Giving Foreign IT No Credit: China’s New Banking Technology Rules and Possible Responses

Dr. Jean-Marc F. Blanchard's picture

China’s Banking Regulatory Commission (CBRC) and Ministry of Industry and Information Technology (MIIT) have begun to implement rules designed to ensure that by 2019 seventy-five percent of the technology in China’s banking system is “secure and controllable.” The rules are wide-ranging, covering hardware such as mainframes, personal computers, and point-of-sale systems as well as software like operating systems and anti-virus programs.

The rules will hit foreign IT businesses hard unless such companies can convince the CBRC and MIIT their products are non-threatening by revealing vital source codes, finding Chinese partners, or using Chinese intellectual property (IP) that they buy, license, or develop in China. Some hope China will implement its rules judiciously given the possible risk of a World Trade Organization dispute and in the face of intense American and European government pressure. The more likely scenario, though, is that China will press ahead given its national security concerns and industrial policies. What are foreign IT firms to do given it would be self-destructive to reveal proprietary source codes? Undoubtedly, it makes sense for them to work with their governments and relevant industry associations to press China to enforce banking IT rules less vigorously, but this path is slow and uncertain. The best route likely will be to partner with local Chinese technology firms. However, not all local technology partners are ideal. The best partners would be companies that have plans to invest abroad or that already are operating abroad. Such partners have a stake in looking good before foreign governments. Even better would be Chinese partners who need continuing access to their foreign IT partner’s IP, production or marketing expertise, or other assets. Such a state of affairs would magnify the Chinese partners’ incentives to work with their foreign rather than leverage the new regulatory situation to squeeze them.