US officials and businesses expressed alarm yesterday about newly-issued regulations that appear to require equipment makers to deal with their Chinese competitors to access the encryption standards required for wireless networks.
Details of the new rules are unclear. But industry reaction suggests the issue could brew into yet another area of trade friction between Beijing and Washington.
According to industry officials and analysts, the rules, which took effect Dec. 1, grant only 11 Chinese equipment makers free access to domestic encryption standards for wireless local area networks now required of all vendors, both foreign and Chinese.
Other manufacturers must deal with the 11 companies in order to obtain the technology, they said.
US manufacturers are "deeply concerned," said Anne Stevenson-Yang, Beijing representative for the US Information Technology Office, an industry group based in Washington.
Stevenson-Yang said her office was seeking more information about the new regulations, and also speaking with the government on behalf of American companies.
"We need to understand more. Of course, everybody is hesitant right now," she said.
American officials have been raising the issue with the Chinese government and with other foreign governments for months, according to the US Embassy in Beijing.
"We hope that the issue can be resolved at the earliest possible opportunity so as to avoid a possible negative impact on bilateral trade," the embassy said in a statement.
Chinese working in the field said they believed that more companies might be chosen, and that the technology may be available through the State Standardization Publishing House.
Wired Equivalent Privacy, or WEP, is the leading encryption standard for wireless networks, the so-called Wi-Fi services increasingly used for Internet connections in public spaces such as hotels, coffee shops and airports. But such networks are notoriously vulnerable to hacking, and WEP is relatively weak.
The new standard would give Chinese regulators more control over the telecommunications medium. It is compulsory for all manufacturers and importers of all Wi-Fi equipment used in China, though products contracted, imported or produced prior to the ban's effective date were given a six-month grace period.
Chinese officials in charge of handling encryption issues in Beijing were not available for comment.
According to a report published yesterday in the Asian Wall Street Journal, the 11 companies listed as having free access to the new encryption standards include major international technology firms, like computer maker Legend Holdings, and also telecoms equipment makers like Huawei Techologies.
Others are much less well known: Shenzhen Mingwah Aohan High Technology Co; Wuxi Jiangnan Computer Technology Research Institute; Shanghai Koal Software Co; Shenzhen ZTE IC Design Co; SDT Telecom Co; Chengdu Westone Information Industry Inc; China IWNCOMM Co; Shenyang Neusoft Co and Beijing Watch Data System Co.
Critics of the new policy say the move to require cooperation or purchases from those companies appears to be a blatant attempt to boost the domestic industry.
Chinese manufacturers lag behind in wireless technology, and the government could also be concerned about having to follow, or even pay patent royalties on, standards set overseas. China recently released its own standard for DVD technology, EVD, as part of a push to wean itself from reliance on foreign standards.
"It's transparently unfair. On what basis were those companies chosen?" said Duncan Clark, managing director of BDA China Ltd, a Beijing-based Internet consulting firm.
Though some in the industry said they doubted the government would really require companies to form alliances or buy the encryption technology from the designated Chinese vendors, Stevenson-Yang said US manufacturers were taking the new rules seriously.
"These are published domestic regulations," she said. "They have the force of law."
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