Cybersecurity Touchy Subject for US & China

Story first appeared on Politico.com.

Asserting that cyberattacks against the U.S. don't come only from China, the U.S. and Chinese defense ministers said they agreed Monday to work together on cyber issues to avoid miscalculations that could lead to future crises.

The Defense Secretary said that since China and the United States have advanced cyber capabilities, it is important to develop better cooperation.

There are other countries, actors, others involved in some of the attacks that both of the countries receive. But because the United States and China have developed technological capabilities in this arena it's extremely important that they work together to develop ways to avoid any miscalculation or misconception that could lead to crisis in this area.

China's minister of national defense offered a vigorous defense of his country, saying through an interpreter that, all of the cyber attacks targeting the United States do not come from China.

Just six months ago, however, senior U.S. intelligence officials for the first time publicly accused China of systematically stealing American high-tech data for its own national economic gain.

It was the most forceful and detailed airing of U.S. allegations against Beijing after years of private complaints, and it signaled the opening salvo of a broad diplomatic push to combat cyberattacks that originate in China.

Cybersecurity was just one of the many issues discussed by the two leaders during their meeting, but it is also one of a number of contentious topics that rattle the often rocky relationship between the two nations.

The U.S. needs to start laying the ground work for better understanding by the Chinese of what is expected from them in cyberspace. As well as putting better Security Solutions in place among their own technology.

As an example American officials want to know who to talk to when Chinese hackers breach U.S. computer networks. And if there is a cyber incident in China, the US needs the Chinese to feel confident that they can call up and ask, 'was it you?', and get a straight answer.

Chinese officials have routinely denied the cyberspying, insisting that their own country also is a victim of such attacks. And they note that the hacking is anonymous and often difficult to track.

U.S. cybersecurity experts acknowledge that attribution can be difficult, and that while they can trace an attack to China, it is often difficult to track directly to the Chinese government. Last December's report by U.S. intelligence agencies said America must openly confront China and Russia in a broad diplomatic push to combat cyberattacks that are on the rise and represent a persistent threat to U.S. economic security.

And, separately, several cybersecurity analysts have concluded that as few as 12 different Chinese groups, largely backed or directed by the government there, commit the bulk of the cyberattacks that aim to steal critical data from U.S. companies and government agencies. Officials estimate that the stealthy attacks have stolen billions of dollars in intellectual property and data.

Because people and businesses in both China and American have been victims of cyberattacks, officials have been talking more about building a better relationship so that they can work together.

Law enforcement is one area of cybersecurity where the two nations have begun to build partnerships, but so far it has been extremely limited. Lewis said that in 2011, U.S. authorities requested assistance from the Chinese 11 times, and in seven of the cases received no information. But, he said the Chinese cooperated with U.S. law enforcement in a high profile financial fraud case late last year.


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Chinese Company vs. iPads

First appeared in Associated Press

A Chinese company said Tuesday it will ask customs officials to ban imports and exports of Apple's iPads due to a dispute over ownership of the trademark.

All of Apple's iPads are manufactured in China, meaning global sales of the popular tablet computers might be affected if authorities agreed to enforce such a request by Shenzhen Proview Technology.

The dispute with Proview, which won a court ruling that it owns the iPad name in China, has resulted in authorities seizing iPads from retailers in one city. Proview said it has asked for enforcement in 30 other cities.

"We are now working on a request to China Customs to ban and seize all the import and export of the iPad products that have violated the trademark," said Xie Xianghui, a Proview lawyer. He gave no indication when the request might be filed.

Apple, based in Cupertino, California, defended its ownership of the iPad name.

"We bought Proview's worldwide rights to the iPad trademark in 10 different countries several years ago. Proview refuses to honor their agreement with Apple in China," said an Apple Inc. spokeswoman in Beijing, Carolyn Wu.

Wu declined to comment on the possibility of Proview requesting a ban on iPad imports and exports.

China is Apple's fastest-growing market. Its iPads and iPhones are manufactured by a contractor, Taiwan-based Foxconn Technologies Group, at factories in southern China.

Shenzhen Proview Technology registered the iPad trademark in China in 2001. Apple bought rights to the name from a Taiwan company affiliated with Proview but the mainland company says it still owns the name in China. A Chinese court rejected Apple's claim to the name in China last year. Apple has appealed.

"Our case is still pending in mainland China," Wu said.

Chinese rules allow trademark owners to request seizure of goods that violate their rights, according to Stan Abrams, an American lawyer who teaches intellectual property law at Beijing's Central University of Finance and Economics.

The rules were enacted partly in response to foreign pressure for Beijing to stamp out rampant unlicensed copying of foreign movies, music and designer clothes. Abrams said exports can be seized under rules meant to prevent manufacturers in China from sending unlicensed copies to other markets.

"All of these things that Proview can do, whether it's going to court or Customs, these are the things that we want to see," Abrams said. "So it's definitely ironic."

Chinese news reports say Proview, which makes computer displays, is deep in debt and needs a big settlement from Apple.

Proview has yet to make an offer to settle, said Xie, the company's lawyer.

"We are now focusing our work on upholding rights and haven't made negotiation proposals to Apple yet," he said. "As for the reasons, you should ask Apple."

Shenzhen Proview Technology is a subsidiary of LCD screen maker Proview International Holdings Ltd., headquartered in Hong Kong.

Apple bought rights to the iPad name in 2009 from a Taiwan affiliate, Proview Taipei, that registered it in various countries as early as 2000.

A Chinese court ruled in December that Proview is not bound by that agreement. It rejected Apple's complaint that Proview was violating its rights.

Apple might be able to sue the Taiwan company on contract grounds for selling name rights it didn't own, Abrams said. But he said a victory in such a suit would not give Apple rights to the name on the mainland.

"This kind of thing happens, but it's a mistake and it's a really bad one in this case," Abrams said. "They're paying for it now."

Suicidal Xbox Makers

First appeared in the Boston Globe

Dozens of workers assembling Xbox video game consoles climbed to a factory dormitory roof, and some threatened to jump to their deaths, in a dispute over job transfers that was defused but highlights growing labor unrest as China’s economy slows.

The dispute was set off after contract manufacturer Foxconn Technology Group announced it would close the assembly line for Microsoft Corp.’s Xbox 360 models at its plant in the central city of Wuhan and transfer the workers to other jobs, workers and Foxconn said Thursday.

Workers reached by telephone said Foxconn initially offered severance pay for those who wanted to leave rather than be transferred, but then reneged, angering the workers; Foxconn, in a statement, disputed that account, saying only transfers were offered, not severance.

The workers climbed to the top of the six-story dormitory on Jan. 3 and threatened to jump before Wuhan city officials persuaded them to desist and return to work, according to the workers and accounts online. The workers gave varying estimates of the numbers involved in the strike, from 80 to 200, and photos posted online showed dozens of people crowding the roof of the boxy concrete building.

“Actually none of them were going to jump. They were there for the compensation. But the government and the company officials were just as afraid, because if even one of them jumped, the consequences would be hard to imagine,’’ said Wang Jungang, an equipment engineer in the Xbox production line, who left the plant earlier this month.

The fracas is the latest labor trouble to hit Foxconn, a unit of Taiwan’s Hon Hai Precision Industry Co. that makes iPads and iPhones for Apple Inc. as well as Xboxes and other gadgets, helping consumer electronics brands hold down costs. Its massive China plants are run with military-like discipline, which labor rights activists say contributed to spate of suicides in 2010.

Foxconn said that all workers on the Xbox line were offered transfers at their current pay but that 150 demanded severance and not all of them participated in the rooftop protest. “It is our understanding that certain individuals threatened to jump from the building if their demands were not met,’’ the statement said.

Strikes and other job actions have risen in recent months across China as factories cope with rising costs, scarce credit and declining orders from Europe, the United States and domestic companies. Complicating matters is the approaching Lunar New Year, a time when many of the migrant workers who man factories quit jobs to return home temporarily before looking for better paying employment.

Foxconn’s Wuhan plant employs 32,000 people. The site previously had a couple of suicides or attempted ones a couple years back, prompting the government to take over the operations of the dormitories, said Wang, the equipment engineer.

After the rooftop protest, Microsoft said in a statement that it investigated, finding that the dispute centered on Foxconn’s staffing and transfer policies, not working conditions. “After the protest, the majority of workers chose to return to work. A smaller portion of those employees elected to resign, the statement said.

Ultimately, Foxconn said, 45 of the employees resigned from the company while the rest chose to stay. It did not say whether the resigning workers were given compensation. Wang, the engineer, said he received $4,700 (30,000 yuan) in compensation but that was because he planned his departure early, telling his supervisor six months ago he would leave.ionals, our award-winning solutions include custom displays, exhibit rentals, trade show graphics, shipping, installation and exhibit storage.

Chinese Supercomputer Likely to Prompt Unease in U.S.

The Wall Street Journal

A newly built supercomputer in China appears poised to take the world performance lead, another sign of the country's growing technological prowess that is likely to set off alarms about U.S. competitiveness and national security.

The system was designed by China's National University of Defense Technology and is housed at the National Supercomputing Center in the city of Tianjin. It is part of a new breed that exploits graphics chips more commonly used in playing videogames—supplied by Nvidia Corp.—as well as standard microprocessors from Intel Corp.

Supercomputers are massive machines that help tackle the toughest scientific problems, including simulating commercial products like new drugs as well as defense-related applications such as weapons design and breaking codes. The field has long been led by U.S. technology companies and national laboratories, which operate systems that have consistently topped lists of the fastest machines in the world.

But Nvidia says the new system in Tianjin—which is being formally announced Thursday at an event in China—was able to reach 2.5 petaflops. That is a measure of calculating speed ordinarily translated into a thousand trillion operations per second. It is more than 40% higher than the mark set last June by a system called Jaguar at Oak Ridge National Laboratory that previously stood at No. 1 on a twice-yearly ranking of the 500 fastest supercomputers.

"I don't know of another system that is going to be anywhere near the performance and the power of this machine" in China, said Jack Dongarra, a supercomputer expert on the Oak Ridge research staff who is a professor at the University of Tennessee and recently inspected the system in Tianjin last week. "It is quite impressive."

The development was not altogether unexpected. China placed 24 systems in the so-called Top 500 supercomputer ranking last June; a system called Nebulae, for example, took second place that also used chips from Nvidia and Intel.

But Mr. Dongarra and other researchers said the machine should nevertheless serve as a wake-up call that China is threatening to take the lead in scientific computing—akin to a machine from Japan that took the No. 1 position early in the past decade and triggered increased U.S. investment in the field.

"It's definitely a game-changer in the high performance market," said Mark Seager, chief technology officer for computing at Lawrence Livermore National Laboratory. "This is a phase transition, representative of the shift of economic competitiveness from the West to the East."

Nearly all components of the high-profile Japanese system, called the Earth Simulator, were created in Japan. By contrast, most of the Tianjin system relies on chips from Intel and Nvidia, which are both based in Santa Clara, Calif. So U.S. customers could presumably construct a system with similar performance, noted Horst Simon, deputy lab director at Lawrence Berkeley Lab.

But Mr. Dongarra noted that communications chips inside the machine were proprietary and designed in China, and the country is also working on its own microprocessors.

Moreover, while the Japanese system was a single machine, Tianjin is part of a multi-year strategy by China to develop a range of machines to create a dominant position in both military and commercial applications. "In that sense, I would say this is a much more important event than the Earth Simulator," Mr. Simon said.

The new supercomputer will be operated as an "open access" system, available to other countries outside of China to use for large scale scientific computation, said Ujesh Desai, an Nvidia vice president of product marketing.

It reflects a major design shift to use graphics chips to help accelerate the number-crunching functions most often carried out by so-called x86 chips, which evolved from personal computers and have long dominated supercomputing. Advanced Micro Devices, which makes both graphics chips and x86 microprocessors, is another company besides Nvidia that is promoting the technology shift.

Apple Opens Chinese App Store

The Wall Street Journal

 

BEIJING—Apple Inc. announced Tuesday that it launched an online store and a simplified-Chinese version of its App Store for customers in China, the latest move in an aggressive expansion by the company after years of neglecting the market.

Chinese customers can now order Apple products, including the iPhone 4 and the iPad, online and have the products delivered. Prior to this move, iPhone buyers had to order the devices on Apple's Chinese website and pick them up at one of Apple's four mainland Chinese Apple Stores in Beijing and Shanghai.

According to the new Chinese online store, Apple is shipping iPhones in China in one to two weeks, and iPads in 24 hours as of Tuesday morning.

The company's expansion in China comes as competition in China's nascent but fast-growing smartphone market is heating up, with Taiwanese smartphone maker HTC Corp. also planning an expansion here.

Apple, which had only one Apple Store in China last year and relied largely on authorized resellers to reach other customers, has said it plans to open 25 Apple Stores in the country by 2011. It has also sped up the release of new products in China, the world's largest mobile market and second largest personal computer market after the U.S.

With e-commerce booming in China and consumers spending tens of billions of dollars in transactions each year online, the move could help boost the company's distribution in China. Apple had 7.1% of China's smartphone market as of the second quarter, ranking fifth after Nokia Corp., Samsung Electronics Co., Motorola Inc. and Sony Ericsson, according to research firm Analysys International.

According to research firm IDC, Apple has less than 1% share of unit shipments in the PC market.

Still, e-commerce is a more complicated business in China, where many customers prefer to pay cash on delivery for their purchases, and it can be more difficult to make deliveries to remote regions due to a lack of infrastructure development. And unlike in the U.S., where many brands have their own successful e-commerce websites, three-quarters of online shopping in China is done through Taobao.com, a retail website operated by Alibaba Group.

Apple's online store warns customers outside of large urban areas that their deliveries may take one to two extra business days. The store says it accepts credit and debit cards, as well as bank transfers and cash deposits.

Releasing a Chinese version of Apple's Chinese App Store, an online marketplace where customers can purchase software applications for their iPhones, iPads and iPods, also removes a barrier for Chinese users to access the store. But other hurdles remain, including the requirement for users to have dual-currency credit cards in order to make purchases within the store—a requirement that has led many users to either hack their iPhones in order to use applications from other sources, or make purchases in the App Store using false identities and fraudulent gift cards.

An Apple spokeswoman said payment requirements for the Chinese App Store remained unchanged as of Tuesday.

Hon Hai Pushes Into Chinese Market

The Wall Street Journal

 

TAIPEI—Hon Hai Precision Industry Co., whose Chinese factories produce many of the world's most popular electronics products, including iPads and iPhones is making a push to sell gadgets in China's own fast-growing consumer market.

Starting later this year, Hon Hai plans to open at least 10 large electronics stores in the Shanghai area by the end of 2011, under a partnership initiated last year with Germany retailer Metro AG. Louis Woo, the senior Hon Hai executive in charge of the retail push, outlined the plans in an interview.

Hon Hai also intends to open 45 to 50 branches of Cybermart, a small retail chain it purchased a decade ago but which has seen little growth. Cybermart currently operates 34 stores in 20 Chinese cities.

And Mr. Woo said the company plans to open another 200 electronics booths in hypermarkets in Chinese cities, while also providing funding for Chinese employees who return to their hometowns to start small shops through which Hon Hai can distribute products.

Hon Hai's retail push comes as it is facing challenges in its core manufacturing business after decades of rapid growth. The Taiwan-based company, which also uses the trade name Foxconn, assembles iPhones and iPads for Apple Inc., mobile phones for Nokia Corp., and personal computers for Hewlett-Packard Co., among others.

Its nearly one million employees and revenue of $61.9 billion last year makes it by far the world's biggest contract manufacturer of electronics, bigger by sales in the first quarter than its 10 biggest competitors combined, according to research firm iSuppli.

But having gained such dominance, Hon Hai must increasingly look far afield for growth. Revenue last year was flat, although analysts expect it to increase again this year. Meanwhile, Hon Hai is having to adjust its main business to rising costs. In June, Hon Hai announced sharp pay increases for its workers in the wake of a spate of employee suicides at its massive Shenzhen operations, where more than half of its nearly 900,000 Chinese staff work.

Hon Hai has said it is stepping up expansion of manufacturing operations in China's less expensive hinterland provinces, and it plans to discuss with clients the possibility of raising product prices to offset planned wage increases, which are part of a broader wave of wage increases affecting many foreign companies.

The flip side of rising wages in China is that workers will have more spending power, meaning Hon Hai's expansion in retail could enable it to benefit from the very trend that is squeezing its costs in the core manufacturing business.

"Wage increases will directly and definitely link to higher domestic consumption," said Mr. Woo, who is chairman of NCIH International Holdings Ltd., Hon Hai's retail subsidiary. Hon Hai's sales strategy is in line with that of the Chinese government's to reduce the economy's reliance on exports in favor of stronger domestic demand, he notes.

Mr. Woo said Hon Hai plans to distribute products it makes for big brands as well as goods from other factories. Hon Hai hasn't finalized plans with companies like Apple to determine exactly which of their products it will carry.

H-P and Nokia declined to comment. Apple didn't respond to a request for comment.

Mr. Woo says the company could offer start-up capital of about $25,000 each to the employees who want to return home to start mom-and-pop electronics shops in China's smaller cities and towns.

China's electronics market is already huge, with some $135 billion in sales expected this year, according to a forecast by Pully Brand Technology Consulting, a Chinese consultancy focused on electronics. China is the world's largest handset market by number of subscriber accounts and the second-largest personal-computer market after the U.S. by unit sales.

The retail market is dominated by big Chinese chains including Gome Electrical Appliances Holdings Ltd., which operates 726 stores in 198 Chinese cities as of the end of last year, and Suning Appliance Co., which aims to have 1,200 stores nationwide by year's end.

Some analysts doubt that retail is a good fit for Hon Hai. Most of its clients already have their own retail strategies in China, and building new sales channels takes time and requires different know-how than manufacturing, said Michael Palma, a senior analyst at IDC who covers electronics manufacturers.

"The question is how well they can operate a retail operation and drive new sales. Hon Hai has a poor track record on the retail side of things and the organization's DNA may not help with the effort," he said. Mr. Palma says Hon Hai has the resources to fund the operation, attract the right people, and sustain operations for a period of time. But if it can't drive sufficient sales, "it may just muddy the water for their clients' existing retail strategies."

Hon Hai doesn't disclose Cybermart's annual revenue, but analysts said it isn't a meaningful contributor to Hon Hai's revenue.

Mr. Woo said Hon Hai believes retail sales of electronics are growing fast enough that Hon Hai will be able to grab market share. He plans to focus on China's smaller cities, which he thinks will benefit from China's urbanization policies.

"We see there is a lot of opportunity to organize small format retailing, especially in the fourth, fifth and sixth-tier cities," he said.

Retail also lets Hon Hai capture more of its clients' spending. "It is almost like we can take care of the whole product sample from design development to manufacturing and to selling it to consumers," said Mr. Woo.

iPhone Maker Rallies Workers after China Suicides

Associated Press

 

Young workers who normally spend their days assembling iPhones and other high-tech gadgets packed a stadium at their massive campus Wednesday, waving pompoms and shouting slogans at a rally to raise morale following a string of suicides at the company's heavily regimented factories.

The outreach to workers shows how the normally secretive Foxconn Technology Group has been shaken by the suicides and the bad press they have attracted.

"For a long period of time I think we were kind of blinded by our success," said Louis Woo, special assistant to Terry Gou, the founder of Foxconn's parent company. "We were kind of caught by surprise."

The company has already raised wages, hired counselors and installed safety nets on buildings to catch would-be jumpers. Other changes include job rotation so workers can try different tasks and grouping dorm assignments by home province so workers don't feel so isolated.

However, Woo acknowledged there will be challenges in preventing such tragedies in a work force of 920,000 spread across 16 factories in China, all of which are to have morale boosting rallies. Woo said he expected the company will grow to 1.3 million workers sometime next year.

"No matter how hard we try, such things will continue to happen," he said.

The rally Wednesday took place at Foxconn's mammoth industrial park in Shenzhen, which employs 300,000 and where most of the suicides have taken place. The latest suicide - the 12th this year - occurred Aug. 4 when a 22-year-old woman jumped from her factory dormitory in eastern Jiangsu province.

Twenty thousand workers dressed in costumes ranging from cheerleader outfits to Victorian dresses filled the stadium at the factory complex, which was decorated with colorful flags bearing messages such as "Treasure your life, love your family." The workers chanted similar slogans and speakers described their career development at Foxconn.

As they filed toward the stadium for the rally, a flood of workers headed in the other direction to begin the night shift.

"In the past, from the time we started work until when we finished, we would not really have a break. But now we've been given time to rest," said 18-year-old worker Huang Jun. "If I can get off work early enough and have a little time for fun, then I feel a bit better and less stressed out."

Other workers said they wanted Foxconn to organize more recreational activities such as sports or karaoke.

Woo said it was common for workers to have 80 hours a month of overtime, but Foxconn was aiming to reduce the workload and become the first company in the industry to keep overtime to a maximum of 36 hours a month - as required by Chinese law.

Foxconn, part of Taiwan's Hon Hai Precision Industry Co., has built itself into the world's largest contract maker of electronics by delivering quality products on thin profit margins for customers including Apple Inc., Sony Corp., Dell Inc., Nokia Corp. and Hewlett-Packard Co.

Labor activists, however, say that success has come in part from driving workers hard by enforcing a rigid management style, operating a too-fast assembly line and requiring excessive overtime. The company denies that it treats employees inhumanely.

The troubles at Foxconn came to light amid broader labor unrest in China and highlighted Chinese workers' growing dissatisfaction with the low wages and pressure-cooker working conditions that helped turn the country into an international manufacturing powerhouse.

One activist said the rally Wednesday was unlikely to boost morale and does not replace the need for more thoroughgoing reforms.

"I don't think today's event is going to achieve anything except provide a bit of theater," said Geoffrey Crothall, spokesman for the China Labor Bulletin, a labor rights group based in Hong Kong. "Basically what Foxconn needs to do is treat its workers like decent human beings and pay them a decent wage. It's not rocket science."

Sony, Panasonic TVs Star in Price Battle in China Showrooms

Bloomberg

 

Sony Corp.’s and Panasonic Corp.’s ambitions for higher earnings this year depend on convincing Yin Weiguang, a retired construction worker in Beijing, that he chose the wrong television.

“I don’t really care about fancy features,” said Yin, 55, who paid 2,799 yuan ($413) for a 32-inch set made by Skyworth Digital Holdings Ltd. “I just use it for basic entertainment: watching news, weather forecast and TV series.”

Sony and Panasonic, the world’s two largest makers of consumer electronics and Sony camera batteries, are slashing some TV prices by a third in China after being outsold six-to-one by Shenzhen-based Skyworth. Sony aims to double TV shipments in China this fiscal year, and Panasonic expects 50 percent growth in the world’s second- largest market for flat-panel TVs.

“The price battle in China will likely intensify as local manufacturers, South Korean makers and Japanese companies all fight for market share,” said Yoji Takeda, who heads the Asian equity management team at RBC Investment (Asia) Ltd., which oversees $1.1 billion. “Prices will probably continue falling with increased market supply during the second half.”

In December, Sony offered a 32-inch set for 3,000 yuan, or 33 percent off the previous price for that size, targeting customers in regional cities and rural districts, said Yuki Shima, a spokeswoman for the Tokyo-based company. To help cut costs, Sony has increased outsourcing of TV production to Foxconn Technology Group, the world’s largest contract manufacturer of electronics.

50 Percent Cut

Panasonic, the world’s biggest maker of plasma TVs, may cut prices of some models in China as much as 50 percent this year, Hitoshi Otsuki, senior managing director of the Osaka-based company’s overseas operations, said in an interview last week.

“The market is totally different from the U.S. and others,” Otsuki said. “In China, domestic manufacturers are very powerful, especially in low-end products. The smaller sets are the fastest-growing area and the most difficult for us.”

Sony slipped 0.7 percent to close at 2,681 yen in Tokyo, narrowing its gain this year to 0.4 percent. Panasonic fell 1.2 percent, extending its loss in 2010 to 17 percent. Skyworth Digital dropped 0.4 percent at the midday break on the Hong Kong Stock Exchange.

Biggest Flat-Panel Market

Sales of liquid-crystal-display TVs in China will rise 15 percent to 45.5 million next year and overtake North America shipments, according to DisplaySearch estimates. China will become the biggest flat-panel TV market, including plasma sets, in 2012, according to the Austin, Texas-based researcher.

Skyworth is the market leader in China with a 15 percent share, followed by domestic rivals Hisense Electric Co. and TCL Corp., according to AVC Consulting in Beijing.

Japan’s Sharp Corp. was the top non-Chinese vendor with 4.9 percent, followed by Samsung Electronics Co. and LG Electronics Inc. of Seoul. Sony and Panasonic, the maker of Viera-brand TVs, each had 2.4 percent.

“Sony has started to take more serious action in China,” Shima said, citing the introduction of the lower-priced model in December. “We need to become sensitive about changes on products and business models for China.”

A price war may reverse the optimism sparked last month after the Japanese companies increased profit forecasts, said Yuuki Sakurai, chief executive officer of Tokyo-based Fukoku Capital Management Inc. Sony and Panasonic on July 29 cited better-than-expected sales of flat-panel TVs for raising their full-year projections, sending shares of both companies higher in Tokyo trading the following day.

Sony estimates 60 percent growth in worldwide TV sales by volume and Panasonic 35 percent.

“There’s no way Sony and Panasonic can compete with Chinese producers in terms of prices,” Sakurai said. “Even the South Koreans are struggling. Chinese consumers aren’t very keen on top-quality products.”

Samsung, the world’s largest TV maker, said last month that falling set prices may erode profitability this quarter. The company intends to keep prices above those of Chinese producers.

“We will stick to a strategy that will make people aware of our premium image,” said Chenny Kim, a spokeswoman at Suwon, South Korea-based Samsung. “We won’t compete with local companies in pricing.”

Skyworth’s annual shipments in China rose 12 percent to 7 million units in the fiscal year ended March 31 from a year earlier, the company said April 19. Revenue from the business increased 55 percent.

Competition, What Competition?

Skyworth, whose shares trade in Hong Kong and Frankfurt, isn’t concerned about international competitors, said Shen Jian, a spokesman. Brands from abroad account for about a quarter of the TVs sold in China, according to DisplaySearch.

“Domestic branded TVs are cheap and durable,” said Yin, who receives a monthly pension of about 4,000 yuan.

A 40-inch, international-brand TV sold for an average of about $902 in the second quarter, or about 33 percent more than Chinese marques, according to DisplaySearch.

“Our advantage is we are a local brand,” Shen said. “We don’t worry about the competition at all.”

Still, the price cuts may be helping overseas companies make inroads. Chinese producers’ combined market share fell to 76 percent in the first quarter from 83 percent the previous three-month period, according to Hisakazu Torii, a Tokyo-based analyst at DisplaySearch.

Value For Money

Liu Lin, 29, said non-Chinese TVs are worth the extra cost.

“The quality of Sony’s picture is really good,” said Liu, who bought a Sony 46-inch Bravia set for 5,999 yuan, or more than half her monthly pay. “Quality and price are of the same importance in buying a TV set.”

Japanese TV makers also face the hurdle of a stronger currency that’s giving them less room to cut prices than South Korean rivals. The yen has gained about 7.4 percent against the yuan this year, while the Korean won has weakened 1.2 percent.

They may get a boost from the falling prices of flat panels and used monitors, typically the costliest TV component. LG Display Co., the world’s second-largest LCD maker, last month forecast that panel prices would decline an unspecified amount through August.

“Price is my top concern given I’m not that well-paid,” said Pan Ying, who earns about 5,000 yuan monthly at a Beijing health-care company. “I’ll consider a foreign brand if the price is good.”

Lenovo Says Business will Focus on Mobile Internet

BEIJING (AP) - Lenovo Group expects wireless Internet products to account for up to 80 percent of its sales within five years as it pursues expansion in faster-growing emerging markets, CEO Yang Yuanqing said Friday.

Lenovo, the world's fourth-largest personal computer maker, jumped into the mobile Internet market in January with the unveiling of a smart phone and two Web-linked portable computers.

"Mobile Internet is very important," Yang said in an interview. "Even today, cheap notebooks sales already are higher than desktops. Mobile Internet products are going to be 70 to 80 percent of our sales ... within three to five years."

Yang said Lenovo plans this year to focus on promoting mobile Internet and sales in emerging economies in Asia, Latin America and Eastern Europe.

Lenovo, based in Beijing and Morrisville, North Carolina, was hit hard by the global crisis, which prompted its core corporate customers to slash spending and go for refurbished cheap laptops. It suffered three losing quarters before rebounding to a profit in the second half of last year.

Yang said Lenovo's longer-term strategy, dubbed "protect and attack," calls for building up its dominant presence in China. The country accounts for nearly half of Lenovo's global sales but it faces competition from industry leaders Hewlett-Packard Co. and Dell Inc., which are creating products tailored to Chinese customers.

In the latest quarter, Lenovo said cheap computers sales in India and other emerging markets rose 52 percent over a year earlier, far ahead of the 13 percent sales growth reported for the United States and Western Europe.

Lenovo, which acquired IBM Corp.'s PC unit in 2005, says its global market share last year rose to 9 percent, its highest level to date.

Yang said Lenovo has no plans for foreign acquisitions but is ready to look at any deals that fit its strategic plans for mobile SEO.

Corporate spending on computers has yet to rebound but companies are expected to step up purchasing in the second half of this year, Yang said. He said he could not foresee when global discount PCs sales might recover to pre-crisis levels.

"I'm not an economist," he said. "Even for economists, it's difficult to forecast."

Taiwan Laptop Maker Warns of China Labor Shortages

AP

TAIPEI, Taiwan (AP) - A leading Taiwanese laptop maker has warned labor shortages in China's booming coastal cities could affect the supply of computers amid an expected surge in world demand.

Ray Chen, president of Compal Electronics Inc., said the labor situation could also lead to shortages of components ranging from memory chips to hard drives to computer cases, the Economic Daily News quoted him as saying Thursday.

He said the labor shortfall could worsen following this week's Lunar New Year holiday because many factory workers visiting their home towns might not return to the major coastal manufacturing zones where Compal and other electronics companies produce personal computers.

A year ago when the global financial crisis was battering China's exporters, millions of migrants were told to stay home because there wouldn't be much work in Guangzhou and other southern cities. Then, as business started picking up during the middle of last year, factories were caught short-handed.

Many businesses now say they expect labor shortages this year to be worse than previous episodes. Migrants are finding jobs closer to home as the poor interior provinces become more prosperous and the supply of young laborers is decreasing as an effect of China's one-child policy. Fewer, meanwhile, are willing to work for sweatshop wages as their parents did.

The Economic Daily newspaper said many factory operators fear their worker numbers will not return to pre-financial meltdown levels despite offering pay raises.

But an official with Taiwan-based Hon Hai Group, the world's largest contract electronics maker, said it would not be affected by the labor shortages. It started building several factories three years ago in China's interior to comply with Beijing's policy of developing the southwest.

With manufacturing being shifted elsewhere, Hon Hai's base in Shenzhen in Guangdong province now deals mainly with research and development and logistics, according to the official, who requested anonymity because of company policy.

Compal and Taiwan-based Quanta Inc. are the world's top two contract laptop makers.

Compal's 2009 sales amounted to $19.8 billion, up nearly 50 percent from 2008, with the launch of Microsoft Windows 7 operating system and cheap laptops known as netbooks propping up sales amid the global economic recovery.

Taiwanese makers account for more than 80 percent of the world's laptops output by setting up assembly lines in China to take advantage of the mainland's cheaper labor.

Several Taiwanese makers, including Quanta Inc. and Inventec Corp., are building factories in Chongqing in southwest China, where labor costs are estimated to be 20-40 percent lower than the coastal cities.

China Heralds Bust of Major Hacker Ring

The Wall Street Journal

SHANGHAI—China heralded a major bust of computer hackers to underscore its pledge to help enhance global online security, with state media saying officials had shut what they called the country's largest distributor of tools used in malicious Internet attacks.

Three people were arrested on suspicion of making hacking tools available online, the state-run Xinhua news agency said on Monday. Their business, known as Black Hawk Safety Net, operated through the now-shuttered Web site 3800cc.com and generated around $1 million in income from its over 12,000 subscribers, the report said.

The arrests took place in late November as part of a police investigation that spanned three Chinese provinces and resulted in part from Black Hawk's role in domestic cyberattacks, according to Xinhua.

The delay in announcing the case wasn't explained. China in recent weeks has waged an aggressive public-relations campaign on the issue of hacking, apparently at least in part aimed at discrediting allegations from Google Inc. and others last month that China was the source of sophisticated cyberattacks against the Internet search giant and a number of other foreign companies. After U.S. Secretary of State Hillary Clinton also raised concerns about hacking from China, Chinese state media said her comments were hypocritical and said Google had become a pawn in an American "ideology war."

State-media reports described Black Hawk as offering hacking "training," which is a euphemism for selling malicious software. Xinhua said the site helped disseminate a computer virus in 2007 that wreaked havoc on private and government computers in the city of Macheng, in the central province of Hubei.

The Macheng prosecutor's office, in a statement, identified two men formally arrested in the case on Dec. 31 as 29-year-old Li Qiang and 28-year-old Zhang Lei. The statement said they were founders of Black Hawk Safety Net. The men couldn't be reached for comment. A man answering phones at an office of Black Hawk in the Henan province city of Xuchang said its servers had been shut down but that he couldn't elaborate.

Chinese hackers have described the Black Hawk operation, which also included the site 3800hk.com, as important, but just among the many on the Internet. Increasingly, they say, programs designed to break into Internet-connected computers, known as hacking tools, are available on Chinese-language sites that are located outside the country.

China's closure of Black Hawk Safety Net reflects the use of a new clause in its criminal law that makes it illegal to offer others online attack programs. Xinhua said some 1.7 million yuan in assets, or about $249,000, were also seized, including cash, nine servers, five computers and a car.

Numerous reports have fingered Chinese sources as the suspects in various cyberattacks, including ones that targeted the offices of the Tibetan spiritual leader Dalai Lama and the German chancellor's office. Within China, various attacks over the years have involved theft of user accounts and whole Web site source code.

Determining the origin of Internet attacks is difficult, however. While Google alleged that the hacking attempts it faced originated China, for instance, outside experts briefed on the attacks say they were actually traced to servers in Taiwan, which some experts say Chinese hackers could have used as a cover.

Some reports say that China hosts far less malicious software on its servers than is held on U.S. systems and is less of a spy threat than the U.S. Other experts point out China is a less-than-ideal location to launch overseas attacks because the Internet's international links are slowed by limited bandwidth and heavy content filtering.

China has described itself as the largest global victim of Internet hackers. According to a report released by the National Computer Network Emergency Response Coordination Center of China, Xinhua said, the hacker industry in China caused losses of 7.6 billion yuan ($1.11 billion) in 2009.

Google Tells China It Will End SERP Censorship

Guardian UK

Decision from world's leading search engine comes amid a clampdown on the internet in China over the last year

Google, the world's leading search engine, has thrown down the gauntlet to China by saying it is no longer willing to censor search results on its Chinese service.

The internet giant said the decision followed a cyber attack it believes was aimed at gathering information on Chinese human rights activists.

The move follows a clampdown on the internet in China over the last year, which has seen sites and social networking services hosted overseas blocked – including Twitter, Facebook and YouTube – and the closure of many sites at home. Chinese authorities ­criticised Google for supplying "vulgar" content in results.

Google acknowledged that the decision "may well mean" the closure of Google.cn and its offices in China.

That is an understatement, given that it had to agree to censor sensitive material – such as details of human rights groups and references to the pro-democracy protests in Tiananmen Square in 1989 – to launch Google.cn.

Google was in contact with the US state department before its announcement. Spokesman PJ Crowley said: "Every nation has an obligation, regardless of the origin of malicious cyber activities, to keep its part of the network secure.

"That includes China. Every nation should criminalise malicious activities on computer networks."

In a post on the official Google Blog, the company outlined a "highly sophisticated and targeted" attack in December which it believes affected at least 20 other firms: "These attacks and the surveillance they have uncovered, combined with the attempts over the past year to further limit free speech on the web, have led us to conclude that we should review the feasibility of our business operations in China.

"We have decided we are no longer willing to continue censoring our results on Google.cn, and so over the next few weeks we will be discussing with the Chinese government the basis on which we could operate an unfiltered search engine within the law, if at all."

Hillary Clinton stepped into the debate, urging Beijing to respond to Google's announcement.

The US secretary of state said in a statement: "We have been briefed by Google on these allegations, which raise very serious concerns and questions. We look to the Chinese government for an explanation."

She added: "The ability to operate with confidence in cyberspace is critical in a modern society and economy."

Human Rights Watch praised the decision and urged other firms to follow suit in challenging censorship. "A transnational attack on privacy is chilling, and Google's response sets a great example," said Arvind Ganesan, director of the group's corporations and human rights programme.

Google said the cyber attack originated from China and that its intellectual property was stolen, but that evidence suggested a primary goal was accessing the Gmail accounts of Chinese human rights activists.

Two accounts were accessed but Google believed only account information and subject lines were obtained. It is notifying the other targeted companies and working with US authorities.

Its investigation had shown that, separately, the accounts of dozens of US-, China- and Europe-based Gmail users who are advocates of human rights in China appeared to have been routinely accessed by third parties.

The company added that it was sharing the information not just because of the security and human rights implications "but because this information goes to the heart of a much bigger global debate about freedom of speech".

Acknowledging the potential consequences, it stressed: "This move was driven by our executives in the United States, without the knowledge or involvement of our employees in China."

The message, headlined "A New Approach to China" and signed by David Drummond, senior vice-president of corporate development and chief legal officer, said the company launched Google.cn in 2006 in the belief that the benefits of increased access to information for people in China "outweighed our discomfort in agreeing to censor some results".

At the time Google promised to monitor conditions in China and reconsider its approach if necessary.

But Evgeny Morozov, an expert on the political effects of the internet and a Yahoo fellow at Georgetown University, questioned why Google had made the decision after four years.

"They knew pretty well what they were getting into. Now it seems they are playing the innocence card ... It's like they thought they were dealing with the government of Switzerland and suddenly realised it was China," he said.

Morozov said it was hard to see the logical connection between the security of human rights activists and Google's self-censorship, particularly given that the firm had chosen not to comment on whom it believed responsible for the hacking. It had become easier for "pretty much anyone" to launch cyber attacks in the last few years, he added.

He added that it could have been damaging for Google if news of the breach had emerged later and it appeared the company had done nothing.

Google has only a third of the search-engine market in China, which is dominated by the Chinese giant Baidu. Although its revenues have continued to rise, many analysts believed it was finding business hard going. In June Google suffered intensive disruption to search functions and Gmail for over an hour, after authorities told it to scale back search functions.

China has the world's largest internet population.

Rebecca MacKinnon, an assistant professor at the University of Hong Kong's Journalism and Media Studies Centre, said her research showed Google had censored less than Baidu. Google's decision "certainly sets an example in terms of a company trying to do what's best for the user and not just whatever increases the profit margins", she added.

Nart Villeneuve, research fellow at the University of Toronto's Citizen Lab – which examines the exercise of political power in cyberspace – said the decision to give such a full account of the attacks and link it to human rights issues was unprecedented.

Google's decision to launch the censored service was highly controversial at the time. It was attacked by campaigners and accused of "sickening collaboration" in a Congressional hearing.

The Chinese Foreign Ministry referred the Guardian to the Ministry of Industry and Information Technology. But an employee at MIIT said it was not responsible for handling the query, because it dealt with only the technical side of internet issues. He added that many other departments dealt with other aspects of internet management, but added that he did not know who the Guardian should contact in this instance.

PC Makers Cultivate New Buyers in Rural China

As Posted to the Wall Street Journal

BEIJING -- As demand for personal computers remains weak across the globe, top manufacturers like Lenovo Group Ltd. and Hewlett-Packard Co. are zeroing in on one largely untapped but growing market: rural China.

The companies are aggressively expanding their sales networks in China's countryside, where over half of China's population resides and broadband access is increasing, but where the average per capita annual income is only $700, according to government statistics.

They're aided in part by a $586 billion government subsidy program designed to stimulate the nation's economy by encouraging spending in rural areas. According to the Ministry of Commerce, 414,000 PCs were sold by August under the program, which gives rural residents a 13% rebate when they purchase select products.

Though difficult to penetrate, China's countryside is "probably still the world's most promising market" in terms of the number of people "who've never owned a PC before, who would like to own a PC and who have that capability," says David Wolf, CEO of Wolf Group Asia, a Beijing-based marketing strategy firm.

Gong Xiangnan, a 24-year-old migrant worker from Mengyin county in Shandong province, says she used the rural subsidy to recently buy her first PC, a Lenovo desktop for 3,000 yuan ($439).

Ms. Gong says many residents in her town took advantage of the subsidy, buying motorcycles, televisions, and other home appliances. "In our home, we already have refrigerator, TV, a washing machine," she says.

Smaller cities and rural areas in China are tricky because incomes are still very low, towns and villages are spread far and wide in places where big electronics retailers rarely go, and users aren't as knowledgeable about PCs or brands. As a result, PC vendors are adopting some new marketing tactics.

Lenovo, which is targeting rural customers with lower-cost computers and 700 new retail stores, has begun marketing computers as high-status betrothal gifts, which by tradition should appear as generous as possible.

Beijing-based Lenovo, which sold 28% of PCs in China in the first half according to IDC, is also using slogans such as, "Buy a Lenovo PC, Be a Happy Bride."

"They like to give desktop PCs because the boxes are large," says Li Zhong, director of Lenovo's consumer business in the Beijing and Hebei region. "They deliver the computers to brides' families on trucks, which everyone can see. In these cases the bigger the box, the better."

The efforts appear to paying off. According to the Ministry of Commerce, about 40% of PCs sold under the rural subsidy program were from Lenovo. H-P represented about 1% of such sales.

Globally, PC shipments have dropped in recent quarters as spending by companies and consumers has decreased. But in China -- where about 40 million PCs are sold annually, making it the world's second largest PC market after the U.S. -- sales have continued to grow, albeit at slower rates.

In Dongguang county in China's northern Hebei province, Ma Zengyan, the owner of two local computer stores, says sales are rising as customers hear about the subsidies through ads by Lenovo and the government.

One of his stores, a full-service Lenovo showroom with a conspicuous orange exterior, has a corner dedicated to some of the 30 products tailored for rural users for 2,500 yuan to 3,500 yuan apiece.

The PCs are built to accommodate any unpredictable variations in power supply voltage, which are a frequent problem in the countryside, and are packaged with software such as inventory management for farmers.

H-P, too, has been aggressively expanding its sales network outside China's largest cities over the past several years, says Weekee Yeo, director of the company's consumer-PC business in China.

The company promotes its products by sponsoring variety shows and film screenings in small cities to entertain residents where they also display and hold demonstrations with H-P computers.

In addition, the company has dispatched flashy buses to small-city and rural elementary schools to teach children and residents about their products, and vans to rural-area markets, where villagers gather a few times per month to buy goods.

H-P's market share in China increased to 14% in the first half of this year from just 5% in 2005, according to IDC. The company now has 7,000 stores and 10,000 resale partners in China.

In the long term, analysts say the most important edge a PC vendor can have in China's smaller cities and rural areas will depend heavily on their physical proximity to customers.

"In the U.S., the infrastructure is there. Even consumers who live in small towns can take highways and drive an hour or two to the closest city to shop," says Simon Ye, analyst for research firm Gartner in Shanghai. "In China's [smaller] cities, it's rare to find a person who'd drive someplace so far to buy a computer."

China Readies Big Push Into 3G

As posted by: Wall Street Journal

BEIJING -- China's wireless carriers will invest $40 billion in advanced third-generation networks over the next two years, a top official said, in what could be a boost for China's domestic telecommunication-equipment industry.

China, the world's largest mobile phone market by number of subscribers, is one of the last major telecom markets to adopt third-generation technology, which has higher data-transmission speeds that enable wireless video and other fancy services. Earlier this month, the government said it would award 3G licenses to its carriers by the beginning of 2009, ending a years-long wait by equipment makers. Speaking Friday, Li Yizhong, minister of industry and information technology, predicted at an industry conference that China will spend 280 billion yuan, or about $40 billion, on 3G networks over the next two years.

However, Mr. Li also said that the government would provide "strong support" to China's homegrown 3G technology, known as TD-SCDMA, which is being adopted by China's largest carrier, China Mobile Ltd. The other two global 3G standards, WCDMA and CDMA2000, were developed overseas. That statement reinforces expectations that a greater share of sales for the new 3G networks will go to domestic companies than in the past. Analysts say spending is likely to benefit Chinese telecom equipment makers ZTE Corp. and Huawei Technologies Co., who are the leading suppliers of network equipment to the carriers.

BDA China Ltd., a Beijing-based technology consulting firm, says non-Chinese vendors may struggle to benefit from China's 3G spending. Telefon AB L.M. Ericsson, Alcatel-Lucent SA and Nokia Siemens Networks' total shares together are expected to amount to less than 50% of total spending, BDA says.

Mr. Li's announcement comes as mobile-phone sales are also expected to drop world-wide in 2009, as the global economic decline crimps consumer spending. Research firm Gartner Inc. said last month that global handset sales in the third quarter rose just 6% from a year earlier, compared with 16% in the third quarter of 2007, as fewer consumers purchased replacement models.

Mr. Li said total revenue in China's telecom industry in the first 11 months of 2008 rose 7.6%, but that targets for 2009 have been pared down.