In order for their products to be made or sold in China, all companies will have to reveal their source codes, which are essentially the products’ blueprints, and allow Chinese government official to visit them and check their products.
According to Business Week magazine, Weysan Dun, special agent in charge of the FBI's Newark field office, estimates that the number of federal investigations into Chinese economic espionage has increased 10 percent since 2001 and that a significant number of the FBI’s espionage investigations are linked to Chinese government agencies, research institutes or businesses.
U.S. software companies and filmmakers have been trying to curb the illegal duplication, distribution and outright theft of their products in China for decades.
Furthermore, according to a report dated January 26, 2009, a WTO panel found that a number of deficiencies in China's IPR (Intellectual Property Rights) are incompatible with International Copyright law and its WTO obligations. The WTO therefore recommended that China bring its Copyright Law and its Customs measures into conformity with its obligations under the agreements it signed.
China, meanwhile, is taking a different approach. According to the Japanese newspaper Yomiuri Shimbun (読売新聞), China is about to put the squeeze on foreign firms and IT companies to reveal product secrets. The requirement will apply to all companies whose products are made or sold in China.
After the plan was introduced, Japan, European countries and the United States strongly opposed the system and have urged the Chinese government to abandon the idea because it would make it easier for foreign companies intellectual property to be passed on to Chinese competitors.
The system will require foreign companies to disclose the source codes, which are essentially the products’ blueprints, for their products in a bid to rein in their information technology products made or sold in China.
Under the planned system, a Chinese government official would visit companies to check their products.
If a company refuses to have its products inspected, those products will not be allowed to be manufactured or sold in China. No developed nation has this kind of system.
Beijing cited prevention of computer viruses, among other reasons for launching the system.
However, source codes, can be used to crack ciphered information as used in IC cards, ATMs and other high-tech products. This could potentially lead to companies being financially compromised and leakages of state secrets. Software makers fear this requirement could allow other software builders to steal industrial secrets and, in the worse-case scenario, allow hackers to penetrate their security shields.
A grace period likely will be set to allow companies to prepare necessary documentation for the Chinese government, but it is not yet known how long this period will last.
After obtaining details of the system, it is expected that the governments that oppose it will likely point out problems and demand that Beijing revise or abandon it.