In an effort to support local PC makers and software developers and lessen the impact of any potential future sanctions from Western governments, the Chinese government this week reiterated its order to replace foreign-branded PCs and programs in use. by government agencies and state-backed technology companies within two years.
Although replacing a Dell running Windows with a Lenovo running Linux seems tempting for Chinese companies, it seems that the country has failed to do so so far, but the renewed initiative seems to have more teeth. .
Replace all foreign PCs by mid-2024
Chinese central government authorities this week ordered government agencies and state-owned and state-supported enterprises to stop using foreign-branded computers and software within two years and replace them with hardware and locally developed software, reports Bloomberg. Eventually, the mandatory program will be extended to provincial governments and allow them a two-year transition period. The aggressive plan requires the replacement of at least 50 million PCs used by central government agencies alone, the report notes.
There are several reasons why the Chinese government wants the country to switch to local technologies. First, he wants to keep Chinese money in China and not see it directed to foreign companies. Second, having learned from Huawei’s lesson of repression, it wants to make sure it doesn’t rely on technology developed and built elsewhere. Specifically, technologies that may be banned from being imported into China. Third, it wants to strengthen the security of its agencies and business entities.
The vast majority of PCs sold worldwide are assembled in China, but they carry American or European origin marks. The Chinese government and state-owned enterprises also use Dell and HP computers made in China. Still, it seems Beijing only wants to see local brands — Lenovo, Inspur, Founder, Tsinghua Tongfang — in state offices and state-owned enterprise offices.
Being the largest PC manufacturer in the world, Lenovo can certainly produce enough computers to satisfy the demands of central and possibly local governments and state-owned and state-supported enterprises. Companies like Founder, Tsinghua Tongfang and Hasee can also increase their production. Local electronics manufacturing service (EMS) providers like Foxconn Technology will certainly be happy to help (and offset declining PC orders for China from brands like Dell and HP).
In fact, shares of Chinese PC makers have soared on many exchanges, no doubt buoyed by the impending massive orders from government agencies and state-owned enterprises over the next couple of years. It remains to be seen whether Chinese PC brands will start using locally developed processors more actively (the new order does not require them to do so). Still, bearing in mind that these chips can barely compete with hardware designed by AMD and Intel, that’s not really likely. Perhaps US-based CPU developers will lose some low-end CPU orders from Chinese PC makers to companies like Zhaoxin. However, given the increasing demand for high-end client and server processors in general, this will hardly affect them materially.
The biggest challenge
In general, building PCs with Chinese brands is not a problem for Chinese manufacturers. The biggest challenge — and one of the main reasons China still relies on foreign technology — is replacing American and European software with Chinese alternatives.
There are a number of Linux distributions developed in China, such as Red Flag Linux designed by Red Flag Software and Kylin developed by the National University of Defense Technology, which could potentially replace Windows and/or foreign Linux distributions for some users. There are also alternatives to Microsoft’s Office and other commonly used applications, such as Adobe’s Photoshop. Although the alternatives aren’t as comfortable to use as the originals, and in many cases are less capable than the originals, they can still get the job done (but not in all cases).
The problem is that there are many professional software applications that have been developed for decades that do not have alternatives with similar capabilities and features. Programs used for content creation, computer-aided design (CAD), electronic design automation, professional visualization (ProViz), video editing, video post-production and many other applications are virtually irreplaceable . This is why media and security companies have obtained special authorizations to buy foreign equipment.
Meanwhile, the Chinese government not only wants its own employees to switch to Chinese programs, but also demands that state-owned and state-supported companies stop using software from the United States and Europe.
State-backed companies, which are officially independent but receive direct or indirect support from central and local authorities, include entities such as Semiconductor Manufacturing International Co. (SMIC) and Tsinghua Unigroup, owner of YMTC, a NAND manufacturer. 3D. These companies not only use software from companies such as Microsoft and Synopsys in their offices, but also programs from American and European companies in their fabs. For companies like SMIC and YMTC, replacing foreign software with something developed in China will inevitably affect not only their ability to compete, but also their ability to actually operate. In fact, even blacklisted entities that cannot officially buy from US-based companies are still using software developed in America.
China has been trying, unsuccessfully, to reduce its dependence on foreign technologies for a few decades now. But, according to the Financial Times, the Chinese Communist Party has ordered all government offices and public institutions to get rid of foreign PCs and programs within three years of the end of 2019.
It appears that government agencies are not on track to meet this requirement by the end of 2022, which is why the central government is now issuing another order that essentially extends the switchover period until mid -2024. Even though even government agencies still use foreign technology, the government is now extending the requirement to switch to local computers and programs to state-owned and state-supported enterprises and provincial governments.
Hardware and software technologies developed in the United States and Europe have largely enabled China’s spectacular economic growth in recent decades. So switching to PCs with a Chinese label is not a big deal, but switching to poor software developed in Tianxia will inevitably impact the competitive abilities of Chinese state-owned and state-supported enterprises, which will affect economic growth. To that end, it is likely that most Chinese state-owned and state-backed companies will get permissions to continue buying foreign technology and support their growth.