Beijing’s new requirement that government agencies ditch foreign computers and buy local is designed to wean the nation off overseas products. The move will certainly boost sales of Chinese-made PCs domestically, but it won’t do much to advance the nation’s long-held ambition to deepen its tech prowess and catch up to global leaders.
The ruling is the latest move by Chinese authorities to put their own stamp on the country’s fast-growing tech sector. In the last two years, Beijing has also taken steps to rein in its internet giants including Alibaba Group Holding Ltd. to ensure they toe the party line. More than 50 million computers could be replaced at the central government level in the coming years as part of plans to eradicate the use of foreign technology, Bloomberg News reported last week. Staff will instead be issued Chinese-branded PCs running domestically developed operating systems.
But the edict didn’t extend to foreign microprocessors, the more sophisticated components that power every computer. That loophole is sorely needed for the agencies compelled to buy Chinese. It speaks to the large gap that the nation faces in catching up to the US, South Korea and Taiwan in the development and manufacture of semiconductors.
Despite more than 20 years of trying, and hundreds of billions in state aid and investment, the nation’s chip industry is still lagging behind those of other countries. In recent years a few local players such as Yangtze Memory Technologies Corp. have started churning out memory chips. But that’s a largely standardized commodity product that is far less sophisticated than more advanced logic chips that do the number-crunching required to process information. In fact, China accounts for less than 1% of the global market for these components.
Forcing government agencies and state-backed companies to buy local computers with foreign components won’t alter this equation. But it is better than mandating that PCs run on Chinese processors — because that would risk hobbling those required to use them.
For now, the rule is expected to be a boon for computer manufacturers such as China’s Lenovo Group Inc. as well as Huawei Technologies Co., which makes laptop and desktop PCs but is better known as a smartphone maker. Lenovo already commands 40% of the market in China, three times that of Dell.
China also might be hoping to buoy domestic makers of operating systems such as Shanghai-based China Standard Software, whose NeoKylin was designed as a rival to Microsoft Corp.’s Windows. By 2015, at least 40% of PCs shipped by Dell in China had Linux-based NeoKylin pre-installed, a sign that the local alternative was gaining traction and that China had made it as a developer of core software used to run computers.
Yet creating an operating system isn’t the technological feat it once was. Linux itself is open source, and any company can grab the core code to then create its own flavor. Alphabet Inc.’s Android operating system is also based on Linux.
In addition to looking out for Chinese companies, authorities in Beijing surely wouldn’t mind if favoring domestic products also dents purchases of software and computers made by Microsoft, Dell Technologies Inc. and other US giants. But here, too, the new rules aren’t likely to cause much of a ripple at America’s tech stalwarts.
That’s because China, despite being the world’s most-populous country and second-largest economy, accounts for a minuscule slice of revenue for companies like Microsoft. Two years ago, Microsoft President Brad Smith put the figure at 1.8%, and it probably hasn’t budged much since. Dell and HP Inc. likewise are unlikely to feel much pain. The Chinese government sector accounted for just 0.16% and 0.23%, respectively, of their annual sales, according to Bloomberg Intelligence analyst Woo Jin Ho.
Other US companies might even benefit from the decision. As Chinese government agencies rush to replace old, US-brand PCs, it will drive revenue for the two companies that have a lock on the computer processor business, US giants Intel Inc. and Advanced Micro Devices Inc., for which China has no rival.
Then there’s the fact that PCs themselves are no longer as important to companies’ profits. Dell, for example, has extended beyond its early days building and shipping computers to offering a suite of hardware and software services — such as servers and network switches — that relegates the PC to a relatively minor role. Instead, cloud services have become the hub of activity and the focus of technological development. Microsoft, which dominates the consumer operating system market, has folded Windows into its More Personal Computing division, which collectively accounts for 32% of revenue, less than the 36% brought in by its intelligent cloud business, and a far cry from the days when Windows was the main driver of sales.
With the Chinese domestic market buying just 57 million laptop and desktop computers last year, a massive purchase order of 50 million over two to three years would be a huge shot in the arm for domestic PC brands.
That makes this new regulation an example of economic stimulus, rather than a true boost for the nation’s technology ambitions.