China wants Silicon Valley's encryption keys: Good business, or get out?

China wants the encryption keys from U.S. technology companies as part of a counter-terrorism law. The draft law leaves U.S. tech giants with two options: Play ball or get out.
Written by Zack Whittaker, Contributor
(Image: stock image)

The Chinese government has introduced plans for a far-reaching counter-terrorism law that would require tech companies to hand over encryption keys and source code -- even "backdoors" to give Chinese authorities surveillance access, according to Reuters.

The draft law, on its second reading in the state's parliament, is expected to be passed in a matter of weeks.

In an interview with the news agency, President Obama said he has brought up the issue with the Chinese premier.

"We have made it very clear to them that this is something they are going to have to change if they are to do business with the United States," the president said.

Except that's not exactly what's going on here. It's U.S. tech companies that want to do business with China, thanks to its massive population, burgeoning economy, and its considerable potential financial returns. It's where some of the big global powerhouses are. It would be absurd to no longer do business in the economic and manufacturing heart of the world.

China's rules are broad and borderline terrifying for companies and countries wanting to do business with the Communist state. Making matters worse, tech companies can't possibly comply with the proposed rules. It's not surprising that China, with a history of stealing intellectual property, state-sponsored hacking, and shutting out businesses it doesn't like from state procurement rules, is not trusted by the West.

But Beijing, which sees the rules as vital in protecting state and business secrets, is the one holding the cards. Beijing doesn't trust Silicon Valley in the wake of the National Security Agency surveillance disclosures.

In that regard, China's move to introduce these laws is just good business sense for the country.

Companies in the US are already suffering thanks to the frosting of relations between the U.S. and China in the aftermath of the Edward Snowden leaks. A number of prominent U.S. companies, including Cisco, Microsoft, and HP, have warned that they face difficulties in the region thanks to "geopolitical issues," among other things.

The Snowden leaks showed the NSA was installing backdoors in Western technology, specifically Cisco routers and networking equipment, a charge the company decried. (The irony is that US lawmakers had in the not-so-distant past accused Chinese companies of doing exactly the same thing.)

Silicon Valley already has a test run of similar controversial law.

The rules proposed by China aren't all that different from Russia's stance more than a year ago, in which the Kremlin signed off its own "anti-terror" legislation.

New rules signed into law in April by President Vladimir Putin, and backed by the Kremlin, force news agencies, journalists, and bloggers to register with the state, threatening to impose fines on those who don't. A similar law passed about the same time as the anti-free speech law forces companies operating in Russia to store data on the country's citizens on its soil.

Shy of forcing companies to hand over encryption keys and source code, the move was to allow greater surveillance, as Russia data demands to the West are increasingly being declined.

What did Silicon Valley do? It began to up and leave. Google shut the door on its Moscow engineering office, Adobe also shut offices in the country, and Intel was forced to self-censor in compliance with the law. Other companies are considering their position in the region.

Despite having approximately half the population of the U.S., Russia isn't a huge market for most Silicon Valley companies. Their efforts are better spent in Europe, China, and at home.

The bottom line is that unless some diplomatic miracle happens, the law will go into effect, and Silicon Valley will have little option but to comply, or to pull out of the region.

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