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China's government is implementing new guidelines that will phase out US-made processors from Intel and AMD in government PCs and servers.

Instead, they will be replaced with hardware manufactured in China. This move underscores China's drive towards self-reliance and indigenous innovation in its technology sector, reducing dependence on US technology companies and bolstering its own semiconductor industry. However, it also carries implications for geopolitical tensions between the US and China, potentially exacerbating existing trade and technology disputes.

In addition to replacing foreign-made processors, the guidelines aim to limit the use of Microsoft's Windows operating system and foreign-made database software. This reflects China's broader efforts to enhance data security and sovereignty, but it also raises concerns about further decoupling the two largest economies in the world. Economically, while the move may stimulate demand for Chinese-made hardware and software, it could disrupt supply chains and increase costs for government agencies relying on US-based technology providers.

The implementation of these guidelines could reshape the competitive landscape and alter market dynamics in global technology markets. If China's push for self-sufficiency gains momentum, it may challenge the dominance of US-based companies in certain sectors and lead to increased fragmentation and competition in the global technology ecosystem.

Government-Approved Technologies

The Ministry of Industry and Information Technology (MIIT) previously issued new guidelines directing government agencies to purchase technology that is "safe and reliable." China's Information Security Evaluation Center (CNITSEC) published a list of government-approved technologies. It contains 18 CPUs, six operating systems, and eleven centralized database solutions, all of which were created by Chinese companies.

Chips from Huawei and the Chinese state-backed group, Phytium, were included on the list of approved processors. Both companies are currently on the United States government's export blacklist.

China’s Strategic Tech Future

China was reportedly Intel's largest market in 2023, accounting for 27% of the company's USD 54 billion in sales. During the same year, China accounted for 15% of AMD's USD 23 billion sales.

Microsoft President, Brad Smith, told Congress last year that China accounted for 1.5 percent of the company's revenue. Since the US government tightened sanctions on the export of advanced semiconductors to China, the country has shifted its focus to domestic chip production. In 2023, China purchased approximately USD 40 billion in chip manufacturing products in an effort to shore up its semiconductor supply chain following US sanctions.

By injecting substantial financial resources into chip production, China aims to reduce its reliance on foreign suppliers and mitigate the impact of US sanctions on its semiconductor imports. Moreover, this concerted effort aligns with China's broader strategic objectives of advancing technological self-reliance and achieving greater autonomy in critical industries.

China's proactive measures to shore up its semiconductor supply chain signal a paradigm shift in its approach to technological development and economic resilience.

By prioritizing domestic chip production and investing heavily in semiconductor manufacturing capabilities, China seeks to enhance its competitiveness in the global semiconductor market while reducing vulnerability to external disruptions. This concerted push towards self-sufficiency underscores China's determination to navigate geopolitical challenges and emerge as a formidable player in the semiconductor industry, with implications for global trade dynamics and technological leadership in the years ahead.

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