China to make foreign firms provide source code

The Yomiuri Shimbun

The Chinese government plans to introduce a new system requiring foreign firms to disclose secret information about digital household appliances and other products starting from May, sources said Thursday.

The envisaged system is likely to target products such as IC cards, digital copiers and possibly flat-panel TVs.

If a company refuses to disclose such information, the Chinese government plans to ban the firm from exporting the product to the Chinese market, as well as bar production and sales in the country, according to the sources.

Critics worry that such a system risks seeing the intellectual property of foreign firms passed onto their Chinese competitors.

In addition, the envisaged system poses security concerns if coding technology used in digital devices developed in other countries is leaked to China, they added.

Observers say the issue could develop into a serious international trade dispute, with Japan's Economy, Trade and Industry Ministry and U.S. Trade Representatives expected to urge the Chinese government to drop the plan.

The Chinese government is calling the planned system an "obligatory accreditation system for IT security products," according to the sources.

Specifically, foreign companies will be obliged to disclose relevant products' source code, or a sequence of statements written in computer programming language designed to control digital appliances and other high-tech products.

The system, whereby manufacturers will be allowed to sell their products on the Chinese market only after they pass tests based on disclosed source code and inspections by an accreditation body, is said to be unprecedented.

Products expected to be subject to the system are those equipped with secret coding, such as the Felica contactless smart card system developed by Sony Corp., digital copiers and computer servers.

The Chinese government said it needs the source code to prevent computer viruses taking advantage of software vulnerabilities and to shut out hackers.

However, this explanation is unlikely to satisfy concerns that disclosed information might be handed from the Chinese government to Chinese companies.

There also are fears that Chinese intelligence services could exploit such confidential information by making it easier to break codes used in Japanese digital devices.

Source code is considered a company's intellectual property. Microsoft Corp., for instance, kept secret its Windows' source code, helping it earn huge profits from licensing.

(Sep. 19, 2008)