December 17, 2017 1:29 pm JST

China's war on VPNs creates havoc at foreign companies

Internet crackdown is holding businesses hostage behind the infamous Great Fireweall

YU NAKAMURA, Nikkei staff writer

Customers use computers at an internet cafe in Taiyuan, Shanxi Province. © Getty Images

GUANGZHOU -- China has been shutting down virtual private networks, or VPNs, that have allowed users uncensored access to the outside world, with President Xi Jinping calling internet technology a new challenge to sovereignty and security.

The crackdown is causing problems for foreign businesses in the country, as they are now forced to choose between isolation, surveillance or withdrawal.

High-tech bottleneck

Takashi Hirano, an employee at a Japanese service-industry company in Guangdong Province, was frustrated one October morning because he couldn't contact his office in Japan for a weekly video conference. Hirano -- not his real name -- thought it was just another glitch in China's buggy telecommunication system and that the problem would soon go away. But since that day, the video conference system has been down.

Other companies are having similar headaches. An electronics parts maker in Beijing has been blocked from a server in Japan, denying it access to customer data. A food maker in Shanghai has been cut off from the company intranet. A different service-industry company in Beijing can't get into the head office's information system, forcing it to rely on data stored locally. An autoparts maker in Hubei Province found out its email no longer reaches some recipients.

"We've been seeing a surge in the number of inquires from our Japanese corporate clients about communication troubles since September," says an official of Startia Shanghai, a telecom provider for Japanese companies. "We can't advertise anymore because we can't handle more customers." 

Privacy gone for good

On Jan. 22, Beijing tightened regulations on VPNs connecting China with overseas destinations. VPN establishes virtual point-to-point connections through the internet or public networks. Many foreign companies in China have used VPNs as a substitute for expensive dedicated lines to handle international communication. Data sent over VPNs is encrypted, enabling users to circumvent censors.

China has been wary of VPNs because many of its own citizens use them to access foreign news sites and post criticism of the state on overseas social media. Apple removed VPN apps for the iPhone from its Chinese App Store in July, and VPN apps for Chinese-brand smartphones are no longer available.

Most VPN apps are unavailable in China due to the internet crackdown.

Foreign companies are technically exempt from the crackdown, and a senior official at the Ministry of Industry and Information Technology has denied that foreign companies have been affected. This may have been true in the not so distant past. According to an executive at one of Japan's top three telecom providers, there were no reports of major communication disruptions -- until September. 

"Chinese authorities are disabling VPNs, which is causing the latest rash of troubles," the executive says. Hundreds of VPNs -- including illegal ones -- are said to still exist, but the government "plans to eradicate them by the first half of next year."

China's crackdown gained steam in September. Yahoo was shut down that month, depriving people of yet another search engine in a country where Google is banned. "We cannot do internet searches at all. We telephone colleagues in Japan and ask them to search for us," laments an employee at a Japanese autoparts maker in Guangdong. "They send us information by mail." 

It was also in late September when Facebook's "WhatsApp" messaging app was blocked. Regulators in Beijing and Guangdong on Sep. 25 slapped fines on three major internet operators - Baidu, Tencent Holdings and Sina Weibo -- for failing to ban certain content, such as that containing violence and pornography.

These moves were seen as security measures ahead of the twice-a-decade Communist Party National Congress in October. But the telecom executive believes the government is serious about tightening control. "The crackdown is extensive and not temporary. There's no way to resist."

Officials guarding Beijing’s Great Hall of People during the Communist Party National Congress in October

Ulterior motives

This raises the question as to what the government ultimately hopes to achieve by shutting down VPNs, the only secure way out of Chinese cyberspace. Is cutting off communication between China and the rest of the world the only goal?

The manager of an electronic parts trading house in Shenzhen decided in September to switch from a VPN to a dedicated line because the VPN restriction was seriously hurting his business. A dedicated line connecting the company's offices in China with Japan is believed to be secure and stable. "For a trading house that handles many items like us, an order-management system is a matter of life and death," the manager explains. "We couldn't do business without a stable line, so we had no choice." 

Installation was completed in November.

State-run telecoms such as China Telecom and China Unicom are pitching dedicated lines, touting higher transmission speeds that they say can make business more efficient. But there are obvious problems with this. Authorities can intercept communications or steal data from dedicated lines, warns a senior official at one of Japan's top three telecoms.

A senior Japanese telecom official warns of the risk of surveillance in China.

Japan's telecoms provide dedicated overseas lines, but need their foreign counterparts' cooperation. This applies all over the world. The telecoms are usually allowed to implement strict security measures for the lines they install.

But in China, it is different. The official explained: "Japanese and other foreign telecoms have to leave the final leg of the installation to their Chinese counterparts. Many Japanese businesses use dedicated lines because they sound safe. But there are risks."

Lost in cyberspace

A Japanese delegation from the Japan-China Economic Association visited China last month and expressed deep concern about the tighter internet restrictions, but all the Chinese did was call for more Japanese investment.

One of the delegates is worried that Beijing will steal any information it wants from Japan. "China seems determined to tighten control over the internet," the delegate says. "That's why the U.S. and Europe are investing less in China. It's time for Japan to think."

During a visit to China in November, a delegation from the Japan-China Economic Association expressed displeasure over how China’s internet crackdown is affecting foreign businesses.

With VPNs shut down, foreign companies are forced to use dedicated lines, essentially held hostage behind China's Great Firewall, where surveillance can only be felt, but not proved. "It's generally believed that internet communications are monitored, but no one knows for sure," one China watcher says. "[U.S. whistleblower] Edward Snowden divulged that the U.S. was intercepting communications. It's only natural to assume that China does the same." 

A Chinese head of a telecom equipment company in Guangdong shared a tip on evading surveillance. "When you want to exchange important information in China, the first thing you have to do is turn off your smartphone."

He waits three hours before going to a meeting place because even if GPS is disabled, antennas and security cameras can track him if his phone is on. "Then, when you meet your contact, don't stay put. Talk while walking. That's the safest way now."

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