China Aims to Build Its Own Secure Smartphones

Edward Snowden’s revelations about the U.S. National Security Agency led China to encourage companies to reduce dependence on U.S. suppliers.PHOTO:AGENCE FRANCE-PRESSE/ THE GUARDIAN

(South China Morning Post) China is seeking to make its own secure smartphones, in an attempt to insulate its handsets from U.S. surveillance.

The effort involves both state-owned companies and some of the country’s savvier technology firms and marks the latest step in Beijing’s quest to build a homegrown tech industry that cuts out U.S. suppliers.

Chinese officials have long chafed at U.S. companies’ dominance in smartphone operating systems and processors—the parts of a handset most vulnerable to hacking. In China, the world’s largest smartphone market, almost all handsets are either Apple Phones or are powered by Google’s Android operating system.

For years, China’s lagging technology meant there was little it could do. The country’s first lady, Peng Liyuan, last year switched publicly to a Chinese-made smartphone, the ZTE Nubia Z5, after being criticized for using an iPhone, yet the Chinese device ran on Android and included a Qualcomm Inc. processor, according to its specifications list.

Now, a number of Chinese technology companies are making progress toward cutting the cords to Western technology. China is encouraging that effort, spurred by revelations in 2013 from former U.S. National Security Agency contractor Edward Snowden that the NSA had placed surveillance “back doors” in some American gear sold overseas.

Chinese smartphone maker ZTE Corp. is working on a secure smartphone for government agencies using an operating system developed in-house, and a processor chip from a Chinese supplier, a spokesman said. The country’s largest chip-design company, Spreadtrum Communications Inc., separately said it would begin mass producing a set of chips that run a Chinese operating system by year-end.

Chinese e-commerce company Alibaba Group Holding Ltd. has joined with China’s Ministry of Public Security to develop a mobile operating system for police officers that it bills as more secure.

All the efforts target a niche group of government agencies and state-owned enterprises and are unlikely to appeal to the average consumer. ZTE’s secure phone, for example, will come without camera, GPS, Wi-Fi and Bluetooth wireless connections to minimize security risks.

The trend is unlikely to have much impact on the market share in China of U.S. mobile components and software. Analyst James Yan of market-research firm IDC estimates secure phones might make up 3% of China’s smartphone sales next year, or about two million units. But if more made-in-China operating systems and processors make their way into consumer handsets, that could potentially pose a challenge for Google’s Android as well as for Qualcomm.

Qualcomm, whose processors accounted for 52% of the smartphone market last year, according to Strategy Analytics, declined to comment. Alphabet Inc.’s Google, whose Android system ran 82.8% of the world’s smartphones in the second quarter of this year, according to IDC, didn’t immediately have a comment.

Other U.S. tech companies are already feeling a chill in China. U.S. networking- and computing-gear makers such as International Business Machines Corp. and Cisco Systems Inc. have recorded sales declines, as government agencies and state-owned enterprises buy more from domestic counterparts such as Chinese server maker Inspur Group Co. and telecommunications-gear supplier Huawei Technologies Co.

Cisco doesn’t provide sales figures for specific countries, but has said the Snowden disclosures affected its China sales. IBM has attributed sales setbacks to China’s economic slowdown. Both companies say they don’t build “back doors” into their technology.

In smartphones, Chinese banks have begun to buy more domestic brands, though formal quotas were suspended earlier this year because of U.S. pressure. China had wanted to require that 50% of new smartphone purchases at financial institutions meet “secure and controllable” standards, according to a copy of the suspended rules reviewed by The Wall Street Journal.

China’s push to build homegrown secure handsets also has economic benefits: The components that are crucial to security are also some of the most profitable. But even with made-in-China processors, modems and operating systems, Chinese secure phones will likely include plenty of foreign components, albeit less-sensitive ones.

A spokesman for ZTE said it isn’t possible to use exclusively Chinese-made hardware and software in a smartphone, but to meet the needs of government agencies it is trying to use domestic suppliers as much as possible.

Other Chinese phone makers, including Coolpad Group Ltd. and Qihoo 360 Technology Co., are scrambling for a piece of the market too, touting security features such as data encryption in their new handsets this year.

“Right now the security sector is very hot,” said Chris DeAngelis, Beijing-based general manager at consultancy Alliance Development Group. “The government is looking for nonforeign technologies as much as possible to prevent various back doors.”

Leo Li, chief executive of Spreadtrum, said his company will begin sales this year of special chipsets that will let phone users switch between Android and an encrypted operating system made by Chinese company Yuanxin Technology Co.

“Your voice is encrypted. Your data is encrypted. It is very secure,” he said.

But just because a phone has domestically made guts doesn’t mean it is secure, said Bryce Boland, Asia chief technology officer for network-security company FireEye Inc. A hacker could still siphon data directly from a telecom operator, he said. New operating systems are also likely to have more vulnerabilities.

China isn’t alone in seeking a high-security smartphone for government work. The U.S. NSA developed its own domestic version in 2009, although it this year switched to a new system based on Samsung Electronics Co. smartphones with customized secure software. The NSA-developed phone was “overtaken by technology by the time it was actually delivered,” Debora Plunkett, the NSA’s information assurance director, told National Defense Magazine in 2012.

Lao Yao, secretary-general of the China Smartphone Alliance, said some Western governments work with BlackBerry Ltd. of Canada to custom-make high-security phones for their officials, but that China and Western companies don’t trust each other enough for this to be an option. “China has no choice but to develop its own operating system to maintain security,” he said.