Computers: Patriot Games?

I caught up with a friend from China over the Easter holidays who, like many mainland tourists in Hong Kong, has a shopping list, including a pristine laptop.

"But I want one with no parts made in China," he insisted.

Great, I thought. I have two solutions: try the museums, where the computers of the 1980s are almost entirely made in the US. Or buy the one I am using to type this column, although more on that later.

This has relevance because the US Congress passed an appropriations bill into law in late March that restricts purchase by the government of Chinese computer equipment and technologies for fear of cyber-espionage risk.

"The provision requires the Department of Justice, Department of Commerce, NASA, and the NSF to perform a formal assessment of risk of cyber-espionage before purchasing computer systems and other IT equipment" and "the assessment must specifically analyze - with the assistance of the FBI - any "such system being produced, manufactured or assembled by one or more entities that are owned, directed or subsidized" by the People's Republic of China," according to online news portal The Verge.

The move inevitably prompted strong retaliatory language from China, but my immediate curious question is: Where on earth is the US planning to buy its hardware, when even the major US brands like Dell, Apple and Hewlett-Packard – and also many Japanese, Korean and Taiwanese brands - are made in China?

Computers, as well as their components and peripheries, are largely outsourced and manufactured in China, either in whole or part – the latter means even many of those "Made in Japan" models, for example, have parts and components previously made in China but assembled outside China.

One may call it a Patriot Game but it fools no one. Apple for example, announced last December that the company will invest US$100 million to shift production of a line of Mac machines from China to the US this year. But the California plant will be operated by the same Taiwanese company it outsourced production to in China – Foxconn, which announced its US expansion the very day after Apple CEO Tim Cook declared its plans for the made-in-the-USA Macs.

Not that Apple is alone. Lenovo, the world's second-largest PC maker and manufacturer of the iconic Thinkpad, announced last October the opening of its new plant in North Carolina. But Lenovo, which bought the computer business from IBM eight years ago, is a Chinese company.

On the other hand, US concerns are easily understood given the spate of headlines on cyber-espionage and industrial espionage activities coming from China, especially the report last month from US security firm Mandiant that blamed China and singled out a particular Chinese military unit in Shanghai for a series of high-profile cyber-attacks. The heightened tensions between Washington and Beijing also led the US Congress to lobby for a ban on Chinese telecom giants Huawei and ZTE.

My Chinese pal personally cited fears that computers made or assembled in China risk having "backdoors" installed. His reasoning is supported by some relevant news coverage. Just last year, Microsoft reportedly claimed to have found malware in brand new computers from China. Due to some inherent weaknesses in the supply chains, some less reputable computer manufacturers, who may also be subcontractors for major brand names, use counterfeit versions of popular software, including Microsoft Windows, to build their machines for the sake of boosting their profit margins.

One example of malware found in these computers is called Nitol, which essentially makes a computer part of a botnet, or collection of compromised computers. That would prompt even a newly purchased (but compromised) computer, without a word of command when first booted up, to search for other computers in the Internet sphere and become part of a global network programmed to attack websites, steal personal data and loot bank accounts. It is one of the most invasive and persistent forms of cybercrime, according to Microsoft.

Anyway, about the second solution I have for my demanding Chinese friend. A Panasonic Toughbook, the militarily rugged laptop suited for the most extreme environments. The Japanese brand makes and controls virtually the entire manufacturing process – apart from the Intel chips – from design through delivery. And unlike its competitors who farm out the entire design and manufacturing to OEMs or contract manufacturers, Panasonic makes many of the critical components and assembles them at its own facilities in Kobe, Japan.

But Panasonic doesn't appeal to my Chinese friend, who has personal issues with Japanese products, perhaps over the continuing squabble over the Senkaku/Daoiyu island chain, which both countries claim, and which has resulted in continuing boycotts of Japanese products in China. You can see now why buying a computer is not always that straightforward.

(Vanson Soo runs an independent business intelligence and commercial investigations practice specialized in the Greater China region. Visit his blog: http://vansonsoo.com)