Cloud access could be crucial to US-China trade

Trade talks – some would call it a trade dispute – between the United States and China have been ongoing for several months [1] with goods, services and the threat of tariffs and an all-out trade war at the heart of the negotiations. But it’s emerged this week that the cloud could be a key to unlocking talks.

It seems that the two nations are discussing a deal which could lead to US companies gaining greater access to China’s cloud market, a market potentially worth as much as $12 billion. It’s reported that Chinese officials have met with executives from Microsoft, Apple and Amazon to discuss the proposals in more detail. [2]

The talks have centred around a proposal that the current requirement for foreign cloud providers to partner with a local company in order to access the Chinese market could be scrapped. But there’s also the problem of China’s strong cybersecurity legislation enacted in 2017, which means that there are currently strict controls over the handling of Chinese users’ data. Overseas providers at the moment have to licence their tech to a local company and undertake to keep data within China in order to access the market.

The Wall Street Journal [3] has reported that Li Keqiang, the Chinese premier, has put forward the idea of letting foreign firms set up their own data centres in China within the country’s existing free trade zones. This would give them a foothold in the Chinese market without the need to establish a local partnership.

President Trump’s advisers have said that the agreement currently under discussion will cover technology transfers as well as measures to protect intellectual property.

Chinese presence

Of course, some Western technology companies already have a Chinese presence in line with the existing rules. Amazon, for example, has sold some of its cloud assets to a local Chinese partner in order to stay in line with regulations. Apple already has servers for Chinese users of the iCloud service hosted by a Chinese company.

The cloud is only part of the equation, however. Elsewhere, there are issues surrounding trust with Chinese suppliers, some of which are seen to have close ties to the government. Concerns over the use of Huawei technology in 5G networks, for example, have surfaced in the US, UK and elsewhere, with fears that the company’s networking kit could have backdoor access allowing sensitive data to be passed back to China. [4] Huawei itself has strenuously denied this, but none the less its equipment has come under intense scrutiny.

We’re likely to see more of these kinds of concerns arising in the future too. As the world becomes more and more connected, so the risks inherent in the supply chain, whether it be cloud services, network hardware or something else, become more and more acute. This is true not just at a government level but for enterprises too. Technology issues are therefore likely to be a key part of almost all international trade arrangements.

Ultimately, it should also lead to greater scrutiny of the use of cloud and other services around the world and perhaps more international cooperation surrounding the use of data services. If this brings about tighter security regimes to protect consumer and business data then it could ultimately prove to be a force for good.

It is hoped that if a deal can be agreed, the US and Chinese leaders can sign an agreement at a summit later this year. It seems that coming together over the cloud could be a key part of making that happen.

[1] https://www.independent.co.uk/news/business/news/us-china-trade-war-talks-beijing-fail-deal-donald-trump-xi-jinping-a8781526.html
[2] https://www.scmp.com/news/china/diplomacy/article/3005610/us-china-trade-deal-beijing-has-spoken-apple-microsoft-about
[3] https://www.wsj.com/articles/china-floats-cloud-concession-to-foreign-tech-firms-in-u-s-trade-talks-11553773127
[4] https://www.forbes.com/sites/zakdoffman/2019/04/11/huawei-interview-america-is-vulnerable-banning-us-does-not-make-it-safer/#23e1833f26de