November 18, 2021
China is furthering its protectionist goals by accelerating a plan to replace non-native technology with local suppliers. Reports surfaced this week that Beijing’s Information Technology Application Innovation Working Committee (ITAIWC) will be vetting and approving everything from cloud services to semiconductors for sensitive sectors like banking and government data centers, a market projected to be worth $125 billion by 2025. The secretive, government-backed committee formed under Xi Jinping in 2016 will also have a decisive role in setting industry standards and training personnel to operate approved hardware and software.
Described as a “quasi-government” body, the ITAIWC is charged with crafting and executing the country’s IT Application Innovation Plan (Xinchuang, in Chinese). To date, some 1,800 Chinese suppliers of PCs, processors, networking equipment and software have been invited to join the ITAIWC, according to Bloomberg, which reports that “hundreds” have already been certified.
Companies with more than 25 percent foreign ownership are excluded from the committee’s whitelist, leaving U.S. firms such as Intel and Microsoft in the cold. The move is seen by some as China’s response to U.S. hardline policies including the Department of Commerce’s Entity List, restricting transactions from countries whose interests in areas including human rights run counter to those of America.
The development “is likely to inflame tensions just as Presidents Joe Biden and Xi Jinping wrapped up their first face-to-face virtual summit,” Bloomberg notes, explaining Beijing now has “more leverage to replace foreign tech firms in sensitive sectors and quickens a push to help local champions achieve tech self-sufficiency and overcome sanctions first imposed by the Trump administration in fields like networking and chips.”
Chinese tech startups with substantial foreign funding will also face scrutiny, although the country’s two locally based cloud giants — Alibaba Group and Tencent Holdings — seem to have circumvented the rules by applying for ITAIWC membership via Chinese subsidiaries.
As the battle heats up, China’s government has already forced Amazon Web Services and Microsoft to set up cloud service joint ventures in order to operate on the mainland. Likewise, Apple has surrendered user data storage business to a government-backed operator in Guizhou, Bloomberg writes. The Xinchuang seems intent on seeing critical data stored only inside the country.
Meanwhile, Huawei, which has seen its smartphone business decimated due to U.S. sanctions imposed by the Trump administration, plans to license handset designs to third parties as a means of obtaining critical components, according to a separate Bloomberg report that says China’s Postal and Telecommunications Appliances Co. (PTAC) is first in line and “already selling Huawei-branded Nova phones on its e-commerce site.”