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China’s New Cybersecurity Law Could Complicate Procurement Worldwide

Feb 22, 2017

China is set to start enforcing a new cyber security law in June of this year that has businesses concerned about the future of their procurement decisions and strategies. The law is also causing some serious concerns about system security and safety. When it comes into effect this summer, this law will require the procurement of all network products, equipment, software, and services for “critical information infrastructure facilities” to first pass a security assessment and receive government certifications.

“Critical information infrastructure facilities” refers primarily to facilities in the medical/healthcare, energy, water, gas, and transportation industries, in addition to financial institutions, banking services, and social security facilities in China. However, this law will also affect businesses outside of China that do business within the country. Many concerned businesses say that the law will force them to reveal trade secrets and technical specifics about their products to Chinese authorities, and allege that there is too great a risk of this information being passed on to or intercepted by Chinese competitors, increasing market competition and the threat of counterfeit products and software.

Though the Chinese government has claimed that this law is a step towards improving online security and IT services, it has negative ramifications on international trade and market competition. This law will potentially have a very negative effect on the ability of foreign companies to successfully compete with Chinese companies both within China and across the globe, and will force foreign companies to re-evaluate and adjust their procurement solutions, plans, and strategies.

Businesses who are expected to be most disadvantaged by this new law are those who specialize in network management and procurement support solutions. On a wide scale, this law will also make it more difficult for companies to sell their products and software to China and will seriously hinder companies’ existing procurement chains and global sourcing strategies that extend into or include China. Smaller companies will be hit most significantly, and may find it difficult to survive in the market.

Unfortunately, there isn’t much that companies can do to combat the effects of this law. China is an important market for procurement, and most companies outside of the country cannot afford to lose business and connections with China. Companies will have to adapt to the new regulations and procedures that come with this law in order to remain competitive. More efforts towards identification and reporting of counterfeit products and stricter consequences for companies selling fakes will be essential to maintain an even playing field between Chinese companies and foreign companies.

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