China presses on with moves to replace foreign technology

BEIJING • China is accelerating plans to replace American and foreign technology, quietly empowering a secretive government-backed organisation to vet and approve local suppliers in sensitive areas from cloud to semiconductors, people familiar with the matter said.

Formed in 2016 to advise the government, the Information Technology Application Innovation Working Committee has now been entrusted by Beijing to help set industry standards and train personnel to operate trusted software.

The quasi-government body will devise and execute the "IT Application Innovation" plan, better known as Xinchuang in Chinese.

It will choose from a basket of suppliers vetted under the plan to provide technology for sensitive sectors from banking to data centres storing government data, a market that could be worth US$125 billion (S$170 billion) by 2025.

So far, 1,800 Chinese suppliers of PCs, chips, networking and software have been invited to join the committee, the people said, asking not to be identified for discussing private information.

The organisation has certified hundreds of local firms this year as committee members, the fastest pace in years, a source said.

The Xinchuang white list is likely to inflame tensions between China and the United States. It gives Beijing 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.

"China is trying to develop home-grown technologies," said Mr Dan Wang, a technology analyst at Gavekal Dragonomics. "This effort is more serious now that many more domestic firms now share that political goal, since no one can be sure that US technologies can avoid US export controls."

The push to replace foreign suppliers is part of a broader effort by Beijing to exert control over its sprawling technology industry, including over data security.

Already, the government has forced overseas cloud providers such as Amazon Web Services and Microsoft Corp to set up joint ventures to operate on the mainland. Apple Inc has also yielded its user data storage business to a government-backed operator in Guizhou. The grip is set to tighten, as the tech industry ministry proposes new rules that will require crucial data to be stored within the country.

"US choke-hold policies, exemplified by the Entity List, were the direct catalyst that pushed China to build the Xinchuang sector," Shanghai-based research firm iResearch said. "The blacklisting underlined the urgency for China to... have the key technologies made in China."

Any firm that is more than 25 per cent foreign-owned will be excluded from the Xinchuang committee panel, shutting out overseas suppliers. Chinese tech startups primarily funded by foreign investment will generally also face a higher bar, the people said.

The committee had 1,160 members in July last year. Membership could give local suppliers a key advantage in having their technology approved under the Xinchuang plan, thus unlocking a billion-dollar market.

Xinchuang-related business generated 162 billion yuan (S$34.5 billion) in sales last year and is on track to reach nearly 800 billion yuan by 2025, according to a report co-authored by the China Software Industry Association.

Communist Party entities, the government and military will be the first to adopt Xinchuang products, followed by financial and state-owned companies, according to iResearch.

BLOOMBERG