China is threatening to block companies from selling IT products in the nation if they fail to pass a new "cybersecurity vetting system" meant to weed out secret spying and surveillance activities.
Major IT products and services that relate to national security or public interests will be vetted under the new system, China's state-controlled Xinhua News Agency announced on Thursday.
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The regulations come from China's State Internet Information Office and are meant to safeguard the country, according to the Xinhua report. But they also come amid rising tensions with the U.S. on security issues that could potentially disrupt relations between the two nations.
Earlier this week, the U.S. took unprecedented action and indicted five Chinese military officers for allegedly hacking into several U.S. companies. Lasting from 2006 to this year, the alleged cyber attacks stole trade secrets that were then supplied to rival Chinese companies.
Analysts believe the U.S. indictment will put a spotlight back on China's corporate espionage activities. But so far, the accusations have been met with a harsh response from Chinese officials, who deny that the nation has ever engaged in state-sponsored hacking.
The Chinese government is demanding the U.S. withdraw the indictment. In addition, officials have been portraying the U.S. as a hypocrite that engages in its own cyber espionage activities. They point to recent leaks former National Security Agency contractor Edward Snowden, which claim that the U.S. has been spying on Chinese schools and companies.
On Thursday, China's State information Office also cited the Snowden leaks as a reminder of why cyber security is needed, according to the Xinhua report. It went on to state that China's government departments, companies, universities and telecommunication firms have all been victims of wiretapping and intrusion.
Specific details were not given on how the vetting system will work. But it has the potential to limit business for U.S. tech firms, including Microsoft, IBM, and Cisco, none of which immediately responded to a request for comment.
The U.S. has already taken similar action against Chinese telecommunication equipment suppliers Huawei and ZTE. In 2012, a U.S. congressional committee concluded that both companies were a security threat due to their alleged ties with the Chinese government. The committee advised that U.S. companies buy their networking gear elsewhere.
China's new vetting system could have the same affect, and push more of the nation's state-owned companies toward domestic IT suppliers, according to analysts. It could also result in stricter government standards on cybersecurity that all Chinese industries will have to comply with.
The new regulations will benefit local companies like Huawei and Lenovo while foreign tech firms will face more barriers in China, said Charlie Dai, an analyst with Forrester Research. To stay relevant, foreign tech companies will have to form stronger ties with the Chinese government and domestic firms. But for the good of both nations, the U.S. government should try to ease the current tensions, he added.