China's move to require banks, the military, state-owned enterprises and key government agencies to shift to Chinese technology suppliers could have lasting consequences for foreign suppliers including Cisco Systems, IBM, and Intel.
About 80% of banks’ core servers and systems are made by foreign brands. In September, the China Banking Regulatory Commission ordered banks and finance agencies to ensure that at least 75% of their computer systems use “safe” technology by 2019.
The decision to replace homegrown suppliers with foreign technology is driven by national security concerns and the government's intent to bolster the domestic technology sector.
Workers in the northeastern city of Siping recently replaced Microsoft’s Windows with a homegrown operating system called NeoKylin and swapped foreign servers for ones made by China’s Inspur Group, according to Bloomberg.
A foreign supplier's technology will only be seen as safe and controllable if they share their core technology or give China’s security inspectors access to their products.
Research firm IDC says China ranks second behind the US in technology spending, with outlays rising 8.1% to $182 billion last year. The US spent $656 billion, a 4.2% increase over 2012.
“I see a trade war happening,” Ray Mota, CEO of US-based ACG Research, told Bloomberg. “This could get ugly fast, and it has.”
Chinese firms, like Huawei Technologies and ZTE, have already begun to gain local market share at foreign rivals’ expense, says Bloomberg.