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One month after former NSA contractor Edward Snowden revealed the U.S. government’s secret electronic intelligence gathering program to the world, new reports show that some Chinese government organs are discarding their foreign-made tech products in favor of domestic alternatives. While this is bad news for all U.S. tech firms, it is likely particularly worrying for Microsoft, a company that was reportedly heavily involved in the National Security Agency program, and one whose field of dominance, software, has become a focal point for Chinese calls to switch to domestic competitors.

American tech companies and the Chinese government have long had a complicated relationship. Numerous U.S. Internet firms, including Facebook and Twitter, are outright banned in the People’s Republic. Others, like Google, entered the Chinese market, only to later withdraw over concerns about censorship and cybersecurity. Still others, such as Apple, have stayed and found success only to face a blistering spate of government-direct criticism aimed at certain aspects of their in-country operations.

One major theme underpinning all of these trials and tribulations is the belief amongst Chinese officials that U.S. tech companies are Trojan Horses for American political values. The information leaked about Prism, a U.S. National Security Agency program that utilizes these companies to collect electronic data both domestically and internationally, appears to confirm these claims. In Microsoft’s case, the most recent reports in the Guardian say that the NSA had access to email on Outlook.com and Hotmail before encryption, and that the company worked with the government to allow access to its cloud storage service SkyDrive. Microsoft has maintained that it only provided access to its systems when required to do so by court order.

mschinaAll of these are prompting many in the Chinese tech industry to ask the question:  if the Chinese government is so wary of the presence of American tech companies, why does it allow them to control many of the country’s tech-related markets? As a recent China Daily article notes: “to ensure the security of information, [industry] insiders and experts are calling on the Chinese government and enterprises to use domestic software.”

Calls for a switch to domestic software are one thing, but is anyone in China actually heeding these calls? Yes, at least according to a recent Sina Tech piece. In a July 4 article, Sina Tech, a respected online industry publication, cites unnamed “industry insiders” in revealing that Snowden’s disclosure of Prism has led some state-owned enterprises and government offices to replace foreign tech products with domestic alternatives.

A few unconfirmed reports do not a trend make. Still, such news is hardly likely to comfort Microsoft executives. Consider the following: 1) Prism has increased Chinese distrust of American tech companies; 2) Microsoft was reportedly the first U.S. tech company to participate in Prism and, according to newly leaked documents, “collaborated closely with the National Security Agency and FBI;” and 3) Chinese media reports on calls for the use of domestic tech have focused on software, an area where Microsoft is particularly dominant in the country.

Alarm bells need not be ringing on Microsoft’s campus just yet. Chinese officials and media outlets have been known to threaten major retribution on American enterprises in the wake of significant diplomatic incidents. Remember the time China threatened to sanction Boeing for its connection to U.S. arms sales to Taiwan? Well, the sanctions never came, tensions cooled, and Boeing sales to China continue to boom.

Will Microsoft enjoy a similar reprieve? Most likely, if the prior patterns are any indication.

It’s not all good news for the Redmond-based tech giant, though. Prism has clearly highlighted the ramifications of Chinese dependence on American technology. Even if the short-run impact on U.S. tech companies is negligible, this incident provides the Chinese government with a powerful incentive to nurture the development of homegrown competitors. In short, then, though there may be little for Microsoft executives to worry about today, tomorrow is an entirely different story.

Editor’s Note: contextChina is a Seattle-based media company following the growing impact of China on the Pacific Northwest across business, technology and policy. You can follow contextChina on Twitter @contextchina.

Photo by Gen Kanai via Flickr. 

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