014, the U.S. Chamber of Commerce stated the Chinese government’s swarm of monopolistic accusations have been used to hinder the progress of outsiders, in favor of homegrown businesses, after the foreign organizations have helped local products stand on their own.

“The Chinese government has seized on using the [antimonopoly law] to promote Chinese producer welfare and to advance industrial policies that nurture domestic enterprises,” the chamber stated in a letter.

Robert Atkinson, president of the Information Technology and Innovation Foundation, said U.S. tech companies were more concerned about the state of the market in China than they were just a few years earlier. The tech companies feel “the rug is being pulled” from under their feet, stated Atkinson.

While not stating that Microsoft has violated any antimonopoly laws in China, Zhan Hao, a managing partner at Anjie Law Firm of Beijing, said Microsoft’s size and its presence in China make the company likely to do so.

“Microsoft really has a dominant market position — people rely on it very much and its market share is very high, so this would likely lead to an abuse of its dominant market position,” said Hao. “Alternatively, Microsoft could, through its market position, restrict competition for other business and competitors.”

*****************

At the moment, Microsoft has an 83% monopoly of the operating system platform in China.

The CCTV story:

Microsoft Windows dominates China’s OS market

CCTV.com

07-31-2014 04:33 BJT
Microsoft has a firm grip on the computer operating systems in China. According to the June monthly report published by the internet research firm CNCC, over 83 percent of Internet users in China accessed the web from a computer operated by one of the various versions of Microsoft Windows.

That far exceeded the percentage of people working from an Apple Mac OS computer, which accounted for less than 0.2 percent of market share. The report noted that over 16 percent of netizens now use mobile devices to surf online. Although Microsoft seems to be dominating China’s operating system market, industry insiders also point out that a large number are likely using pirated versions.

***************

That is a grave worrying bit by the Chinese authorities, which is still subjected on absolute control of the Communist Party of China. An interesting story is about China raiding Microsoft office for alleged anti-trust practices

The Bloomberg View blog story:

Microsoft Probe Fuels China Uncertainty

18 JUL 31, 2014 12:02 AM EDT
By William Pesek
It’s hard to keep a straight face as China accuses Microsoft of “monopolistic behavior” and raids its offices in Beijing, Shanghai and elsewhere. What, that cartel known as the Communist Party suddenly has a problem with large organizations that dominate their particular sectors?

I have no inside intelligence on whether the tech giant Bill Gates built is as unscrupulous as China’s State Administration for Industry and Commerce claims (and, hey, I hate Windows as much as you do). But it’s quite a coincidence that this probe comes as so many U.S. tech companies suffer China Inc.’s wrath. While the crackdown predates Edward Snowden’s disclosures about Washington’s surveillance programs, it has intensified in the months since the former intelligence consultant fled to Hong Kong and then Russia.

There’s no avoiding the perception that Beijing’s inquiries into the Microsofts and Qualcomms (GlaxoSmithKlines, too) of the world are arbitrary and politically motivated. China Inc. is creating a highly-organized environment of protectionism, unpredictable laws, unreliable suppliers and intimidation tactics that shield national champions from outside intrusion. Sure, China operates under the state-capitalism model, and its economy is a tool of government power. And yes, we’re aware of the evolving Cold War between Beijing and Washington. But the pattern of welcoming in foreign companies, forcing them into joint ventures, seeing what they’ve got and then discarding them by supposedly legal means can only be called one thing: a shakedown.

A similar perception problem afflicts President Xi Jinping’s ongoing corruption purge. This week, that effort claimed the biggest scalp yet: former Politburo Standing Committee member Zhou Yongkang. In theory this should be good news for businesses, both foreign and domestic. By systematically taking down dirty Communist party leadership figures, Xi is in theory showing that no one, no matter how politically well-connected, will be allowed to undermine the system through rampant graft. By eliminating political enemies, Xi may also be clearing away resistance to structural reforms. Slowing the siphoning off of state wealth should mean that China’s 7.5 percent growth can be more widely shared.

Yet in both cases, the arbitrariness of the investigations and purges only creates uncertainty that could prove counterproductive for China’s economy. Already, names like L’Oreal SA, Revlon and generic drugmaker Actavis are either throttling back or leaving China. Will Beijing’s antics encourage household tech names to follow Google and pull the plug? Granted, China’s scale and vast potential makes navigating its idiosyncrasies a necessary evil. It’s not like Wal-Mart is about to leave. But businesses need clarity and predictability as much as they’d like to see a reduction in graft. Here’s how Actavis CEO Paul Bisaro puts it: “If we’re going to allocate capital, we’re going to do so where we can get the most amount of return for the least amount of risk. And China is just too risky.” The real loser here could China’s foreign investment flows.

Xi’s anti-graft effort could have other chilling effects. Local leaders may be reluctant to implement changes in the service of national reform, partly because of fears generated by Xi’s probes. They might decide it’s safer to keep pumping up growth than to court attention from central leaders in Beijing. Alternately, cadres may be too intimidated to take risks with new borrowing or growth-generating projects.

I’m not saying Xi shouldn’t eradicate corruption — he must. It’s the key to reining in state-owned enterprises and the shadow banking system, recalibrating the economy from exports to services, and avoiding a national debt crisis. But anyone who thinks cleaning up Beijing won’t have huge knockoff effects is dreaming.

The same is true of the dragnet now ensnaring Microsoft. Hey, perhaps Microsoft did run afoul of China’s monopoly laws. Heaven knows it’s had its share of anti-trust litigation these last 20 years. But if this is just China’s strategy, in the words of the official Xinhua news agency, to “build a more fair and equal market,” the Communist Party is looking in the wrong place. It should be looking in the mirror.

To contact the writer of this article: William Pesek at wpesek@bloomberg.net

To contact the editor responsible for this article: Nisid Hajari at nhajari@bloomberg.net

*******************

Unless China is ready with indigenous operating system to replace Microsoft and thus having the control that she desires, then the Chinese have no choice but be dependent.

It makes sense why China is very uncomfortable with inability to control the most widely used operating system and computer software platform. Even one time a visionary and advocate of the ‘Multimedia Super Corridor’, Tun Dr. Mahathir Mohamad changed his mind about not able to exert control.

The abuse of information democracy is just counter productive of moving the nation forward. The nation and its economy should not allow itself to be opened for being held for ransom, by oligopolists. Worse still, monopolists.

True for Malaysia. True for China.