China is set to manufacture its own secure smartphones in a bid to keep off its handsets from U.S. surveillance, the Wall Street Journal reported.
The decision was part of China's latest effort to cut out U.S. suppliers and build a home-grown tech industry through state-owned companies and some of the country's technology firms.
Chinese officials have been bothered by the dominance of U.S. companies in smartphone operating systems and processors, which are the handset parts most vulnerable to hacking. In China, almost all handsets are either iPhones made by Apple Inc. or are powered by Google's Android operating system.
The report said that China could do nothing because of its lagging technology. Last year, after being criticized for using an iPhone, First Lady Peng Liyuan switched to a Chinese-made smartphone, the ZTE Nubia Z5, which ran on Android and included a Qualcomm Inc. processor.
According to the report, the government is encouraging many Chinese tech companies to make progress in cutting the cords to Western technology, following revelations from former U.S. National Security Agency contractor Edward Snowden in 2013 that the NSA had placed surveillance "back doors" in some U.S. gadgets sold overseas.
A spokesman for Chinese smartphone maker ZTE Corp. said that they are working on a secure smartphone for government agencies using an operating system developed in-house, and a processor chip supplied by a Chinese firm. Spreadtrum Communications Inc., the country's largest chip-design company, also said that they will be producing a set of chips that run a Chinese operating system by year-end.
The report added that Alibaba Group Holding Ltd. also joined China's Ministry of Public Security to develop a mobile operating system for police officers, which it said is more secure.
According to the Wall Street Journal, the efforts are aimed at government agencies and state-owned firms and the trend will not have much impact on the market share of U.S. mobile components and software in China.
Analyst James Yan of market research firm IDC estimated that secure phones would only make 3 percent of China's smartphone sales next year, or about 2 million units. He, however, said that if more made-in-China operating systems and processors would be used in consumer handsets, it could potentially affect Google's Android and Qualcomm's sales.
The report said that some U.S. tech firms are already feeling the effects as International Business Machines Corp. and Cisco Systems Inc. have experienced sales declines. This was because some government agencies and state-owned enterprises in China now buy more from domestic counterparts such as Chinese server maker Inspur Group Co. and telecommunications gear supplier Huawei Technologies Co.
Chinese banks have begun to buy more domestic smartphone brands. China had wanted financial institutions to purchase 50 percent of new smartphones and meet "secure and controllable" standards, according to a copy of the suspended rules reviewed by the Wall Street Journal.
The report added that China's effort to build home-grown secure handsets has economic benefits since the crucial components that are vital to security are also some of the most profitable. However, even with Chinese-made processors, modems and operating systems, Chinese secure phones will still have several foreign components, though less-sensitive ones.