Could Globalization Explode into Isolationism?

May 28th, 2014
in econ_news, syndication

Econintersect:  Last week the U.S. indicted five individuals in the People's Liberation Army for industrial espionage.  The Chinese government last week banned the use of Microsoft Windows 8 operating system from government computers to "ensure computer security".  This week the Chinese government is reviewing whether IBM servers used by domestic banks poses a security risk, according to Bloomberg.  It is also reported that government agencies are asking banks and government owned corporations to remove IBM servers and replace them with local machines.


Follow up:

A statement attributed to an IBM spokesman Jay Cross is quoted by Bloomberg:

"IBM is not aware of any Chinese government policy recommending against the use of IBM servers within the country's banking industry.  In fact, news reports now state that China's National Development and Reform Commission has not heard of any alleged directive to that effect. IBM is a trusted partner in China and has been for more than 30 years."

All areas of IT (Information Technology) are coming under scrutiny in Beijing.  China announced last week that it would be investigating providers of important IT products and services following the row.  China's foreign ministry has announced it is suspending activities of the "Sino-US internet working group". (RT).

The Financial Times reports that China has banned U.S. consulting groups such as McKinseyAssociates, Bain & Company, Strategy&, and Boston Consulting Group from doing business with state owned enterprises.

The Financial Times says that China has "failed to produce homegrown alternatives to dominant U.S. technology offerings" in spite of "decades of state-led efforts".  The implication is that Beijing may posture regarding cyber-war issues but the Chinese economy would suffer damage if there were significant follow through.

Reflective of the Chinese need for American technology is a deal pending between IBM and Lenovo Corporation for the Chinese Company to buy IBM's low-end server business for $2.3 billion.  The technology (called x86 platform) is a 32-bit system that is based on low performance technology up to 20- (16 bit) and 30- (8 bit) years old.  Within the last 10 years there have been 64-bit implementations available.  The deal is still being reviewed by U.S. authorities for technology security issues despite the fact that IBM trails both Hewlett-Packard and Dell in sales.

Lenovo previously (2005) bought IBM's desk top and notebook computer businesses and has become the world's largest PC maker.

At this point the "friction" over security is likely to be overcome by the intricate global business dependencies that have developed over the past 1-2 decades.  But if anything could screw it up it would be the two largest government bureaucracies the world has yet developed.

John Lounsbury


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