Fri, Dec 19, 2014 page15

• China eyes elimination of most foreign tech

  TRADE WAR COMING? ACG Research said the possibility of a trade war between the US and China is on the cards, with its CEO saying things could quickly get ugly

  • Bloomberg
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  China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people familiar with the effort.

  The push comes after a test of domestic alternatives in the northeastern city of Siping that was deemed a success, said the people, who asked not to be named because the details are not public. Workers there replaced Microsoft Corp’s Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group Ltd (浪潮集團), they said.

  Besides the trial of domestic computer systems in Siping, a city of 3.4 million people in Jilin Province, other cities and agencies in Jilin will now begin testing whether NeoKylin, a Linux-based operating system from China Standard Software Co (中標麒麟), can substitute for Windows and servers made by Inspur can replace IBM’s, the two people familiar with the plan said.

  The trial will then expand across the country, they said.

  Similar efforts were confirmed by one provincial-level worker and two local government workers in Jilin’s capital, Changchun. The two local government workers said some specialized software was swapped for domestic versions, including a tax program designed by the Harbin Institute of Technology.

  The plan for changes in four segments of the economy is driven by national security concerns and marks an increasingly determined move away from foreign suppliers under Chinese President Xi Jinping (習近平), the people said. The campaign could have lasting consequences for US companies, including Cisco Systems Inc, IBM, Intel Corp and Hewlett- Packard Co.

  “The shift is real,” said Charlie Dai (戴?), a Beijing-based analyst for Forrester Research Inc. “We have seen emerging cases of replacing foreign products at all layers from application, middleware down to the infrastructure software and hardware.”

  China is moving to bolster its technology sector after former US National Security Agency contractor Edward Snowden revealed widespread spying by the agency and accused the intelligence service of hacking into the computers of Tsinghua University, one of the China’s top research centers. In February, Xi called for faster development of the industry at the first meeting of his Internet security panel.

  Foreign suppliers might be able to avoid replacement if they share their core technology or give Chinese security inspectors access to their products, the people said.

  The technology might then be seen as safe and controllable, they said.

  The push to develop local suppliers comes as Chinese regulators have conducted probes against Western companies, including Microsoft and Qualcomm Inc. Recent months have seen Microsoft’s China offices raided, Windows 8 banned from government computers and Apple Inc iPads excluded from procurement lists.

  “I see a trade war happening. This could get ugly fast, and it has,” said Ray Mota, chief executive officer of Gilbert, Arizona-based ACG Research, who expects the issue to result in direct talks between the US and China. “It’s not going to be a technology discussion. It’s going to be a political discussion.”

  In September, the Chinese Banking Regulatory Commission ordered banks and finance agencies to ensure that at least 75 percent of their computer systems used safe technology by 2019. The regulator called on financial institutions to dedicate at least 5 percent of their IT budgets toward the goal.

  While the commission’s policy does not make a distinction between foreign and domestic products, it says banks must favor companies who share their “core knowledge and key technology.”

  It also cautions banks from relying too heavily on one supplier.

  Chinese firms, like Huawei Technologies Co (華為) and ZTE Corp (中興), have already begun to gain local market share at foreign rivals’ expense.

  However, China faces obstacles in replacing foreign software and hardware on a national scale. Almost three decades after former Chinese leader Deng Xiaoping (鄧小平) approved his State Hi-Tech Development Plan, Chinese companies hold a fraction of global market share. They are still unable to match the most advanced products, such as high-end bank servers.

  “A key government motivation is to bring China up from low-end manufacturing to the high end,” said Kitty Fok, managing director for International Data Corp in China.

  National security provides China a powerful rallying cry, particularly within its sprawling state sector. China National Petroleum Corp (中國石油天然氣), the country’s largest energy producer, announced on Nov. 26 that it had replaced its Microsoft e-mail with the homegrown eYou program to improve security.

  “The technology gap is closing,” said Mota, who advises Cisco and HP, as well as Huawei and ZTE. “In China, they have the patience to figure it out.”
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