Chinese Rules Said to Threaten Proprietary Information

Via NYTimes.com (April 30, 2010) -

China is expected to issue regulations on Saturday requiring technology companies to disclose proprietary information like data-encryption keys and underlying software code to sell a range of security-related digital technology products to government agencies, American industry officials said on Friday.

But they said it remained unclear how vigorously Chinese officials would enforce the new rules, which already are watered down from a sweeping proposal first raised in 2007. Both the American and European technology industries have contended that the rules are unworkable and that they amount to trade protectionism.

One concern is that the rules will allow the leak of crucial foreign technologies to Chinese competitors who are seeking to build a technology industry on a par with the West.

The European Union’s chief trade official, Karel De Gucht, said in a visit to Beijing this week that the rules had “no real base in reality,” and urged the Beijing government to overhaul them.

The regulations, set to take effect on Friday, largely affect sales of network routers, smart cards, firewall software and other products involved in protecting digital data. They would require software and equipment from both Chinese and foreign companies to meet new technology standards before being certified for sale to government agencies.

To be certified, companies apparently would have to give government-connected testing laboratories encryption algorithms, software source code and design specifications that, for many of the products, are regarded as sensitive trade secrets.