SHANGHAI China's Ministry of Public Security and a cabinet-level research center are preparing to investigate IBM Corp, Oracle Corp and EMC Corp over security issues, the official Shanghai Securities News said on Friday.
The report follows revelations by former U.S. spy agency contractor Edward Snowden of widespread surveillance by the National Security Agency. It also comes as Beijing probes Western drugmakers over allegations of bribery and over-pricing.
Documents leaked by Snowden revealed that the NSA has had access to vast amounts of Internet data such as emails, chat rooms and video from companies including Facebook Inc and Google Inc, under a government program known as Prism.
"At present, thanks to their technological superiority, many of our core information technology systems are basically dominated by foreign hardware and software firms, but the Prism scandal implies security problems," the newspaper quoted an anonymous source as saying.
Officials with EMC, IBM and Oracle declined to comment.
China's Ministry of Public Security also declined to comment. The State Council's Development Research Centre, one of the groups reportedly involved, told Reuters they were not carrying out such an investigation.
China has been a focal point for the Snowden case since he stopped in Hong Kong en route to Moscow. He also claimed that the NSA hacked into critical network infrastructure at universities in China and in Hong Kong.
Daniel Castro, a senior analyst with the Information Technology & Information Foundation, said he was concerned that a Chinese government probe could result in demands for U.S. companies to provide authorities with the blueprints to their technology so that Beijing can screen them for potential security threats.
China, repeatedly accused by the United States of hacking, was given considerable ammunition by Snowden's allegations, which Beijing has used to point the finger at Washington for hypocrisy.
Chinese regulators and the police have begun a series of investigations in recent weeks into how foreign and domestic companies do business in the world's second-biggest economy.
"The Prism scandal certainly provides ample material for real concern," said Mark Natkin, managing director of Beijing-based market intelligence firm Marbridge Consulting.
"What the scandal has done is make it increasingly difficult to ascertain what is being done out of legitimate concern and what may be being done for any sort of political reasons," said Natkin.
Some experts have warned that Snowden's leaks could hurt the sales of U.S. technology companies in Asia and Europe, as reports of their complicity with NSA spying programs may lead foreign businesses and governments to purchase equipment and services from non-U.S. suppliers.
The foundation, a think tank, last week projected that U.S. cloud computing firms could lose $21.5 billion in sales over the next three years, eventually ceding 10 percent of the foreign market to European and Asian competitors.
A spokesperson for the Ministry of Industry and Information Technology (MIIT), which oversees China's IT industry, said it could not confirm anything because of the matter's sensitivity. Another MIIT official told Reuters they were unaware of the reported probe.
(Reporting by Pete Sweeney in Shanghai and Paul Carsten in Beijing. Additional reporting by Jim Finkle in Boston; Editing by Robert Birsel, Tiffany Wu and Leslie Gevirtz)