China has intensified its efforts to substitute Western-made technology with homegrown alternatives, as per government tenders, research documents, and insights from industry insiders, according to Reuters.
A review of government, military, and state-linked entity tenders reveals an expedited shift towards domestic substitution since last year. China has notably ramped up investments in replacing computer equipment, with the telecom and financial sectors earmarked as potential next focuses. State-backed researchers have flagged digital payments as susceptible to potential Western cyber attacks, hence prioritizing the indigenization of such technology.
A finance ministry database disclosed that the number of tenders from state-owned enterprises (SOEs), government bodies, and military outfits for nationalizing equipment has surged from 119 to 235 in the 12 months succeeding September 2022. This period also saw the value of awarded projects in the database leap to 156.9 million yuan, a more than threefold increase from the previous year. Although this database represents merely a fraction of nationwide tender bids, it is indicative of the larger trend corroborated by third-party data. In 2022, China invested a staggering 1.4 trillion yuan ($191 billion) in replacing foreign hardware and software, marking a 16.2% year-on-year increase, according to IT research firm First New Voice.
Nevertheless, analysts point out that Beijing's lack of advanced chip-manufacturing capabilities is a bottleneck in its quest for complete technological self-sufficiency.
"Previous domestic substitution efforts stalled because China did not have the 'technical chops to pull off localization until now, and to a certain extent they still kind of don't," opined Kendra Schaefer, head of tech policy research at Beijing-based consultancy Trivium China.
Adding to the narrative, brokerage firms cited a September 2022 order from China's state asset regulator instructing SOEs to transition their office software systems to domestic products by 2027.
Recent tenders indicate a focus on securing sensitive infrastructure, such as the intelligence-gathering system of a certain government department in Gansu province. Military units in Harbin and Xiamen have also floated tenders for replacing foreign-made computers.
"China's government is increasingly concerned about Western equipment being hacked by foreign powers," said Mo Jianlei of the Chinese Academy of Sciences.
The U.S. Treasury posits that since China has not signed World Trade Organization clauses governing public procurement, these substitution efforts are not in violation of international accords. The U.S. has enacted similar rules barring Chinese companies from public sector bids.
The replacement drive has reshaped the landscape of the software industry in China. Huawei has emerged as a key player, with its enterprise business reporting sales of 133 billion yuan in 2022, a 30% year-on-year increase. The firm's comprehensive product suite and cybersecurity offerings make it a preferred choice for clients.
Despite significant strides in domestic substitution, foreign firms continue to dominate the banking and telecoms database management sectors, with non-Chinese companies holding 90% of the market share for banking database systems at the end of 2022, as per tech consultancy EqualOcean.
Financial institutions remain cautious about switching database systems due to higher stability requirements, something local players are yet to fully meet. Furthermore, even a transition to China's leading PC supplier, Lenovo, would still entail reliance on critical chip components from Western firms, as pointed out by industry sources.
