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25 January 2000. Thanks to Anonymous.
Source: US national newspaper, January 25, 2000

## Foreigners Must Disclose Internet Secrets to Beijing Soon

### Encryption Rules For Firms Threaten Growth of the Web

By MATT FORNEY

BEIJING -- The Chinese government is about to require foreign firms to reveal one of their deepest secrets -- the type of software used to protect sensitive data transfers over the Internet.

By next Monday, foreign and Chinese companies must register the type of commercial encryption software they use. Such software makes it more difficult for hackers -- or governments -- to eavesdrop on electronic messages. Eventually, the companies must provide details of employees who use the software, making it easier for authorities to monitor personal and commercial use of the Internet.

In addition, the regulations bar Chinese companies from buying products containing foreign-designed encryption software. A strict interpretation would include such products as Netscape browsers or Microsoft Outlook, as well as the more complex equipment vital for conducting business securely over the Internet.

The rules are the latest sign of Beijing's unease with the Internet, which has been used by dissidents and members of the banned sect Falun Dafa to communicate and spread information. Authorities have tried to block sites and require users to register, but the number of users continues to rise and now totals about nine million.

The new rules, however, could slow the Internet's groswth here. If companies offering electronic business services worry that the Chinese government is monitoring their transmissions, they could relocate outside China's borders, where they wouldn't have to reveal the type of encryption software they use.

"This is sending the wrong message to foreign investors," says Patrick Powers director of China operations for the U.S.China Business Council, who adds that "the foreign business community is deeply concerned."

So is the U.S. government, which recently approved the export of many types of encryption software. Commerce Secretary William Daley plans to raise the issue with senior Chinese officials this week in Switzerland during the annual World Economic Forum.

China revealed the new regulations on Oct. 15, in an order published in the Communist Party's flagship newspaper, the People's Daily. It demanded that "foreign organizations or individuals using encryption products or equipment containing encryption technology in China must apply" for permission by Jan. 31. It exempted diplomatic missions.

After meeting that application deadline, foreign companies must fill out a second round of paperwork. According to a copy of the forms, companies must name employees who are using encryption software and give the location of the computers they use, as well as their e-mail addresses and telephone numbers.

The order adds that "no organization or individual can sell foreign commercial encryption products."

If enforced, the regulations would certainly complicate the development of the Internet in China. Most of the routers and servers that compose the nerve center of China's networks come from foreign companies. and often include encrypted software to ensure secure communications. The rules could force delays in network construction as Chinese software companies struggle to expand their encryption services.

"If IBM or Hewlett-Packard wants to sell an e-commerce Web server to China, it might have to isolate which parts relate to security" and then find Chinese companies to write the software, says Jay Hu, director of the Beijing branch of the U.S. Information Technology Office, an industry research group. "I don't think Chinese companies have that ability." Neither International Business Machines Corp. nor Hewlett Packard Co. would comment.

The encryption regulations could apply to just about anything that transmits sensitive digital information, including cell phones, Internet browsers and e-mail software. Microsoft's Outlook program uses low-level encryption, and the company might have to seek Chinese partners to design it anew. Alick Yan, a spokesman for Microsoft (China) Co., said it's too early to gauge the potential impact.

The government has created a new agency to enforce the regulations, but it isn't clear who controls the body. "We report to the State Council," which is China's cabinet, explained director Yang Lingjun, who declined to comment further. However many foreign-company officials, speaking anonymously, say they're afraid the organization is staffed by the Ministry of State Security, China's secret police.