Chinese government's tech decoupling a blow to US firms

China's latest move in the US-China trade war is the first real sign by China of a "decoupling" from US tech

The ongoing trade war between the US and China has taken another potentially decisive turn after a new report suggested Beijing has ordered all government offices to remove foreign technology. Although the order is ostensibly designed to ensure compliance with a much-publicised cybersecurity law, it will be seen as the first real sign by China of a "decoupling" from US tech.

It's a path that commentators believe could result in further retaliation from Washington, harming US tech companies and potentially leading the world to the brink of a new recession.

The trade war escalates

The report in the Financial Times claims that the order to banish foreign tech from all public sector organisations came from Communist Party Central Office earlier this year. It's been confirmed by a brokerage, China Securities, and two unnamed cybersecurity firms whose government clients apparently cited the instructions. The scheme would start in 2020 with an estimated 20-30 million pieces of hardware set to be swapped out. The policy's nickname of "3-5-2" derives from the quantity of kit to be replaced in each of the next three years: 30% in 2020, 50% in 2021, and 20% the year after.

China can argue with a fairly straight face that the move is being made on national security grounds, given the Snowden leaks of several years ago which revealed how US intelligence agencies were trying to spy on foreign countries by tampering with home-made technology. It also comes in response to an increasingly aggressive US policy, which has centred around telecoms kit makers Huawei and ZTE. That has effectively prohibited the firms from selling equipment in the US, and placed them and many others on an entity list, which prohibits US firms from selling them vital components.

What happens next?

Several questions remain unanswered. For one thing, it remains to be seen how strict the ban on foreign tech will be. As the FT piece argues, even Lenovo kit features Intel chips. It's also unclear exactly how much this will affect US tech firms financially. Jefferies estimates that they generate annual revenues of $150 billion, although it admits that much of this comes from private sales, which this ruling doesn't affect.

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