Chinese Government Phasing Out Foreign Hardware, Software

Chinese institutions have three years to remove all foreign-made hardware and software and to replace them with locally-sourced alternatives, according to an order from the national Chinese government. 

The mass replacement process was detailed in a secret directive that was issued to the Chinese government institutions earlier this year. The Financial Times (FT) learned about it only a week ago. The directive was internally called “3-5-2,” based on the percentage targets that the Chinese Communist Party imposed on local governments.

In 2020, government offices will need to replace 30% of foreign hardware and software currently used. In 2021, another 50% will have to be replaced, and in 2022, the final 20% of the foreign equipment and software tools inventory must be discarded. Thus, by the end of 2022 all foreign hardware and software in government and public institutions should have been replaced by domestic alternatives.

A Long Time Coming

The policy actually started being developed before the current trade war between the U.S. and China started, first after Edward Snowden’s revelations and then with China's cybersecurity law passed in 2017, which further restricted government agencies from buying foreign software and hardware tools. The trade war only accelerated this trend, with the U.S. government banning Huawei and other Chinese companies from selling technology to U.S. federal agencies.

The move will likely hurt foreign tech companies, such as HP, Dell and Microsoft, as 20 to 30 million devices are expected to be swapped with alternatives from Chinese competitors.  

However, for the most part, these companies sell to private Chinese companies, so they shouldn’t see too drastic of a revenue drop. However, that could also change in the long term, especially if China finds new methods to encourage Chinese enterprises to invest in local tech too.