China: All Your Source Code Are Belong to Us

China has set in motion plans to force all foreign companies operating in China to share their source code with Chinese companies.

The governments of the US, Japan and Europe are objecting ferociously to what in China is likely to amount to state mandated piracy of their software secrets.

The system will mandate that companies producing electronics in China must disclose the source code to any firmware or other pertinent software to the Chinese “partner.”

Provisions are even included for Chinese staff to visit and check up on the manufacturers in the US, Japan or elsewhere, to ensure they have disclosed it all.

Companies who refuse to surrender their intellectual property in this way will be barred from exporting their goods from China.

One of China’s excuses for this is that it wants to ensure proper security for the code used in ATMs and smart cards, so as a result the details of their encryption systems will have to be shared with the highly reliable Chinese manufacturers, ensuring the Chinese can work on improving security for the world’s banking systems.

The law has been in the works for some time now, but now China has announced it will be brought into effect in May. A “grace period” will operate for a time, to give companies the chance to prepare to hand everything over.

Western countries are indignant at the law, but have yet to act decisively in response.

An important strategy used by producers outsourcing to China has been to ensure that technologically sophisticated elements of the production process are kept out of the hands of Chinese factory managers, to the extent of restricting such production steps to more reliable nations, or of using non-Chinese engineers and managers in the sensitive areas.

This measure seems designed specifically to foil any such efforts to prevent sensitive intellectual property being appropriated wholesale by less than scrupulous Chinese operators.

Via Yomiuri.

To put this in context, for a long time now China has operated a system where, in order to receive permission to do business in China, foreign companies have had to partner with a domestic company.

Naturally, there is the expectation that the Chinese company will eventually supplant the foreign devil company through a not necessarily voluntary or legal process of “technological transfer.”

Of course, Japan in the past operated similar highly untoward systems through its infamous “METI” ministry, and emerged the better for it (probably at huge expense to international companies). The issue appears to be rather when China will realise the wealthier it becomes, the less tolerable these practices are internationally.

We must also wonder what the many foreign companies piling into China for the dubious privilege of training a low-cost competitor who will receive all their IP are thinking…