The China Market

On Saturday, the Guardian revealed fears by US officials that China was using its privileged access to the Microsoft Windows source code in order to prepare and launch attacks against certain targets. This fear appears to be justified, in light of the tactics used in the highly publicised attacks that led to Google’s withdrawal from China. The attacks, we are told, were initiated by the Chinese Politburo when one of its senior members googled himself (naughty!) and found material that was critical of him.

I confess feeling a bit of smug satisfaction when I say I Told You So. Microsoft’s drive to secure the co-called China market at any cost demonstrates perfectly the complete imbalance in power that most businesses face when attempting to gain a foothold in China.

Back in 2007, when reviewing the purported victory, I wrote:

With trademark deftness, China has largely de-fanged one of the most effective and brutal corporate negotiating teams in the world. This is the corporation that managed to buy off the US government and avoid any real punishment following its conviction for abuse of monopoly powers. It’s the company that has consistently and rather successfully thumbed its nose at the European Union, the largest economic entity in the world today. It has controlled standards processes, locked in countless corporations and ruthlessly dominated the supply chain world-wide.

Yet Chinese negotiators got everything they asked for. Price reductions? They pay about 10% of what other governments do per seat. Control? They not only have access to the source code, they have to right to alter it to suit their purposes.

Think about what that means to the Chinese. In economic, political and strategic terms, they’ve negotiated unprecedented access to an invaluable resource, and they’ve done it in a way that costs them next to nothing. Truth be told, Microsoft got almost nothing out of this deal. China still uses Linux whenever and wherever it wants.

It still astounds me that anyone thinks that the so-called China Market is anything other than what the Chinese regime decides it is at any given moment.

Sure, there’s a lot to be said for the beneficial effects of market forces. I won’t dispute that. The one thing people tend to forget is that, if push comes to shove -and it has in the past- the Chinese are capable of enduring unimaginable suffering to achieve a strategic goal. (Well, capable of allowing their citizens to endure unimaginable suffering, at any rate.) That willingness gives them the capability to impose any number of arbitrary conditions onto the economic environment.

Western governments don’t think of themselves as the owners of their respective economies. The Chinese do.

So when the likes of Cisco, Yahoo! and Microsoft betray every iota of principle (and expose a callously cavalier attitude toward strategic security issues) in pursuit of economic gain in China, I can only caution them that things only look manageable now because they’re not happening to you.