INFORMATION TECHNOLOGY IN CHINA - (ALL THOSE PHONES)

"By the end of 2014, there were 630 million internet users in China and 1.29 billion mobile phone users in China."

Ed Brzytwa is the Director for Global Policy and the Information Technology Industry Council or ITI. There a lot of household names in the roughly 60-member roster of companies that make up ITI, from Apple and Intel to Nokia, Samsung, Toshiba, and Yahoo. As Mr. Brzytwa described his members:

"They are service providers, they're manufacturers of information technology hardware, they are cloud computing companies, they are producers of ICT infrastructure. They do so many different things to innovate on a daily basis, all around the world, and they are critical to the entire economy, globally." 

These comments, like those in the last entry, were from things said at GBD's event last month on China Trade: 5 American Views. As we listened to Mr. Brzytwa then three things stood out: 1) the sheer size, and hence importance, of the Chinese market; 2) the worry that tensions between the United States and China might double the difficulty of the challenges faced by foreign firms in China; and 3) the obstacles to business inherent in certain Chinese policies. You will want to listen to the full presentation, but here is a little more from each of those baskets.

The Size of the Market. "In 2014," Mr. Brzytwa said, "the overall [global] size of the IT [information technology] market was estimated to be $404.5 billion, [with] the consumer side of that ... a little bit bigger than the business side." He commented that "Any service that you can possibly imagine that we use in the United States, the Chinese are also using those services, particularly through things like WeChat, a Chinese instant messaging service. 

 
As for China, Mr. Brzytwa said: 

 

"... That means things like the Internet of Things will be important for China. That means e-commerce will continue to be important to China. China is very proud of its e-commerce sector, where anybody can basically buy anything in China through the Internet and ship it. Smart cities - that's a city that is basically ICT enabled-that is important for China, [as is] generally ICT infrastructure, connecting people to the Internet." 

 
The Foreign Policy Wildcard. On this front, Mr. Brzytwa said, "We do not want to experience any sort of broader trade friction because of what happens with the [Trump] Administration and the policy of trade going forward."   With apologies for mixing a bit of Comment into this Context section, we would note that the risk is not confined to trade policy issues. Consider, for example, this line from a Los Angeles Times story of last summer: 

"Just last month [July 2016] Chinese Internet users were posting pictures of their smashed iPhones to protest Washington's objections to Beijing's territorial claims in the South China sea." 

The Challenge of China's Commercial Policies. Mr. Brzytwa said he thought the biggest challenge for ITI members in China was "competition with Chinese companies...[because] the Chinese government has promoted national champions in this area." But there are other issues as well, such as China's approach to cyber security and its policies on data localization, both of which Mr. Brzytwa discussed in more detail.

The ITA Demonstration. While we have highlighted concerns that Mr. Brzytwa and his members have regarding certain Chinese policies, we should add that he also took note of China's contributions to the global system.  His comments on China's role in the recent ITA (Information Technology Agreement) negotiations were noteworthy in that regard. He described China's role in those talks as a clear indication of their commitment to the WTO and the global trading system, saying: 

"The Chinese did negotiate. Other big emerging markets-like India, Brazil, Russia-they weren't there. You may not like the entire product scope of the expanded ITA, but the Chinese did agree, and they are implementing. As of today, they are implementing the agreement. They are cutting tariffs. It's going to take them a little bit longer than a lot of other ITA participants, but China will get there. That's a positive sign to us, because it means they are invested in the system."

And Responses to Comments. The developments to date over China's cyber security law have been less encouraging. We'll not attempt to get into the particulars of the legislation here but will simply note that elements of it are of great concern to foreign IT companies operating in China. Before the law was passed, some 43 organizations-mainly business associations-wrote to the relevant officials of the Chinese government to express those concerns. "They didn't take into account any of our concerns," Mr. Brzytwa said.
Finally, we, like Mr. Brzytwa, would like to take note of this sentence from a recent op-ed article by Premier Li Keqiang: 

With apologies for injecting a whimsical note into this very serious subject, we'll end with a recollection from Lewis Carroll' s Through The Looking-Glass, which followed Alice's Adventures in Wonderland. We won't try to recreate our full train of thought, but something in all of this made us think of Alice's exchange with Humpty Dumpty on the subject of words. They were talking about "un-birthdays," when the conversation took this turn: