Business Lobby Gets China to Soften Software Law ; Foreign Companies Last Week Saw the Fruit of Their Protests against Strict Encryption Rules

Article excerpt

In a move that shows the growing power of foreign companies and the telecommunications market in China, the government this month backed down from laws that would have limited the use of everything from laptops to cell phones.

A clarification issued on regulations covering the use of encryption said they did not apply to most commercial applications such as cell phones, computer operating systems, and Internet browsers.

The episode highlights the government's challenge in trying to control the fast-evolving technologies necessary for so much of today's businesses. Telecommunications is the hottest sector of China's economy. Cellular phone subscriptions have topped 40 million, and in the past six months the number of Internet users doubled to 9 million and is expected to double again this year.

Dissidents and the banned spiritual group Falun Gong have used the Internet to organize protests despite harsh crackdowns, and the initial ban on imported encryption software was apparently sparked by security concerns. Analysts say the government is worried by the growing chorus of critical voices on the unregulated and anonymous Internet. In late January, the government issued a ban on leaking state secrets over the Internet. The government also banned the online publication of any news not first printed by official media.

The regulation on encryption was likely aimed at protecting China's information security system, says Jay Hu of the United States Information Technology Office, a trade group in Beijing. "China is not confident about using imported products for mission- critical things like banking," Mr. Hu says. "They're worried about back doors in some software and hardware."

In a regulation first publicized last November in the back pages of the People's Daily, the Communist Party mouthpiece, the government said all users of encryption would require permission, and that all sales of imported encryption software were banned. Encryption is coding used to keep electronic communications secure. Now, government says the regulation will only be enforced for software or hardware whose main purpose is encryption. Still unanswered: which applications will be covered, though analysts said they would likely include defense and banking.

Had the regulations been enforced, they could have crippled nearly all foreign business in China. …