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China to ditch US consulting firms over suspected espionage

Published time: May 26, 2014 11:58
Edited time: May 27, 2014 08:00
Reuters/Lou
Dematteis

Reuters/Lou Dematteis

State-owned Chinese companies will cease to work with US consulting companies like McKinsey and Boston Consulting Group over fears they are spying on behalf of the US government.

US consulting companies McKinsey, BCG, Bain & Company, and Strategy&, formerly Booz & Co., will all be snubbed by state-owned Chinese companies, the Financial Times reported, citing sources close to senior Chinese leaders.

“The top leadership has proposed setting up a team of Chinese domestic consultants who are particularly focused on information systems in order to seize back this power from the foreign companies,” a senior policy adviser to the Chinese leadership was quoted by the FT as saying.

“Right now the foreigners use their consulting companies to find out everything they want about our state companies,” the adviser said.

McKinsey is the largest global consulting group operating in China, and about one-third of clients are state-owned enterprises. McKinsey has 650 employees in China.

Last Thursday China announced that all foreign companies would have to undergo a new security test. Any company, product or service that fails will be banned from China. The inspection will be conducted across all sectors - communications, finance, and energy.

China has already banned Microsoft's Windows 8 operating system from government computers, according to Chinese state media agency Xinhua.

“Under President Xi Jinping, technology and implementation will look to be converging, so foreign tech firms should be very worried about their prospects,” Bill Bishop, an independent consultant based in Beijing, told the FT.

Chinese officials have said that government ministries, companies, universities, and telecoms networks are victims of US hacking, and will try to avoid using US technology in order to protect “public interest”.

The dictate follows the US Justice Department’s indictment of five Chinese military officers it suspects of committing cyber crimes against a number of major US companies, including US Steel, Westinghouse and Alcoa. The US accused the army officers of stealing trade secrets and even published their photos.

Beijing responded by calling the US a ‘robber playing cop’, and more recently said the US is a “mincing rascal” and involved in “high-level hooliganism”.

The US-China fallout came after revelations made by NSA contractor Edward Snowden that the US uses economic cyber espionage to spy on international competitors, including China.

The dispute is only the latest setback in relations between the world’s two largest economies. Issues like Ukraine, Syria, and North Korea have been divisive topics between the two superpowers.