China Floats Cloud Concession to Foreign Tech Firms in U.S. Trade Talks
Under the proposal, foreign providers would be allowed to own data centers as part of a pilot in a free-trade zone
BEIJING—China is offering foreign technology firms better access to the country’s fast-growing cloud-computing market, according to people briefed on the matter, as Beijing fashions a compromise in a tech sector the U.S. wants opened as part of a trade deal.
Premier Li Keqiang disclosed the proposal to allow trial operations for foreign cloud service providers at a Monday meeting with about three-dozen corporate chieftains, including those from IBM Corp. , Pfizer Inc., Rio Tinto PLC, BMW AG and Daimler AG . The plan is part of a package of offers on technology-related issues Chinese negotiators are expected to discuss with their U.S. counterparts during high-level meetings scheduled for Friday, the people said.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, who arrived in Beijing on Thursday, are to hold the new round of talks with Chinese Vice Premier Liu He to try to close a deal to end the yearlong trade dispute between the world’s two largest economies. Next week, a Beijing delegation headed by Mr. Liu will continue the talks in Washington.
The two sides are aiming for a package deal that includes substantial increases in U.S. exports to China, and Chinese pledges to address some long-running structural issues, such as allowing greater market access to American companies and boosting protection of intellectual property. Important issues still to resolve include how to enforce a deal and the pace at which the U.S. and China will roll back the tariffs on hundreds of billions of dollars in goods imposed in the past year.
Chinese Commerce Ministry spokesman Gao Feng told reporters Thursday that while some progress has been made, “much work remains to be accomplished.”
In the seesawing negotiations, the U.S. team led by Mr. Lighthizer has been pressuring Beijing to relax its restrictions on U.S. providers of cloud-computing and other high-tech services and on the flow of data across its borders—areas of concern to American businesses. Until recently, China has refused to budge on issues related to cloud computing, citing national-security reasons, and has a stringent cybersecurity law in place.
Increasingly, as negotiations enter their final stages, Beijing is starting to give ground on issues Washington sees as crucial.
Earlier this month, for instance, China’s national legislature passed a foreign-investment law. The proposed law had been delayed for three years until President Trump’s trade offensive spurred Beijing to act. The law bans officials from divulging corporate secrets, threatening criminal prosecution for doing so. Previously, Chinese officials denied that the government forces U.S. firms to transfer technology to their Chinese partners.
On cloud computing, China requires U.S. providers such as Amazon.com Inc. and Microsoft Corp. to form joint operations with Chinese companies and license their technology to the Chinese partners. U.S. officials have said Beijing withholds licenses that would allow U.S. firms to operate independently in China. As a result, U.S. companies can’t market their cloud-computing services in China or sign up customers directly. Chinese firms, such as Alibaba Group Holding Ltd. , by comparison, are allowed to operate in the U.S. without restriction.
Cloud-computing firms deliver computer services, including storage, software and analytics, over the internet, a service considered one of the most promising, high growth parts of the tech industry.
In response to a question about cloud computing from IBM Chief Executive Ginni Rometty during Monday’s meeting, Premier Li said Beijing is considering a “liberalization pilot” in a free-trade zone to open cloud computing to foreign companies, according to the people briefed on the matter. A key hurdle foreign providers of cloud services need to overcome, Mr. Li said, is to offer adequate “privacy protection” to their Chinese customers.
Under the cloud proposal, foreign providers would be allowed to own data centers in the free trade zone. The most likely one is in the southern city of Guiyang that’s a center for big data, people with knowledge of China’s plans said.
Key questions remain: Would China allow free flow of data from the operations in the zone to the rest of the country? What kind of data services can foreign firms setting up data operations in the zone provide? What kind of customers can they offer such services to?
“It shows that, at the minimum, they get the idea that they’ll have to show some movement in this area and they can’t stonewall the U.S. completely on this,” said Paul Triolo, an analyst specializing in global technology policy at Eurasia Group, a New York-based consulting firm. “But the devil is in the details.”
The pilot proposal, which would still allow the government to keep control of the sector, is also likely to be met with skepticism in Washington that China is moving too slowly to make any meaningful changes to what it sees as Beijing’s unfair trade practices. But Beijing officials argue China has traditionally experimented with reforms in pilot zones before ultimately implementing them nationwide.
The cloud proposal “fits China’s habit of making discretionary, piecemeal adjustments rather than outright liberalization,” said Scott Kennedy, a China expert at the Center for Strategic and International Studies, a Washington think tank.
Premier Li told the business leaders the cloud proposal is part of China’s effort to narrow the list of sectors that are off-limits for foreign investment. A revision of the so-called negative list will be done by June, he told the top foreign executives.
Separately, in a speech Thursday at a conference of global business executives and political leaders on China’s southern island of Hainan, Mr. Li pledged to invite foreign capital into more areas of the Chinese economy, including education services, medical institutions, transportation, infrastructure and energy.
He also promised a new patent law being revised will impose “unaffordable costs” for infringing on intellectual property.
Trade negotiations between Washington and Beijing have been through ups and downs in recent months. Having shown progress early this year, the talks hit a snag in February. Soon after Mr. Trump abruptly broke off nuclear-disarmament talks with North Korean leader Kim Jong Un, Chinese leaders were unnerved about meeting the same fate at a summit to sign a trade deal. Then, earlier this month, the two sides decided to resume high-level in-person meetings as both capitals try to wrap up the talks possibly by the end of April.