The Financial Times reported that the Communist Party of China ordered all state offices to get rid of foreign hardware as well as software within three years in a move that would hit major tech giants of the United States, including HP, Microsoft, and Dell. The policy of the government dubbed as “3-5-2” because the technology replacement will happen at a pace of thirty percent in 2020, fifty percent in 2021, and twenty percent in 2022, according to the newspaper. The estimation of the analyst states that twenty million to thirty million pieces of foreign tech equipment need to replace in China.
China Securities states that the Central Office of the Chinese Communist Party issued the order earlier this year. Two cybersecurity companies told FT that the directive is not public, and the clients of their government described the policy to them. In contact of the journalist with the Chinese Securities for the request to comment, they declined to respond. In the meantime, the Ministry of Industry & Information Technology of China was also not available for giving their remarks on the contact of a media agency. Moreover, HP, Dell, and Microsoft didn’t respond immediately to the request of CNBC for comment after their business hours.
Head of the tech, telecommunications research, and media at Mirabaud Securities, Neil Campling said the move by the government of China intends to protect against tension upsurge with the United States. Campling says that it is something that China is seeking to certify operations of the government not affected by rising tensions with the United States.
Impact of Trade War between the United States and China
The move of Beijing comes against the background of the prolong the United States and China trade dispute in which tech has been front & center. The technology firms of China have been the main target if the United States pressure. Prior this year, the government of the United States put Huawei on its blacklist termed as entity list. And this list stopped the firms of America from doing business with the telecom giant of China. In October, Washington extended its blacklist to include several Chinese surveillance companies such as Hikvision, one of the most prominent companies in the world in this field. A provision of a United States law recognized as National Defense Authorization Act also forbids policymaking government agencies from acquiring telecommunications hardware manufactured by Huawei and another Chinese telecommunication firm ZTE.
Latest Move of China against the U.S. tech firms
The latest policy of China may be taken as one of the straight moves against the United States tech firms during the ongoing trade war. Whereas government offices of China frequently use China-made PCs, for example, Lenovo, they run Windows software of Microsoft and may also use hardware from HP and Dell. According to a global trade lead at The Economist Intelligence Unit (EIU), Nick Marro, the impact of the trade talks will depend on how the United States digests the move of China.
He told CNBC that discrimination against external tech has a part of the framework of policy in China for the past many years now, whereas it’s something that United States Trade Representatives (USTR) is already familiar with. It might still obscure the discussions around ZTE, Huawei, and other firms in terms of their access to the market of the United States. Major of the famous narrative centered around the United States discriminatory banning these tech companies of China from its market; at least with this division, the officials can openly play the blame game of ‘well, China also doing it, and they have been doing it previously. China blocked the United States firms such as Facebook and Google to operate in China for several years.
Broader Risk after China’s latest move
The directive of China to remove foreign tech, including hardware and software from state offices, may not be straightforward. However, a tech company like Chinese Lenovo uses chips from U.S. supplier Intel. And China does not really have a home-based alternative to Windows of Microsoft. Earlier this year, Huawei released its own operating system and named it HarmonyOS, but it’s not clear whether it might be appropriate for government use or not. Whereas, the move of China might also see as part of its wider push to prevent itself from U.S. tech, try to get closer to in the sectors such as semiconductors, and even take the lead in industries like artificial intelligence (AI).
Campling of Mirabaud said that the United States firms implicated in the move of China would face limited effect mostly because it relates to the offices of the government and not consumers. Though, there’s a fear that it could be a prelude to a broader backlash against the consumer tech of America that would hurt the firms of the United States much more. The broader risk if the consumer of China feels threatened by IR and the issues. Without any doubt, if it moves onto a consumer level, there might be concerns into firms like Apple, which is primary in terms of the United States brands.