Tea to Tech: China's Cyber-Security Push Sparks a 'Gold Rush'

Last November, the 49-year old entrepreneur, who has no technology background, strode into a Beijing ballroom to pitch his latest made-in-China product: SPGnux, a Linux-based operating system he says could replace Microsoft Corp's Windows.

"Information security is vital to the interests of China and the interests of the Chinese people," Zhang proclaimed as a marketing video flashed images of former U.S. National Security Agency contractor Edward Snowden on large monitors.

Snowden's disclosures in 2013 of U.S. cyber spying and security holes in American technology products have prompted China's government to accelerate a broad campaign to replace foreign technology with Chinese-developed systems.

And that has triggered a frenzy among state-affiliated software firms, investors and savvy businessmen - all hoping to capitalise on Silicon Valley's waning grip over China's $450 billion-a-year enterprise computing market.

Some of those who've entered the fray look better equipped to succeed than others.

When Hongqi, a software company that developed China's most successful operating system during the 2000s, but which has since struggled, put itself up for sale last year, bidders included a coal magnate, an aviation company and a food transport provider. It was eventually sold to a company with a background in household cleaning for just $6 million.

"We're in a new bubble because of Snowden," said He Weijia, a former director at Hongqi. "These bosses don't need that much money or expertise to get into the game, but the payoff can be potentially large."

International venture capitalists say China's start-ups are more attractive bets than before as Beijing is backing the enterprise computing sector much like it did Internet firms in the last decade.

"This is obviously an area that the government wants to develop or promote - how is this different from Baidu in 2003?" said a China-based partner of a Silicon Valley venture capital firm, referring to the Chinese search engine that debuted in New York a decade ago and is now worth $75 billion.

Viable or not?
With an unorthodox resume and a penchant for gold watches, Zhang is an unlikely beneficiary of the post-Snowden rush to push local technology - a race that also illustrates how the industry in China is often influenced by the political climate.

After the Snowden leaks, Microsoft said it would stop supporting Windows XP, leaving many computer systems potentially vulnerable to hackers. Incensed, Chinese leaders banned Windows 8 in retaliation, while antitrust regulators last year opened an investigation into Microsoft, focussing on its Windows and Office software sales practices.

Charlie Dai, a senior analyst at Forrester, said a few Chinese firms, including Shanghai-based Standard Software and Wuhan-based Deepin, both part-owned by or tied to the central government, have created viable operating systems for desktop PCs, but Chinese banks are wary of using local software on servers that process the most critical data.

Qiao Yong, a Standard Software vice president, said Chinese technology has matured, but it will take years before a big state agency like China's social security fund feels comfortable to transfer its servers to a local operating system.

The cyber security debate has helped raise the profile of China's Linux developers, Qiao said, but it's also been a distraction. "Some leaders think we can do this overnight, but it will take a very long time to reach a one-third market share, much less reach Microsoft's level."

Libido booster
Zhang says his Kunming-based Sipu Enterprise Group has rolled out more than 10 versions of SPGnux, including ones in English, Chinese and Arabic. Since the Snowden revelations the number of government offices using SPGnux has more than doubled to 1,600, and his company is profitable, he said, declining to detail financial or sales figures.

"No one believed in us because we started at zero," said Zhang, who employs more than 200 people working on SPGnux and counts Ni Guangnan, an influential member of China's Academy of Engineering and Lenovo Group's founding chief technology officer, as one of his firm's supporters.

Public records show Sipu's software has been purchased by agencies including China's State Oceanic Administration.

Aside from software, tea and furniture, Zhang said he has invested in films, runs an import-export business and sells powdered Maca, a Peruvian herbal supplement prized for its libido-boosting effects.

He said he is looking beyond China, too, and is courting customers in the Middle East and Southeast Asia, markets he believes also want an alternative to Microsoft.

"I don't think of products as having nationalities," he said, smiling. "I only follow market demand."

© Thomson Reuters 2015