China aims to remove foreign PCs from the government and state-backed businesses

The news: Staff of China’s government have been asked to trade in foreign PCs for local alternatives that run on domestically developed operating systems. The plan could replace 50 million PCs on a central-government level, per Bloomberg.

Why it’s worth watching: The latest edict by Beijing is another step in China’s separation from foreign influence, not unlike efforts to establish a Great Firewall of China and tighten its grip on Big Tech companies.

• The decision is the latest in China’s decade-long campaign to eliminate dependence on foreign technology and replace it with local alternatives that could be easier to influence and control.
• Similar movements are happening in smartphones, with Chinese-made brands like Xiaomi, Huawei, Vivo, Honor, and Oppo highly favored over Apple and Samsung devices. 
• US companies like Dell and HP, the largest PC brands behind China-based Lenovo, will be most affected by the change. In context, shares of HP and Dell took a 2.5% hit yesterday.
• Beyond PC hardware, the news that China is looking to source local operating systems could be a huge blow to Windows-maker Microsoft, whose OS runs on most of the 50 million PCs being outlawed. Bloomberg says China is looking at open-source Linux distributions as an option.
• Some sectors could see Beijing’s order as retaliation for the blacklisting of Chinese products in various countries. 
• Smartphone-maker Huawei was on track to becoming No. 1 in 2020, but its market share has been whittled down by US-led sanctions.

The bigger picture: China’s departure from using foreign tech, hardware, and software reflects Beijing’s worries about compromised information security. It also serves as a vote of confidence in homegrown hardware and software from the likes of Lenovo, Huawei, and Inspur. 

• Beijing’s shift away from foreign tech will spread outward from key cities and government hubs to provincial governments.
• The transition will hardly be seamless: Lenovo relies on US-made chips from Intel and AMD. The company has invested in 15 semiconductor firms and has set up its own chip-making unit. However, it’s likely years away from yielding a competitive chip architecture. 
• While currently limited to state and government offices, Beijing could eventually seek wider adoption of locally made hardware and software and even incentivize citizens to make the switch.

Why this could backfire: Taking China’s cue, many countries that use Chinese-made components could similarly wean off their dependence and look elsewhere for solutions. 

• Chinese companies like Lenovo, Huawei, DJI, and others could see their international sales dip significantly as enthusiasm for their products wanes.
• Beijing’s decision could alter expectations from companies like Apple, which sees China as a necessary growth market for future success.