China’s IBM Scrutiny Highlights High Stakes in Spy Games

International espionage is often referred to as “The Great Game,” but these days it’s more like “The Great Video Game.”

It all started with the U.S. indictment of five Chinese military officers for allegedly hacking into American companies’ computers and swiping secrets. Now, China’s government plans to vet technology companies operating in the country and is looking at whether security is at risk for banks that use International Business Machines Corp. servers, according to four people familiar with the matter who asked not to be identified because the review hasn’t been made public.

In this high-level match of Spy Vs. Spy accusations and rhetoric between the governments, the stakes are potentially huge for the companies that have spent decades forging delicate business relationships between the world’s two biggest economies.

Consider the case of the largest U.S. company. Apple Inc.’s sales in Greater China totaled $9.3 billion, or 20 percent of its revenue, in the last quarter. Bloomberg supply chain data show Apple has disclosed an estimated nine corporate customers and 62 suppliers based in China. Also consider the ambitions of smaller companies: Kate Spade & Co. opened two stores in China in the first quarter, a quarter of its net new locations. Inc., proud owner of a $600 million cloud-computing contract with the Central Intelligence Agency, has disclosed corporate relationships with 17 suppliers and 11 customers based in China.

Customers, Suppliers

Among the Standard & Poor’s 500 Index companies with the top 20 disclosed sales in the Asia-Pacific region, it’s perhaps not surprising that they’ve forged more relationships with suppliers than with corporate customers in China. The ratio is about four to three, according to Bloomberg estimates.

IBM is one of the exceptions. Big Blue has disclosed relationships with 28 suppliers and 36 customers based in China, according to Bloomberg’s supply chain data.

China International Travel Service Corp., iSoftStone Holdings Ltd. and Chinasoft International Ltd. each rely on IBM for about 2.6 percent of their revenue, according to the estimates. On the other hand, the data show IBM’s biggest disclosed corporate customer in China, Futong Technology Development Holdings Ltd., accounts for only 0.01 percent of IBM’s sales.

There are even more pronounced examples of companies with more customers than suppliers: Oracle Corp. has disclosed 20 customers and five suppliers in China; Cisco Systems Inc. has three times as many; and Dow Chemical Co. has more than twice as many.

One important caveat to consider when looking at this data is that companies do not disclose every relationship they have in the supply chain.

That’s most likely for strategic reasons. After all, there are spies everywhere.

Before it's here, it's on the Bloomberg Terminal.