China is ramping up plans to replace U.S. and foreign technology, quietly empowering a secret government-backed organization to monitor and approve local vendors in sensitive areas, from the cloud to semiconductors, people familiar with the matter said.
Formed in 2016 to advise the government, the Working Committee on Innovation in Information Technology Applications has now been tasked by Beijing to help set industry standards and train staff in the operation of reliable software. The quasi-governmental body will design and execute the “Computer Applications Innovation” plan, better known as Xinchuang in Chinese. It will choose from a basket of vendors selected under the plan to deliver technology to sensitive sectors, from banks to data centers storing government data, a market that could be worth $ 125 billion by 2025.
So far, 1,800 Chinese PC, chip, network and software suppliers have been invited to join the committee, the people said, asking not to be identified to discuss private information. The organization has so far certified hundreds of local businesses this year as committee members, the fastest pace in years, one of the people said.
The existence of the Xinchuang White List, whose membership and broad goals have not been previously reported, is likely to fuel tensions just as Presidents Joe Biden and Xi Jinping concluded their first virtual summit in face to face. This gives Beijing more leverage to replace foreign tech companies in sensitive industries and accelerates efforts to help local champions achieve tech self-sufficiency and overcome sanctions initially imposed by the Trump administration in areas such as networks and chips.
“China is trying to develop local technologies,” said Dan Wang, technology analyst at Gavekal Dragonomics. “This effort is more serious now that many domestic companies now share this political goal, as no one can be sure that American technology can bypass American export controls.”
The push to replace foreign vendors is part of a larger effort by Beijing to exert control over its sprawling tech industry, including data security. Already, the government has forced overseas cloud providers such as Amazon Web Services and Microsoft to form joint ventures to operate on the continent. Apple also sold its user data storage business to an operator supported by the government of Guizhou. The grip is set to tighten, as the industry’s tech ministry acquires increased oversight of industrial and telecommunications data and proposes new rules that will require the storage of crucial data inside the country .
Although few details have been revealed about the Xinchuang committee or its members, all companies more than 25% owned by foreigners will be excluded from the panel, excluding foreign suppliers, including Intel Corp. and Microsoft. Chinese tech start-ups that are primarily funded by foreign investment will also face a higher bar, although Alibaba Group Holding and Tencent Holdings, the country’s two largest cloud service providers, have managed to circumvent these rules. by applying for membership through locally incorporated subsidiaries. people said.
“The strangled policies of the United States, illustrated by the entity list, were the direct catalyst that pushed China to build the Xinchuang sector,” Shanghai-based research firm iResearch said in a report in July. “The blacklist underscored the urgency for China to invest more in technological innovation and have key technologies manufactured in China.”
The Ministry of Industry and Information Technology and the China Electronics Standards Association, which oversees the committee, did not respond to requests for comment. Alibaba representatives did not immediately respond to a written request for comment. A spokesperson for Tencent declined to comment.
The committee had 1,160 members as of July 2020, according to Netis, a cloud computing company that claimed to have successfully passed a complex review process. Other big companies include Beijing-based processor maker Loongson, server maker Inspur, and operating system developer Standard Software. Westone, an information security company that could be commissioned by Beijing to take over data management from Didi Global, is also a member.
Joining the panel could give local vendors a key advantage by getting their technology approved under the Xinchuang plan, unlocking a billion dollar market. Xinchuang-related activities generated 162 billion yuan ($ 25 billion) in revenue last year and are expected to reach nearly 800 billion yuan by 2025, according to a report co-authored by China Software Industry Association.
“In every sector of Xinchuang’s industry, there is a large imbalance between supply and demand,” he said. “Suppliers have to step the accelerator down to the ground to meet demand. “
In September, the Xinhua-backed Economic Information Daily listed the top 40 players in the Xinchuang project, including Huawei Technologies, Alibaba’s cloud unit, and network security company Qi An Xin Technology Group. In an April list of 70 model cases in Xinchuang industry, the Ministry of Industry and Information Technology praised Alibaba’s “100% self-developed” cloud platform for “providing secure and reliable digital infrastructure at all levels of government ”.
Communist Party entities, government and military will be the first to adopt Xinchuang’s products, followed by financial and state-owned companies, according to iResearch.
“Xinchuang cannot be built overnight, it is a long-term strategy that helps China develop its own computer technologies,” the report said.
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