China is reportedly planning to ban all government offices and public institutions from using foreign software and computers in a move that could dent sales by US tech companies and increase tensions at a crucial moment in the trade war.
Beijing had ordered that all hardware and software be removed within three years, according to a report by the Financial Times. It cited brokerage firm China Securities as estimating that as many 30 million pieces of hardware would need to be replaced as a result.
China’s Ministry of Foreign Affairs and the State Council Information Office did not respond to requests for comment.
News of the order comes during a tense time for the larger US-China relationship. The two economic superpowers have been engaged in a trade war for nearly two years, locking horns over what observers say is a larger battle over who will control the technologies of the future. The next wave of US tariffs on Chinese goods is due to go into effect on Sunday unless officials can broker a preliminary trade deal this week.
The United States has this year dealt heavy blows to Chinese tech champions such as Huawei, cutting off their access to vital American suppliers. Washington cites national security concerns, allegations which Huawei and the other Chinese companies deny.
China has laid out broad ambitions to become a global tech champion in just a few years, a policy known as “Made in China 2025.” The clash with the United States may have accelerated Beijing’s timetable to wean the country off US technology, and become more self-reliant.
“My feeling is that China’s government entities are well on the way to being exclusively ‘national’ team anyway, and that most of the American stuff is in the private sector, unaffected by the ruling,” said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.
Still, a blanket ban on doing business with the Chinese government could hurt companies such as HP (HPQ), Dell (DELL) and Microsoft (MSFT).
The China Securities analysis cited by the FT said that the order had come from the Communist Party’s Central Office earlier this year, and that the hardware replacement would take place at a pace of 30% in 2020, 50% in 2021, and 20% in 2022, earning the policy a nickname — “3-5-2.”
Substituting hardware would be difficult enough, but replacing Microsoft or Apple (AAPL) software at such a scale could be an even bigger challenge given China’s software industry is relatively undeveloped. Huawei is finding out how hard life can be without access to Google (GOOGL)services for smartphones.
Some Chinese social media users said Chinese hardware maker Lenovo (LNVGF), already a major supplier to the government, could benefit from the reported initiative. But others were deeply skeptical.
“Has the policymaker of this directive been kicked in the head by a donkey?” one user who went by the handle Xiao Bai Ba wrote on Weibo. “We are absolutely becoming North Korea,” the user added, referring to the isolationist policies of that country.
Still others complained about Chinese hardware and software falling short of their US alternatives.
“My friend’s workplace has already switched to a Chinese-made database. The supplier said their product is a little bit slower than Oracle (ORCL)’s, about 20% slower. … But it’s so damned slow!” wrote a user who went by the handle Hengha Erjiang Zhou.
— Lily Lee and Laura He contributed to this report.