By www.ft.com/
China has ordered state-owned enterprises to cut ties with US consulting companies such as McKinsey and Boston Consulting Group because of fears they are providing secret commercial information to the US government, according to people close to senior Chinese leaders.
The instruction comes days after the US Justice Department indicted five People’s Liberation Army officers on charges of cyber-espionage and stealing trade secrets from US corporations including Alcoa, US Steel and Westinghouse. Beijing’s public response to the indictments was swift and vicious, with a co-ordinated propaganda campaign in Chinese state media describing the US as a “mincing rascal” and a “high-level hooligan”. China’s leaders added concrete action to their rhetoric by announcing on Thursday a new security screening process for all foreign IT products and services sold in China.
The vetting will focus on products and services used in communications, finance, energy and any other industries the government considers related to national security or “public interest”, officials said. Any company, product or service that fails the test will be banned from China. Windows 8, the latest operating system from Microsoft, has already been banned in China because of security concerns, state media reported last week. The decision to ban state enterprises from working with western consulting companies marks a further escalation in Beijing’s response to the indictments.
Management consultancies such as McKinsey, Bain & Company, BCG and Strategy&, formerly known as Booz & Co, have extensive operations in China, which remains a rapidly growing market for them. “The top leadership has proposed setting up a team of Chinese domestic consultants who are particularly focused on information systems in order to seize back this power from the foreign companies,” said a senior policy adviser to the Chinese leadership. “Right now the foreigners use their consulting companies to find out everything they want about our state companies.” McKinsey, BCG and Strategy& all declined to comment on the ban but people familiar with their operations said they all still have some Chinese state enterprises among their clients.
Private and multinational companies still make up a significant share of western management consultants’ clients in China so a ban on state business would hurt but probably not cripple their operations in the country. Likewise, China is unlikely to completely banish US technology companies from the country given how reliant it is on western software. “Windows is far too embedded in the Chinese economy for it to be banned completely, but certainly we should expect to see sensitive offices and systems reduce if not eliminate their use of it,” said Bill Bishop, an independent consultant based in Beijing. “Under President Xi Jinping, technology and implementation will look to be converging, so foreign tech firms should be very worried about their prospects.”
25 May 2014