New Rules in China Mean Microsoft
Braces for a Battle Over Encryption
By MATT FORNEY
Staff Reporter of THE WALL STREET JOURNAL
BEIJING -- As Microsoft Corp. releases its new Windows 2000 operating
system world-wide Thursday it is girding for a showdown with China, which
wants to ban one of the system's most important components.
Windows 2000 has become a test case for recent Chinese regulations that
forbid products to contain foreign-designed encryption software. Encryption
is used to encode transmissions over the Internet so that electronic
eavesdroppers -- such as governments -- can't monitor e-mails or financial
transactions. Windows 2000 includes one of the most powerful encryption
programs available.
The company plans to release its new product in China in late March, later
than in other countries but only because the company has to translate it into
simplified Chinese characters. Microsoft spokesman Adam Sohn says,
"Right now, we don't foresee any problems and the product that will go out is
the same product that will go everywhere else."
Embattled Commission
If so, Microsoft would have to defy or come to terms with the State
Encryption Management Commission, which has close ties with China's spy
agency. The commission is already embattled, with even Chinese encryption
experts saying the regulations seem ill-conceived. Many foreign firms will
probably try to follow Microsoft's lead and sell encrypted products, despite
the regulations.
The commission has "held talks with Microsoft on this matter," said a senior
commission official, who declined to be identified or to divulge the outcome
of the talks. Microsoft also declined to comment on the matter.
Windows 2000 uses encrypted software in its Outlook e-mail system and its
browser, Internet Explorer. Cracking the encryption key is theoretically
possible but very hard -- a computer that could guess at a rate of a billion
encryption keys per second would still require 450 billion times the age of the
universe, or 450 billion times 12 billion years.
Such powerful software has spooked security officials, who were stunned
last year when practitioners of the banned spiritual practice Falun Dafa used
the Internet to coordinate acts of civil disobedience. China's leaders also
worry that the foreign technology that runs China's telecommunications
systems has "back doors" that could allow the U.S. government to monitor
data exchanges here.
Military Worries
China's military has its own worries. It frets that foreign products could be
used to wage electronic warfare in China. An article on Feb. 8 in the army's
mouthpiece, the PLA Daily, warned that the Pentium III chip produced by
Intel Corp. could spy on users, making an otherwise-attractive product "more
horrifying than a siren." It further argued that imports of encryption software
"need to be reduced as much as possible."
It's unclear, however, how the encryption commission will enforce its
draconian rules. "I think whoever wrote these regulations didn't consider all
the potential implications," said Pei Dingyi, director of a government body
that researches encryption, the State Key Laboratory of Information
Security.
Chinese ministries are apparently ignoring the regulations. For instance, San
Diego-based Qualcomm Inc. signed a deal Wednesday to sell
mobile-telephone technology in China that includes encryption to authenticate
callers. The deal has the blessing of the ministry in charge of information
technology. During the negotiations, the encryption issue never arose, said
Irwin Jacobs, CEO of Qualcomm, in an interview. "I can't conceive of their
trying to change the existing standards" of encryption, he added.
Threat to E-Commerce
If authorities strictly enforce the rules, it could hobble the development of
e-commerce, which relies on foreign software and equipment that uses
encrypted software. "If the government moves against Microsoft, it will
scare a lot of companies that also sell products containing encryption," says
John Huang, president of East Venture, which invests in Internet companies
in China.
For Microsoft, enforcement would force the company to find a Chinese
company to write the software, and then seek approval from the U.S.
government to include that software in its operating system. Microsoft has
used this solution in the past to sell products around the world with
encryption modules that are more powerful than the U.S. government
permits for export. But with anti-China feelings running high in the U.S.
Congress, it's unlikely Washington would quickly approve Chinese encryption
software for Microsoft's operating system. |
