China to replace all foreign computers in government
China Orders Government, State Firms to Dump Foreign PCs
(Bloomberg) -- China has ordered central government agencies and state-backed corporations to replace foreign-branded personal computers with domestic alternatives within two years, marking one of Beijing’s most aggressive efforts so far to eradicate key overseas technology from within its most sensitive organs.
Staff were asked after the week-long May break to turn in foreign PCs for home-made alternatives that run on operating software developed domestically, people familiar with the plan said. The exercise, which was mandated by central government authorities, is likely to eventually replace at least 50 million PCs on a central-government level alone, they said, asking to remain anonymous discussing a sensitive matter.
The decision advances China’s decade-long campaign to replace imported technology with local alternatives, a sweeping effort that covers everything from semiconductors to networking gear and phones. It’s likely to directly affect sales by HP Inc. and Dell Technologies Inc., the country’s biggest PC brands after local champion Lenovo Group Ltd.
Lenovo erased losses to climb as much as 5% on Friday morning in Hong Kong, while software developer Kingsoft Corp. also recouped its earlier decline to gain 3.3%. On mainland Chinese exchanges, Inspur Electronic Information Industry Co., a Chinese server maker, gained 6% while peer Dawning Information Industry Co. jumped more than 4%.
The replacement effort reflects Beijing’s growing concerns around information security as well as a confidence in homegrown hardware: the world’s biggest laptop and server makers today include Lenovo, Huawei Technologies Co. and Inspur Ltd., while local developers such as Kingsoft and Standard Software have made rapid strides in office software against the likes of Microsoft Corp. and Adobe Inc.
The campaign will be extended to provincial governments later and also abide by the two-year timeframe, the people said. The Ministry of Industry and Information Technology and State Council Information Office didn’t respond to faxed requests for comment.
Read more: Secretive Chinese Committee Draws Up List to Replace U.S. Tech
China has been encouraging use of home-made IT products in government agencies for at least a decade, regularly barring certain products from government procurement lists. In response, U.S. IT giants such as Hewlett Packard Enterprise Co. and Microsoft have set up joint ventures with firms backed by the Chinese government, to secure orders from the richest state-owned companies.
That process has long been dogged by inadequacies in Chinese-developed software and circuitry, forcing users to rely on imported equipment. That changed in recent years, as local champions such as Inspur and Lenovo gained global market share, though their products still rely on cutting-edge American components such as processors from Intel Corp. or Advanced Micro Devices Inc. As of Friday, HP-branded machines were still available for purchase on a website used by central government procurement bodies, though it’s unclear if transactions would go through.
The latest central government directive is likely to cover only PC brands and software, and exclude hard-to-replace components such as processors from Intel and AMD, the people said. China will mostly encourage Linux-based operating systems to replace Microsoft’s Windows. Shanghai-based Standard Software is one of the top providers of such tools, one person said.
Certain agencies, including state-owned media and cybersecurity bodies, may continue to buy advanced foreign equipment under special permits as they always have, one of the people said. That permit system could be tightened in future, the person said.
How Huawei Landed at the Center of Global Tech Tussle: QuickTake
Secretive Chinese
Committee Draws
Up List to Replace
US Tech
- Committee of 1,800 firms will certify trusted technologies
- U.S. blacklisting of Chinese giants adds urgency to effort
China is accelerating plans to replace American and foreign technology, quietly empowering a secretive government-backed organization to vet and approve local suppliers in sensitive areas from cloud to semiconductors, people familiar with the matter said.
Formed in 2016 to advise the government, the Information Technology Application Innovation Working Committee has now been entrusted by Beijing to help set industry standards and train personnel to operate trusted software. The quasi-government body will devise and execute the so-called “IT Application Innovation” plan, better known as Xinchuang in Chinese. It will choose from a basket of suppliers vetted under the plan to provide technology for sensitive sectors from banking to data centers storing government data, a market that could be worth $125 billion by 2025.
So far, 1,800 Chinese suppliers of PCs, chips, networking and software have been invited to join the committee, the people said, asking not to be identified discussing private information. The organization has so far certified hundreds of local companies this year as committee members, the fastest pace in years, one of the people said.
The existence of the Xinchuang white-list, whose members and over-arching goals haven’t been previously reported, is likely to inflame tensions just as Presidents Joe Biden and Xi Jinping wrapped up their first face-to-face virtual summit. It gives Beijing more leverage to replace foreign tech firms in sensitive sectors and quickens a push to help local champions achieve tech self-sufficiency and overcome sanctions first imposed by the Trump administration in fields like networking and chips.
“China is trying to develop homegrown technologies,” said Dan Wang, technology analyst at Gavekal Dragonomics. “This effort is more serious now that many more domestic firms now share that political goal, since no one can be sure that U.S. technologies can avoid U.S. export controls.”
Read more: Huawei Recruits Smartphone Partners to Sidestep U.S. Sanctions
The push to replace foreign suppliers is part of a broader effort by Beijing to exert control over its sprawling technology industry, including over data security. Already, the government has forced overseas cloud providers such as Amazon Web Services and Microsoft Corp. to set up joint ventures to operate on the mainland. Apple Inc. has also yielded its user data storage business to a government-backed operator in Guizhou. The grip is set to tighten, as the tech industry ministry gains more oversight of industrial and telecom data and proposes new rules that will require crucial data to be stored inside the country.
While few details have been revealed about the Xinchuang committee or its members, any companies that are more than 25% foreign-owned will be excluded from the panel, shutting out overseas suppliers including Intel Corp. and Microsoft. Chinese tech startups that are primarily funded by foreign investment will also face a higher bar, though Alibaba Group Holding Ltd. and Tencent Holdings Ltd., the country’s two largest providers of cloud services, have managed to circumvent those rules by applying for membership through locally incorporated subsidiaries, the people said.
“U.S. choke-hold policies, exemplified by the Entity List, were the direct catalyst that pushed China to build the Xinchuang sector,” Shanghai-based research firm iResearch said in a report in July. “The blacklisting underlined the urgency for China to invest more in technology innovation and have the key technologies made in China.”
Blacklists, Trade and More U.S.-China Flashpoints: QuickTake
The Ministry of Industry and Information Technology and the China Electronics Standardization Association, which oversees the committee, didn’t respond to requests for comment. Alibaba representatives didn’t immediately respond to a written request seeking comment. A Tencent spokesperson declined to comment.
The committee had 1,160 members in July 2020, according to Netis, a cloud company that claimed it passed a complex review process. Other prominent companies include Beijing-based CPU maker Loongson, server maker Inspur and operating systems developer Standard Software. Westone, an information security company that could potentially be tasked by Beijing to take over Didi Global Inc.’s data management, is also a member.
| CHINA’S CHAMPIONS | OVERSEAS COUNTERPARTS |
|---|---|
| Huawei | Ericsson, Nokia |
| Inspur | Intel, HP, Dell |
| Loongson | Intel, AMD |
| Alibaba, Tencent | AWS, Azure |
| Qi An Xin | FireEye, Palo Alto Networks |
Membership on the panel could give local suppliers a key advantage in having their technology approved under the Xinchuang plan, thus unlocking a billion-dollar market. Xinchuang-related business generated 162 billion yuan ($25 billion) in sales last year and is on track to reach nearly 800 billion yuan by 2025, according to a report co-authored by the China Software Industry Association.
“In every sector of the Xinchuang industry, there’s a significant imbalance between supply and demand,” it said. “Suppliers need to press the gas pedal to the floor in order to meet the demand.”
In September, the Xinhua-backed Economic Information Daily newspaper listed 40 top performers of the Xinchuang project, which included Huawei Technologies Co., Alibaba’s cloud unit and network security company Qi An Xin Technology Group Inc. In an April list of 70 model cases in the Xinchuang industry, the Ministry of Industry and Information Technology praised Alibaba’s “100% self-developed” cloud platform for “providing a safe, trustworthy digital infrastructure for all levels of governments.”
Communist Party entities, the government and military will be the first to adopt Xinchuang products, followed by financial and state-owned companies, according to iResearch.
“Xinchuang can’t be built in one day, it’s a long-term strategy that helps China grow its own IT technologies,” the report said.
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