Is Microsoft Getting Too Close To Chinese IT Companies?

There is a long history of individuals and corporations conducting business with their home country’s adversaries and enemies, even in wartime. During the Civil War, it was not uncommon for soldiers from both the North and South to meet in the no man’s land between the opposing armies to exchange commodities and items such as tobacco, coffee and sugar. Prior to World War Two, many companies, including those headquartered in the United States, did business in Nazi Germany, sometimes directly and sometimes through subsidiaries. German insurance companies dominated the global reinsurance business not only prior to but even during the early years of World War Two. As a requirement for acquiring reinsurance on various policies, U.S. and British insurance companies provided important information on such topics as the vulnerability of critical industries, transportation nodes and shipping activities to foreign insurers, some owned by or allied with Germany and Japanese insurance firms. The San Francisco office of a British insurer even resold coverage of the Panama Canal to two Japanese firms. The Office of Strategic Services created a special Insurance Intelligence Unit to provide the allies with important target data for the strategic bombing campaign and to ferret out clandestine intelligence collection and commercial activities conducted through these foreign owned or connected insurance companies.

From 1945 until the end of the Cold War in 1991, the West had a complex and even ambivalent attitude towards trade with Moscow. There was a clear interest in seeing that the military power of the Soviet Union and other communist states was not enhanced as a result of access to advanced technologies. At the same time, Moscow was a major oil and gas exporter to an energy-hungry world. In addition, there was the hope – really more of a fantasy – that trade and increased contact with the West would soften Soviet authoritarianism and even lead to a peaceful change of regimes.

The West sought to limit trade with the communist countries particularly in very sensitive areas. The Coordinating Committee for Multilateral Export Controls (CoCom) was created to ensure that there was agreement as to the types/sophistication of materials, technologies, software and systems that could not be sold. Examples of restricted items included advanced metals and composite materials, microprocessors and integrated circuits, high performance computers, sophisticated industrial machines, telecommunications equipment and virtually all information security technology and software.

In the more than two decades since the end of the Cold War, it has proven increasingly difficult to control the transfer of advanced technologies to prospective adversaries. There still exist both international treaties and national policies that limit the transfer of military hardware to a number of countries. Nevertheless, proliferators have demonstrated a remarkable ability to create illicit networks to acquire or transfer restricted technologies and know-how, including those related to the design and production of nuclear weapons. In addition, the explosion of advanced commercial technologies, particularly those that fall under the heading of IT, is blurring the distinction between military and civil capabilities.

The problem of controlling access to advanced technology is especially thorny with respect to the People’s Republic of China. Every U.S. corporation is either already waist deep in China or is trying to enter that market. China is not just seeking to acquire U.S. technologies, both legally and through a concerted espionage campaign, it is also using its new-found wealth to acquire Western companies, everything from IBM’s erstwhile PC business to the meat packing company, Smithfield.

Still, there are reasons to be extremely cautious when U.S. and Chinese companies seek to collaborate on the development of some advanced technologies. A case in point is the decision by Microsoft to work with a Chinese Internet security company, Qihoo 360 Technology Co., on mobile Internet and artificial intelligence technology. Given all the technology transfers that have come before, why single out Microsoft? For two reasons. First, there is the immense installed base of Microsoft programs not only throughout the U.S. government but in state and local governments, private companies, public utilities, infrastructure providers and local law enforcement. There is a well-recognized problem of government agencies at all levels not installing updates and security patches for Microsoft software.

Second, it is now well-recognized that China is conducting a massive hacking campaign against the United States and its allies. Much of Beijing’s operations have been documented in both private sector and government reports. It has gotten so bad that last month the Justice Department brought a first-ever indictment against five Chinese military officials accusing them of targeting the U.S. nuclear power, metals and solar products industries. There is no such thing as a truly private company in China, certainly not one involved in Internet security. Working with Qihoo 360 is like signing a deal with the People’s Liberation Army.

The U.S. government is spending billions of dollars to secure both military networks and critical infrastructure. Companies such as Lockheed Martin, McAfee, IBM, Booz Allen, ManTech and BAE Systems are working extremely hard to develop the systems, programs and processes that can successfully protect military and civil networks from attacks or espionage by any foreign power. It would be wrong for a deal between Microsoft and a Chinese company to undermine their best efforts.