As US companies aggressively seek a foothold in the fast-growing Chinese cloud-computing market, a report for a US congressional panel raises questions about security for the companies and the benefits they would get from their investment.

The report to the United States-China Economic and Security Review Commission said laws in China requiring foreign companies in the marketplace to partner with local firms would "likely raise significant security concerns" for US firms. It also said that "low" energy efficiency at cloud- computing data centers in China could hamper the industry's development.

The report, released last week, was prepared at the commission's request by the Center for Research Intelligence and Analysis, a unit of Washington-based Defense Group Inc, a provider of public safety and national-security systems and services.

Cloud computing uses a network of remote servers hosted on the Internet to store, manage and process data, rather than a local server or a personal computer. Users can buy the resources as a utility, on demand.

The cloud-computing field could become the latest stage for the ongoing evolution in US-China relations. Expanding cloud computing is a top priority of China's latest five-year plan. At least 40 public cloud projects are under way in China, and the government has earmarked more than $1 billion over the next five years for cloud-computing development as the industry grows toward an overall value of at least $163 billion by 2015, according to the report.

By the end of this year, China is expected to have 500 million smartphones, which use software and applications based in the cloud.

Reflecting foreign interest in the cloud-computing market in China, in May software giant Microsoft Corp said it would add several thousand employees to its work force in China as part of a long-term investment in the cloud computing market. In June, the company began to make its cloud-based Windows Azure platform available in the country through local partner 21Vianet Group Inc. Azure stores business information and programs on remote servers and lets customers access them over the Internet. Clients use the service to run corporate programs, websites and applications from Microsoft's data centers, rather than spending on their own servers, storage and workers.

The report said the Microsoft-21Vianet partnership raised a "security risk" by providing a way for Chinese companies to access the US's cloud-computing network, although it said "there is no proof that China has previously used this power to compromise foreign-owned systems housed within its borders." Generally, it found China's cloud-computing infrastructure to be "inherently" no less insecure than that of other nations.

China and the US show "differing attitudes" toward developing technological standards for cloud computing, according to the report.

Chinese laws requiring US companies to form joint cloud-computing ventures with their Chinese counterparts raises the question of whether US companies would benefit in the short- and long-term from their limited participation in the market, the report said.

Cloud computing is just one of 100 product or sector categories where restrictions on foreign investment in China remain in place, John Frisbie, president of the US-China Business Council, told reporters in Beijing last week.

It remains unclear, he said, whether China will embark on a period of "reform and opening up," as it did under Deng Xiaoping, or whether reforms will be undertaken without any further opening up of market access to foreign companies. On that question, he said, the signals have been mixed.

When Microsofot's workforce expansion was announced, Sid Parakh, an analyst with Seattle-based investment firm McAdams Wright Ragen Inc told China Daily he doubted the expansion would pay immediate dividends. "I don't think any of the investment will benefit them this year or next," he said. "This is about taking a longer-term view for Microsoft."

In January, An Hui, a director at the China Center for Information Industry Development, told reporters that "the industry is still only in its infancy" and blamed local officials for promoting projects that sometimes had design flaws.

The report identified technical hurdles still to be overcome. In China, most Internet users' download speed is 4 megabits per second, much slower than the 17.4 megabits per second average speed in developed countries.

michaelbarris@chinadailyusa.com

(China Daily USA 09/12/2013 page2)