Is the Chinese Government Spying on Skype Users in China?

By Sterling Wong  MAR 08, 2013 3:06 PM

Sohu and Alibaba also make the news.

 


China Watch: Top Business News From the World's Second Largest Economy

Smartphone shipments in China are projected to jump to 460 million by 2017, said research firm IDC.
 
Currently, smartphones make up some 58% of all handsets sold in the mainland, which has more than 1 billion mobile subscribers. The figure is forecast to rise to 78.4% by the end of 2013, and a dominant 90.1% by 2017, according to IDC.
 
Chinese wireless customers are making the switch to smartphones thanks to falling prices. Reuters reported that smartphones now go for as low as less than 1,000 yuan ($160) in the mainland. Typically, it is domestic companies like ZTE (SHE:000063) and Huawei (SHE:002502) that produce these cheap smartphones.
 
According to IDC’s analysis, Android (NASDAQ:GOOG) will continue to be the leading smartphone platform through 2017, with Apple (NASDAQ:AAPL) a distant second. The firm expects Windows (NASDAQ:MSFT) to grow its share in the next four years to become third in the China market. As of the end of 2012, Android represented 86.4% of China’s smartphone market, with Apple’s iOS holding an 8.6% stake.
 
Here is the week’s business news.

 
Microsoft

Skype’s chat service is being used by the Chinese government to spy on its citizens, according to research done by University of New Mexico computer-science graduate student Jeffrey Knockel.
 
Businessweek reported that Knockel found that the Skype program in China scans chat messages for specific words and phrases, such as “Tiananmen” and “Amnesty International.” When these words appear, the entire message is sent to Skype servers in China, along with “the account's username, time and date of transmission, and whether the message was sent or received by the user.” Knockel could not determine what was done with the information at the server, but it is more than likely that it would be sent to the Chinese authorities.
 
Due to Chinese regulations, Microsoft operates Skype in China through a joint venture with local firm TOM Online. The Redmond, Washington-based company had no comment on the possible surveillance of its TOM-Skype service.
 
According to Knockel, who received an A+ grade for his work on this project, many other Chinese chat services also spy on their users, including Baidu (NASDAQ:BIDU) Hi, Sina (NASDAQ:SINA) UC, and Tencent’s (HKG:0700) QQ.

Sohu.com

Speculation that Sohu (NASDAQ:SOHU) might de-list from the Nasdaq (INDEXNASDAQ:.IXIC) arose after a report from the South China Morning Post this week said that the online media company was in talks with investment banks, including Credit Suisse (NYSE:CS) and private equity buyers to take the firm private.
 
The chief source of discontent of, according to an anonymous source the Post spoke to, Sohu CEO Charles Zhang believed that Sohu “is significantly undervalued at present in terms of share price performance.” Sohu is currently trading around $44 a share, which gives it a market capitalization of some $1.7 billion.
 
Sohu, however, quickly killed off the speculation, and released a press release that said it "is not talking to investment banks and private equity funds about a possible plan to take the company private and/or delist its common stock from the NASDAQ Global Select Market. No such discussions are in progress or currently contemplated."
 
A wave of Chinese companies, including Shanda Interactive (NASDAQ:SNDA) and Focus Media (NASDAQ:FMCN), have de-listed from US exchanges in recent years due to poor stock performances and accusations of accounting irregularities.
 
Alibaba

China’s largest e-commerce company, Alibaba Group (HKG:1688), is weighing a public offering on the Nasdaq, reported the South China Morning Post.
 
The Post quoted two insider sources who said that Alibaba executives had met with a Nasdaq representative in Hong Kong this week to discuss listing in the US. Previously, it had been speculated that Alibaba would choose Hong Kong for its listing. The firm’s Alibaba.com unit was listed on the Hong Kong before being taken private last June.
 
With an estimated valuation is currently $40 billion, Alibaba could be the biggest tech IPO ever, and would represent a big coup for either the Nasdaq or the Hong Kong Stock Exchange.
 
Alibaba’s e-commerce business includes China’s largest business-to-consumer, and business-to-business platforms, and it generates revenue through online advertising and subscription fees.

Twitter: @sterlingwong
No positions in stocks mentioned.

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