NSA Spying Scandal Dents US Business Prospects in China

The US National Security Agency's (NSA) spying scandal could have a deep impact on US business prospects in China, where security concerns threaten to weigh down on the demand for American products.

China is concerned that the NSA's surveillance practices, including its clandestine data mining programme, could undercut its own companies. Beijing could apply pressure on domestic firms to reduce their dependency on US products, according to reports by Fox News.

Leading technology companies such as IBM and Cisco have already reported a drop in sales to China.

Technology is the leading edge of the American economy, which was driven by exports during the recession.

Any problems faced by the tech sector could potentially spill over into the other sectors, impacting exports and the US economic recovery.

The Chinese are not sure about buying goods from US firms "as they fear the [NSA's] spying will undermine their own companies. A survey pointed out that overseas customers could probably cancel some of their contracts with US cloud providers by 10%," the network reported.

"If technology firms can't sell then it could be a big problem [for the US]," it said.

"The [Chinese] government's signal is pretty clear - they want to rely less on US products, such as IOE (IBM, Oracle and EMC Corp)," an unnamed former China-based telecommunications executive told Reuters.

On 14 November, US technology giant Cisco Systems said the NSA spying scandal had dented its revenues from emerging markets such as China.

Cisco's sales to China have fallen by 18%. The Silicon Valley company said its revenues would fall by 10% in the ongoing quarter, and that the drag would continue beyond the middle of 2014.

Earlier, IBM reported a 22% drop in China revenue, which resulted in a 4% decline in its third-quarter profit.

Several US firms, including Apple, manufacture in China because it is cost-effective to do so.

Political Row over Tech Equipment

The Chinese government's official Shanghai Securities News earlier reported that the Ministry of Public Security and a cabinet-level research centre are preparing to investigate Cisco's rivals IBM, Oracle and EMC following revelations that the NSA hacked critical network systems at certain universities in China and Hong Kong.

The scandal also hit Cisco's revenues from other emerging markets, including Brazil, Mexico and India, which were spied on by the NSA. However Cisco CFO Frank Calderoni said its China business suffered the most from the political issue.