China has introduced new guidelines aimed at gradually replacing US processors and software with domestic alternatives in its government computers and servers.
The rules, which were unveiled on December 26 and are now being enforced, signal a significant shift away from reliance on overseas technologies.
According to the Financial Times, the guidelines mandate that government agencies above the township level include criteria requiring “safe and reliable” processors and operating systems when making purchases. This means that CPUs from American companies like Intel and AMD, as well as Microsoft Windows and foreign-made database software, will be replaced with homegrown options.
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The China Information Technology Security Evaluation Center has published a list of these “safe and reliable” products, which predominantly feature CPUs from Chinese companies such as Huawei and Phytium. These CPUs cover a range of architectures, including x86, Arm, and domestic designs.
China’s move to prioritize domestic products over foreign ones is part of its broader strategy outlined in the Made in China 2025 policy goals. This initiative aims to reduce the country’s reputation as the world’s factory and establish it as a global technology powerhouse in its own right.
The impact of these restrictions on US tech giants is significant. China represented Intel’s largest market last year, accounting for 27% of the company’s $54 billion in sales. Similarly, China generated $23 billion for AMD, representing 15% of its sales. While the restrictions will have less of an impact on Microsoft, which relies on China for about 1.5% of its revenues, they mark a notable shift in China’s procurement policies.
This move comes amid escalating tensions between Beijing and Washington, with the American government imposing restrictions on China’s ability to produce advanced chips. The ban on exporting advanced AI products from Nvidia to China is another recent development, prompting the creation of China-specific alternatives by the company.
In a parallel move, the US is also working to reduce its dependence on China and Taiwan for semiconductors through initiatives like the CHIPS Act. This legislation provides $52 billion in subsidies for companies to relocate manufacturing back to the US. Intel, for instance, was recently awarded the CHIPS Act’s largest sum to date: $8.5 billion in funding, along with $11 billion in loans and a 25% investment tax credit.
Apple and Huawei, major victims of the tech rivalry
China’s efforts to remove foreign CPUs and software from government buildings extend beyond American companies. In September, Apple’s shares experienced a 9% decline following news that China was expanding its ban on the use of iPhones in certain government offices, underscoring the broader trend of prioritizing domestic technology solutions.
The Cupertino giant has seen a significant decline in sales within China, a market that contributed $21 billion to Apple’s revenues in the fourth quarter, constituting 17 percent of its total sales. This figure represents a notable 13 percent drop compared to the previous year. Research firm Counterpoint reports that iPhone sales in the first six weeks of the current year also experienced a substantial 24 percent decrease compared to the same period last year.
Both Apple and Huawei have found themselves inadvertently caught in the crossfire of the US-China tech rivalry, impacting their growth in their markets. Apple’s challenges in China have been further compounded by various factors, including the Chinese government’s concerted effort to reduce the use of iPhones among state employees and the resurgence of Huawei as a domestic competitor. Despite facing US sanctions limiting its access primarily to the Chinese market, Huawei managed to launch a domestically developed smartphone capable of nearly 5G speeds, posing significant competition to Apple.
In light of these challenges, Tim Cook, Apple’s CEO, has emphasized the importance of China to the company’s operations.
“There’s no supply chain in the world that’s more critical to us than China,” Cook was quoted by China’s state-owned Global Times as saying.
Apple, which currently operates 57 stores in the greater China region, encompassing Hong Kong, Macau, and Taiwan, is seeking to expand its presence in the Chinese by upgrading its research center in Shanghai and establishing a new laboratory in Shenzhen.