Beijing hits Intel, AMD with telecom 'rip and replace' order, Plus end of ‘real-time’ China stock data means even ‘less certainty’ -- China Boss News 4.19.24
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What happened
The Wall Street Journal last week reported that "China’s push to replace foreign technology" has broadened into an accelerated "rip and replace" order aimed at "cutting American chip makers out of the country’s telecommunications systems."
Beijing earlier this year promulgated a set of new rules aimed at excluding foreign chips and software from government procurement as I noted in March.
But now it has come to light that China’s Ministry of Industry and Information Technology “ordered state-owned mobile operators to inspect their networks for the prevalence of non-Chinese semiconductors” and replace them “by 2027.”
People familiar with the orders told WSJ that “Chinese telecom carriers’ procurements show they are switching more to domestic alternatives.”
“Such an effort will hit Intel and AMD the hardest,” the people said.
“China is Intel’s largest market, accounting for 27% of the company’s revenue last year, while it “contributed 15% of AMD’s revenue,” news staff said, citing Intel and AMD’s latest annual reports.
Why it matters
Localization with chip advances
The Wall Street Journal’s sources told it that Chinese telecom firms were only able to make the switch to "domestic alternatives" because local technology had improved in quality and performance.
“Chinese chips aren’t always considered as good, people familiar with the matter said, but they have been winning over Chinese telecom customers. When China Telecom bought some 4,000 artificial-intelligence servers last October, 53% were powered by Intel’s CPUs. The rest used Huawei’s Kunpeng processors,” WSJ staff noted.
Chris Miller, author of Chip War: The Fight for the World’s Most Critical Technology, told Global Finance Magazine last year that “defense and intelligence officials are fixated on the military applications” even though “most chips go to civilian uses.”
“So long as there’s a dangerous arms race in East Asia between China, Taiwan, Japan and the US, the focus on controlling access to key technologies that are necessary to produce military technology will persist,” he warned.
But for all the hoopla surrounding Xi’s militaristic ambitions in his tech war with the US, the more banal dynamics of Chinese protectionism which are also at play - and have been driving foreign competition out of China for decades - go barely noticed.
Just as Mao’s communists and Chiang Kaishek’s nationalists put aside their grievances to resist Japanese invaders in World War II, powerful Chinese state-owned tech corporations, as well as state-controlled and state-influenced tech firms, would naturally see it in their interests to align against foreign rivals before battling among themselves for Beijing’s subsidies and protection.
As Financial Times revealed in March, “[o]n the same day in December” when Beijing revealed the “new guidelines” to block US hardware and software from government computers, China’s Information Technology Security Evaluation Center released a “‘safe and reliable’” procurement list of 18 Chinese companies, including Huawei and PLA-linked Phytium, both on US export ban lists.
That Who’s Who of Chinese computing procurement is hardly random, and the companies on Beijing’s “safe and reliable list” are expected to carry the entire technological development weight of the Chinese nation. But can they do it?
Protectionism is a concerted effort
In the West, we talk about how Huawei is making a “comeback” from US sanctions.
In that framing, a lot of meaningful local context gets lost.
Huawei, despite company statements - is no self-made golden child (see my research here) and the company has long struggled to charm the bulk of the lao baixing, or common folk, for a lot of ugly reasons.
Mainly, the telecom and tech firm has been soundly rejected for its “wolf culture” that encourages some employees to “bend the rules” and has, allegedly, killed others. The firm has also been accused of using Shenzhen police to harass and jail whistleblowers, and - on at least one occasion - arrest (or kidnap, however you want to call it) - a former employee, who had criticized the company in an online chat group, while he was having dinner in Thailand.
I could go on about Huawei’s bad acts, but, for now, I’ll leave you to read New York Times’ Li Yuan’s fabulous 2019 exposé, How Huawei Lost the Heart of the Chinese Public.
All this is to say that the degree of Darwinism that permeates commercial relations in a place that has only known “might makes right,” is hard to fathom for mirror-imaging Western analysts, and Huawei, like the ruling elite and all the other power brokers that sit atop China’s current celestial empire, is always embellishing its narrative.
Again, this matters because to be China’s golden corporate child, the one that Beijing goes to bat for, the state needs a hero the country can rally behind and, for the reasons previously here mentioned, too few surviving firms can fit the bill.
But that never stops them from trying. In this 2022 China Daily state media post, you can see the writer work very diligently to distinguish Huawei from all the other overtime-abusing, bad tech actors. Huawei and Chinese state propaganda - a match made in protectionists’ heaven.
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The Big Story in China Business
END OF ‘REAL-TIME’ DATA MEANS ‘LESS CERTAINTY’ FOR INVESTORS: Major stock exchanges in China will “stop disclosing real-time trading volume data starting in mid-May,” Nikkei Asia reported last week.
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