In 2019, the Trump administration began to impose restrictions on China's Huawei and ZTE, gradually restricting the two Chinese companies from selling communications equipment and services in the United States.
Since then, the Trump administration has continuously added Chinese companies and entities to the entity list, restricting the export of chips and related technologies to these enterprises and entities in the name of national security.
Over the past few years, the United States has continued to increase its restrictions, restricting exports to these Chinese companies and institutions, and also restricting the sales of some companies in the American market. In response to such discriminatory behavior, China has rarely targeted countermeasures. There are two possible reasons for this:
First, in addition to raw materials such as rare elements, in terms of science and technology, China has not many projects that can sanction the United States, and it lacks effective bargaining chips.
Second, China plans before acting, and any countermeasures are put into effect only after careful consideration and careful assessment.
In 2020, after the United States imposed a zero-technology chip blockade on Huawei, some people waited for China's immediate counterattack, but never heard of any countermeasures, until April 2023, when the Cyberspace Administration of China launched a security investigation into Micron's memory chips, China's counterattack measures began to emerge.
In September 2020, the day after the U.S. imposed a zero-technology blockade on Huawei, we mentioned a point of view in Huawei's "Cloud Phone" review, as well as some subsequent comments, which is also an appeal, that for some technology products, especially those that may be sanctioned and blocked by the U.S. in the future, the Chinese government needs to assist domestic manufacturers in related fields in advance, and through government procurement contracts, whether it is in the procurement of software, hardware and systems, it needs to support local manufacturers and give policy support.
Some time ago, China issued a "Notice on Updating the Configuration Standards for Batch Centralized Procurement of Desktop Computers and Portable Computers of Central State Organs". This is the 2024 update following 2023.
To put it simply, in the future government procurement case, the party and government organs and institutions at and above the township level will include the evaluation of the safety and reliability of CPUs and operating systems in the procurement of desktop computers and portable computers.
In addition, the Wall Street Journal also reported that China's Ministry of Industry and Information Technology instructed domestic telecom operators. Phasing out U.S. chips at the heart of its network by 2027.
In this way, the CPU, the operating system, and the chip are covered, and the significance is really extraordinary.
1 Covers both software and hardware security evaluations
First of all, this is the first time that China has included a complete computer system in the procurement evaluation requirements, and it covers both software and hardware.
This is very interesting, and we can understand it this way, because the United States has an absolute advantage in terms of CPUs and operating systems, because the global PC market is almost all owned by Wintel.
Therefore, once the Chinese government makes a move, it is very likely that the US side will take further restrictive measures. If China is not completely sure, it is likely to backfire. So we've seen that China, after being fully prepared, is targeting both software and hardware.
Second, as mentioned earlier, any countermeasures introduced by China will be carefully evaluated and will not be rash. This means that the various types of chips required by China's desktop computers and notebook computers, as well as the computer operating system, have matured and successfully localized.
Of course, when it comes to the whole computer, the most important and important thing is the CPU and the operating system. In these two aspects, it is not only a matter of technology, but also market share. If there is no market force, even if there is excellent technology, it will not be able to successfully occupy the market.
For more than 30 years, the global PC market has been dominated by Microsoft Windows + Intel CPUs, known as "Wintel".
In fact, Chinese manufacturers have already developed CPUs and operating systems for personal computers, but for the reasons just mentioned, they cannot gain enough market share and only occupy a place in the server market. As for the vast, consumer-end desktops and laptops, it's still Wintel's domain.
However, to paraphrase an English sentence, not any more, at least in the future, it will no longer be Wintel's monopoly in the Chinese market.
However, this still requires some means, some methods.
2 Facing a giant-like opponent, you need a pusher
In this regard, the government can play a role as a promoter. As mentioned earlier, technology is not the only problem in the majority of consumer CPUs and operating systems, or even a big problem, because the American Wintel has occupied a huge market share, based on the habitual market power of consumers, it is difficult for new entrants to enter the market, and people would rather choose known brands rather than new brands.
This is the "barrier to entry" of the market, an almost insurmountable chasm.
For a mature market of scientific and technological supplies, the most difficult thing is how to enter the market in the early stage and obtain a certain percentage of market sales. If it's not a well-known, established brand, consumers will hardly use it, and merchants are not willing to take risks.
That's where the role of the government comes in. It is reported that there are a total of 50 million units of Chinese government units + state-owned enterprises. According to the average number of years of use of personal computers in government agencies and units of 5~8 years, these 50 million units are the basic market share of domestic products, which is enough to overcome market entry barriers.
With this "basic plate," together with private businesses and schools and educational institutions that have dealings with public units and state-owned enterprises, this number will be further expanded. After the formation of the atmosphere, it is natural to be able to compete with the Wintel system.
This is the government's driving force, effectively supporting local manufacturers. There is no shortage of capable and skilled manufacturers in Chinese enterprises, but what they lack is the opportunity to overcome barriers to market entry.
Let's not think that the United States is a complete market economy and a free market economy, and let us not comment on the trade protectionism of the United States in recent years, as well as the measures imposed on China such as market entry barriers and chip blockades, the US government itself is a huge incubator of private enterprises, providing huge market opportunities for private enterprises.
In fact, the U.S. government also provides a lot of procurement and maintenance contracts to private enterprises, such as software systems (including development), computer equipment, system maintenance, network systems, cloud services, and the employment of personnel.
During the 2008 financial crisis, instead of reducing spending (administrative spending reductions are not taken into account), the U.S. government increased contracts for external procurement and services.
In 2019, the U.S. federal government awarded Microsoft a $10 billion cloud computing contract, the largest cloud computing contract in the world.
Although after Microsoft won the big bid, Amazon, the world's largest cloud service provider, protested, so there were many twists and turns. However, the U.S. government's support for local businesses is worth considering.
3. Huge industrial chain
China's decision is a high-stakes one. The computer industry is a huge industrial chain, and there are many upstream, middle, and downstream manufacturers. In the 1980s and 1990s, it led to the growth of the global information industry, as well as the economic growth of the United States and some countries.
The impact of the Chinese government's move on relevant businesses in the United States is also extremely far-reaching. This means that the Chinese government and public institutions will phase out CPUs made by Intel and AMD in the United States, excluding the Microsoft Windows operating system, and also covering database software.
Do you remember how awesome Oracle was more than 20 years ago? But now China doesn't need it. There are already a number of database companies in China.
Note that there are not a few or a dozen database companies covering big data applications, but dozens. The Chinese domestic market is not enough, where can it be distributed to the US database companies?
Local Chinese vendors may be able to seize the database market faster than they can replace U.S. CPUs and operating systems.
Next, there is the enterprise-level large-scale software application market, such as ERP and CRM, foreign brands and American brands are actually not needed, because local manufacturers have them, let alone cloud computing services.
Such a leading role of the Chinese government will have a great effect, and it can cultivate local manufacturers, from chips, CPUs, to operating systems, various types of software applications, to system services, etc., which is a huge upstream and downstream industrial chain. And it will drive many local manufacturers.
As for the advantage of American manufacturers, then I'm sorry, the cup of the Chinese market will slowly rise with the "east wind" and gradually go away.
4 China and the United States decouple from each other
This is the decoupling of you (the US side) from yours, and the decoupling of mine, and everyone decoupling from each other, and the two will not hinder it.
However, if China and the United States decouple from each other, who will suffer more? This is a very interesting question.
The United States does not allow Huawei and ZTE to enter the American market, yes, this is a loss for Chinese merchants. In the field of communication equipment, Huawei and ZTE do have very good competitiveness, but they have lost opportunities in the US market.
However, Microsoft's Windows operating system, Intel and AMD's CPUs are monopoly forces, and they are about to gradually lose the Chinese market.
If it weren't for the U.S. efforts to decouple from China, these U.S. monopolistic manufacturers might have continued to monopolize the market for "many years."
However, since the US is engaged in decoupling, China has also played with the US and decoupled accordingly.
In fact, to be more precise, under the suppression and blockade by the US, China is trying to stand on its own feet and avoid being blockaded by the US in the future.
Now, the US blockade and suppression have given Chinese manufacturers a great opportunity.
Chinese manufacturers no longer need to consider the "Matthew effect" of the technology market (Evergrande), and the United States is really "making great contributions" in this regard!
5 Final Impact
Let's make a conclusion.
The 2024 update confirms the determination of the Chinese government, and at the same time, it is also a great confidence in China, without which China will categorically not take such a measure.
From May 2020, when Huawei was blocked by the United States' zero-technology chips, until 2023, it has only been 3 years, and China has begun to decouple from the United States in the field of science and technology, which is quite fast.
Coupled with China's industrial advantages over the United States and the West in the field of electric vehicles and electric vehicle batteries since the first quarter of this year, this is the result of the decoupling of the United States and China.
To be honest, although the US has decoupled from China and restricted some Chinese manufacturers from entering the US market, causing losses to Chinese manufacturers, this move by the US has actually encouraged Chinese manufacturers to become self-reliant and self-reliant, and has "gifted" the original Chinese market share to Chinese companies.
In that issue of the article "China's anti-decoupling wave, the first wave is coming!", we said that the field of electric vehicles and batteries is the first wave of decoupling, then chips and operating systems are the second wave, and it has come and will continue for many years. Because there will be chip decoupling with advanced process technology in the future.
On the other hand, the U.S. is helping the Chinese government decouple from the U.S., find a legitimate reason, and rationalize the Chinese government's measures to cultivate local manufacturers. The US itself engages in trade discrimination and subsidies, and it will not find any reason to judge China in the future.
Therefore, instead of taking advantage of the advantages, the US side has even suffered a greater loss than China, bringing opportunities to local Chinese manufacturers.
As far as chips are concerned, it covers the application of chips in personal computers, servers, cloud computing, communication industries, etc. It can be said that this is the opening scene of the decoupling of Chinese and American chip companies.
Looking at the operating system, it will gradually expand from personal computers to mobile phone operating systems, as well as various application software, and American manufacturers will gradually withdraw or reduce their market share in China.
Moreover, there is no need to wait for Chinese manufacturers to develop 5nm and 3nm chips, or to develop EUV lithography machines, and China has begun to decouple from American chip manufacturers.
Didn't Dell announce at the end of 2022 that it would gradually phase out Chinese chips in its personal computers and servers?
Finally, the US side has never understood that decoupling from China's technology will not work, and the simplest explanation is that China itself has a huge market. China's domestic computer market and mobile phone market are larger than those of the United States. The United States actually blockaded and decoupled a country larger than its own market, which genius came up with the truth?
That's all for today's analysis and reasoning, we'll see you next time!