China 2014: The Empire Strikes Back

chinese flagIt’s the most wonderful time of the year. At least, if you’re an IT commentator or a vendor with “end of year round-up/next year predictions” stories to sell in to the media.

As a hack whose inbox has been deluged with this kind of dross for weeks now, I’m going to look ahead to 2014 with a more focused question, namely: “how will Western companies fare in China next year, and vice versa?”

Well, first up the signs aren’t looking good for US tech firms. Washington has turned up the anti-China rhetoric fiercely in 2013 and with high profile reports like Mandiant’s finally tying Beijing to cyber espionage, things were already looking tricky for US firms in China.

Then Edward Snowden happened – a gift from heaven for the Chinese government which can now portray itself as victim of spying, not a perp, with an even straighter face.

Expect the backlash to come from Beijing, partly because of this, but also because China has some world class companies of its own now, especially when it comes to networking equipment (Huawei and ZTE), PCs (Lenovo) and mobile devices (all of the above plus Xiaomi, Oppo, Meizu, Coolpad, etc etc), so it can afford to be more self-reliant.

IBM and HP have both announced they’re shedding jobs in the PRC, despite the strategic importance of the market.

IBM just announced a new cloud partnership which will see it team up with Azure partner 21 Vianet to provide managed private cloud capabilities to business customers there, however it admitted in October a 22 per cent sales slump in China. Ouch.

Cisco has seen a recent 6 per cent sales slump in China with John Chambers admitting on a November earnings call: “China continued to decline as we and our peers worked through the challenging political dynamic in that country.”

Then there’s Qualcomm, which counts China as a $1bn market, has worked with countless local OEMs to support their products and yet now finds itself at the centre of an anti-monopoly investigation which could see it fined in excess of $1bn.

The rule in Beijing seems to be; if you can’t beat ‘em (and China still has some way to go before its chip makers are world class), fine ‘em.

Expect more of the same next year.

So what of the great Chinese invasion? I spoke recently to Deloitte TMT partner William Chou about this.

In the hardware space historically only the likes of ZTE, Lenovo and Huawei had a chance to grow their offerings abroad, but with VC firms now splashing the cash, more innovative local firms will be able to invest in R&D and expand their footprint internationally, he argued.

Coolpad, Meizu and Xiaomi, to name but three, could be names to watch for 2014.

“There are a lot of these smartphone manufacturers but the ones which will be winners are  not really the handset manufacturers but the ones which can combine hardware, software and internet services, like Xiaomi,” Chou told me.

Others he mentioned included a Shenzhen-based handset firm looking at JVs in France and South Africa and an unnamed private company “aggressively” looking to expand in the European market.

On the internet side there are fewer potential breakaway global brands which could make a real impact in 2014.

Tencent’s WeChat is definitely one of them, although Chou argued that Google-beater Baidu will struggle as it seeks to “re-engineer its business model from search to mobile internet”.

There are also a host of little-known software and online firms under-the-radar ready to pounce, including one of the China’s online travel giants which is looking to acquire in Germany, Chou revealed.

In fact, the recently announced Deloitte Fast 500 list of fastest growing APAC start-ups had more companies from the Middle Kingdom than any other represented, although none made the top ten.

Going into 2014 entrepreneurs who are able to “apply technology to other industries” will stand the best chance of success, Chou said.

“China has an ageing population and a one-child policy so healthcare is a serious problem, so how you apply e-health will be a trend,” he explained. “Another major challenge is pollution, so clean tech will be a major area for entrepreneurs to consider as well.”

Whatever happens, things are never quiet in this part of the world. Let’s see what you’ve got 2014.

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Google aborts $300m datacentre plan, but will it be back?

datacentreThe big news from the Orient this week, or at least this small part of it, has been Google’s decision to pull out of plans to build a $300 million datacentre in Hong Kong.

Now the web giant claimed this was due to high costs and the difficulty of getting enough land for its requirements, which at first glance seems fair enough. It ain’t cheap here and land is at a premium in the tiny SAR.

However, the more I think about it the stranger it seems, and here’s why.

  • It’s not short of a bob or two – was cost really the reason for its decision?
  • The project has been trailed way back since 2011 when Google announced it bought 2.7 hectares of land in the Tseung Kwan O Industrial Estate near Sai Kung, although interestingly a link to the Google page on it now results in a 404 error message.
  • At the time, Google said: “We chose Hong Kong following a thorough and rigorous site selection process, taking many technical and other considerations into account, including location, infrastructure, workforce, reasonable business regulations and cost.”

So what’s changed?

Mainland China is admittedly a small market for Google and that probably won’t alter unless there’s an unimaginable change of heart from Beijing. But it knew that back in 2011 when it bought those 2.7 hectares of land that are suddenly deemed not enough.

It’s more likely that with projects underway in Singapore and Taiwan, Google is concentrating on those first to ramp up its datacentre presence in the region.

We must remember it’s still a baby in the IaaS space when compared with the AWS behemoth.

But I personally wouldn’t rule out a return to the HK project for Google in the future as it looks to grow its Google Compute Engine offering in the future. Rival Rackspace has been steadily building out its operations from Hong Kong, for example, recently launching its first public cloud service in Asia from the former colony.

It must be added that Google already has a healthy complement of servers in the SAR and recently announced a tie-up with the local Chinese University of Hong Kong, so rumours of dissatisfaction with and interference by the local government may be wide of the mark.

However, news of the pull-out will still be a big blow to the Government CIO’s Office as it tries to sell HK over its near neighbours as Asia’s premier datacentre destination.

Recent efforts have included promoting the use of converted factories by waiving various fees and even looking into the possibility of underground facilities built in caves.

If any more PR blows like the Google story start landing next year, it might be time for the HK government to rethink its strategy.


China set for Windows XP meltdown in 2014

big dataThis week news emerged that Beijing officials have been leaning on Microsoft to try and get it to extend support for Windows XP, due to run out in April 2014. I covered it here for The Register.

Now the arguments apparently made by Yan Xiaohong, deputy director of the National Copyright Administration, seem to be two-fold. First, he warned of a potentially huge security risk if Redmond stops releasing patches, with the archaic OS still accounting for over 50 per cent of Windows licenses in the Middle Kingdom.

Secondly, he seems to be saying the government has done its bit and led by example in ditching its pirated software for genuine licenses, so the least Microsoft can do now is support the still-popular OS. Oh yes, and Windows 8 is too expensive to upgrade to.

The second is a typically arrogant argument from a Beijing official. Microsoft has been trailing this switch off for years now so it should have had time to plan an upgrade path, or at least factor it into government plans to “go legit” with  its stock of software.

However the security issue is more valid and in reality could affect consumers and IT security bosses all over the world. According to Akamai, China was just pipped to first place in Q2 2013 in terms of biggest source of attack traffic by a late surge from Indonesia. It has a sizeable 33 per cent share while Indonesia’s stands at 38 per cent.

Not only will this percentage jump significantly higher post-April but if XP levels stay as high as they have been, we can expect a large number of new infected machines appearing in China in 2014. Why should you care? Because these machines will be remotely controlled by cyber criminals to do their bidding. A DDoS campaign or targeted attack against your organisation perhaps, or an information stealing Trojan designed to lift credit card credentials from customers.   

SC Leung, senior consultant at Hong Kong CERT, told me there’s no doubt that the OS will come under greater attack post April.

“If Microsoft ceases to support WinXP, that means service patches, hot fixes and support is no longer provided,” he warned. “If Win7 or Win8 vulnerabilities are shared by WinXP, hackers may reverse engineer the patch for Win7 and Win8 to find out the vulnerability they can use to exploit WinXP.

Attackers may even craft fake patches containing malware to trick users and infect their machines, Leung claimed.

There also exists a longer term problem for WinXP Professional for Embedded Systems, which will run out of support on December 31 2016.

“They are typically used in POS terminals and ticketing systems,” he explained.

“Hardware vendors providing devices using this embedded version of WinXP has to develop plan for upgrade. Changing development platform takes time. They should plan now.”

Unfortunately for many Chinese users and businesses time is not something they have.

“From an information security point of view, we advise users to use a more secure OS, by either upgrading to newer versions of Windows or use other OS that has continuous support,” Leung counselled.

Let’s hope that at least governments and businesses can stump up the extra cash to upgrade to a newer version before the deadline.

The last thing the global info-security industry needs is for infection rates of epidemic proportions to sweep the Middle Kingdom next year.