China’s New Rules for Selling Tech to Banks Have US Companies Spooked

An Apple employee instructs a journalist on the use of the iPhone fingerprint scanner technology during a media event in Beijing, Ng Han Guan/AP

Technology companies that want to sell equipment to Chinese banks will have to submit to extensive audits, turn over source code, and build “back doors” into their hardware and software, according to a copy of the rules obtained by foreign companies already doing billions of dollar worth of business in the country. The new rules were laid out in a 22-page document from Beijing, and are presumably being put in place so that the Chinese government can peek into computer banking systems.

Details about the new regulations, which were reported in The New York Times today, are a cause for concern, particularly to Western technology companies. In 2015, the China tech market is expected to account for 43 percent of tech-sector growth worldwide. With these new regulations, foreign companies and business groups worry that authorities may be trying to push them out of the fast-growing market. According to the Times, the groups—which include the US Chamber of Commerce—sent a letter Wednesday to a top-level Communist Party committee, criticizing the new policies that they say essentially amount to protectionism.

The new bank rules and the reaction from Western corporations represent the latest development in an ongoing squabble between China and the US over cybersecurity and technology. The US government has held China responsible for a number of cyberattacks on American companies, and continues to be wary that Chinese-made hardware, software and internet services may have some built-in features that allow the Chinese government to snoop on American consumers. Meanwhile, China has used the recent disclosures by former NSA contractor Edward Snowden as proof that the US is already doing this kind of spying—and that this is reason enough to get rid of American technology in the country.

If US companies are forced out of the Chinese market, it could significantly hurt some of the biggest American tech companies—notably Apple. Its recent earnings call revealed a blockbuster quarter for the company, during which it sold a whopping 74.4 million iPhones over 90 days—or 34,000 iPhones sold every hour, every day of the quarter. The market with the biggest growth? China, where revenue grew by 70 percent in the most recent quarter from a year earlier, which is more than triple the growth rate in America and Europe.

Beyond hurting US businesses, China’s strict control over technology and internet policies could further widen the digital divide between China and the rest of the world. These regulations could hamstring hardware and software makers to choose between selling to either China or the United States, as the Times points out. In that scenario, the alternative would be to create two different versions of all hardware and software for the two countries, depending on the regulations for each.

But, according to the Times report, even if Beijing pushes the banking industry to uphold the new rules, they won’t be able to implement them immediately. Banks need billions of dollars’ worth of technology infrastructure to manage the transactions that pass through its systems, and Chinese companies don’t yet have the ability to support production on that level.