China’s raid on Microsoft – payback for indictment of PLA hackers in US?

by Chris Zappone

Like so many events in China, its regulators’ recent raid on the offices most likely has multiple motives. One is that China is using its firmer regulatory powers to get tough with Microsoft which has abused its market position elsewhere. Another is that China simply tilting the playing field in favor of its domestic companies, which is a not-so-secret objective in China. China wants to be a tech powerhouse in its own right. Also for that reason, foreign companies often have to bargain their technology for access to China’s market.

The third motive for the raid – possibly the most plausible – is that it comes amid a backlash against US technology, sparked by revelations from Ex-NSA contractor Ed Snowden, that US produced-technology has been used by the NSA to spy on foreign governments, like China’s. The anger has been further stoked by the fact that the US is taking legal action against China government hackers.

Reuters quotes Duncan Clark, chairman of Beijing-based tech consultancy BDA as saying: 

The [State Administration for Industry & Commerce ] investigation into Microsoft could be read as a public retaliation for the U.S. cyber espionage revelations and the Justice Department indictments, BDA’s Clark said.

The presumption must be that Microsoft would not, as Google has done, pull out of the Chinese market because there is too much money to be made. Yet, it’s not clear Microsoft is making the money. The Reuters article quotes Steve Ballmer as saying in 2011 Microsoft earned less revenue in China than in the Netherlands because of piracy.

The big question in this environment, though, is when does China, desiring a strong indigenous tech industry, feel sure enough of its own technology and R&D to kick out US companies? 

Another question. US companies have worked in China on the assumption that the benefits outweigh the losses – and so it’s worth a certain amount of intellectual property loss. But that equation is formed at the corporate level in which US corporates compete with each other.

What would happen if, as US companies increasingly coordinate with the US government over cyber-theft, they begin to see themselves not simply as lone competitors in a sometimes hostile market, but part of a team with the shared interest of supporting certain rules of play even as they battle it out with each other?

If cyber-theft and technology transfers are considered at an American industry-wide level – rather than a corporate level – does the behavior of US companies change? This isn’t completely theoretical. In the past, the industrial families of Italy have been adept at knowing when to compete with each other and when to stand together for their shared interests.

Could this happen with US tech companies working in China?