China's cyber law squeezes foreign tech companies

China hasn't been a welcoming place for many foreign technology companies. Google, Facebook and Twitter are blocked. Microsoft is facing an antimonopoly investigation. Qualcomm, the leading maker of mobile chips, paid the government $975 million to settle an antitrust suit last year and continues to have trouble collecting licensing fees from clients in the country. And things are getting worse.

On January 1, a law took effect that requires telecommunications and Internet companies operating in China to provide law enforcement with technical assistance, including decryption of sensitive user data, in any probe meant "to avert and investigate terrorist activities." The version approved by the legislature's standing committee at the end of December dropped draft provisions that had drawn objections from the White House. Companies won't have to keep local user data at facilities inside China, and they won't need to give the Chinese government back doors into their systems. But US and European trade groups still aren't happy. The European Union Chamber of Commerce in China says the law's vague wording on when and how to help law enforcement decrypt data "leaves concern about how companies will be expected to carry this out".

The law builds on other counterterrorism, national security, and banking and insurance measures enacted last year that either ease regulation on or directly subsidise purchases of homegrown tech. China seeks to purge most outside technology from its banks, military, state-owned enterprises, and key government agencies by 2020, Bloomberg News has reported. The latest rules "continue the Chinese government's ongoing efforts to restrain or force out foreign technology companies," according to a January 11 report by the Information Technology & Innovation Foundation, a Washington think tank.

The Chinese government has been good at protecting some digital turf at home - Baidu owes much of its success to Google's absence, for example - but it's still had to work with a wide range of foreign hardware and software because other countries set the standards. China spent years during the mid-2000s promoting a homegrown standard for 3G wireless communication, which if adopted would have netted local companies regular royalties from adopters abroad. That effort failed, as did similar attempts to create made-in-China standards for radio-frequency-identification chips and streaming TV.

Now, though, companies such as Huawei, ZTE and Lenovo are among the world's top makers of computing hardware and telecom networking equipment. President Xi Jinping's government can afford to phase out its use of foreign rivals and count on those who remain in the short term to keep cooperating. Given the limited economic growth in the US, Europe, and Japan, even China's slowdown and market turmoil don't significantly weaken Xi's hand in dealing with foreign tech companies, says James McGregor, Greater China chairman of consulting firm APCO Worldwide in Shanghai.

There are limits to how far China can push foreign companies. Chinese consumers remain hungry for iPhones, for example. The country's chipmakers aren't ready to replace Intel microprocessors with homemade alternatives.