China blocks the use of Intel and AMD chips in the government – 03/24/2024 – Tech

China has introduced new guidelines that mean US microprocessors from Intel and AMD will be gradually phased out of government PCs and servers, as Beijing steps up a campaign to replace foreign technology with domestic solutions.

The stricter government procurement guidelines also seek to sideline Microsoft’s Windows operating system and foreign database software in favor of domestic options. This comes in parallel with an ongoing localization campaign at state-owned companies.

The latest purchasing rules represent China’s most significant step yet to develop domestic substitutes for foreign technology and echo moves in the US as tensions rise between the two countries. Washington has imposed sanctions on a growing number of Chinese companies on national security grounds, legislated to encourage more technology to be produced in the U.S. and blocked exports of advanced chips and related tools to China.

Employees began following the new guidelines for PCs, laptops and servers this year after they were released with little fanfare by the Ministry of Finance and the Ministry of Industry and Information Technology (MIIT) on December 26. They order government agencies and party bodies above the municipality level to include criteria requiring “secure and reliable” processors and operating systems when making purchases.

On the same day in December, the state testing agency, China Information Technology Security Assessment Center, published its first list of “secure and reliable” processors and operating systems, all from Chinese companies.

Among the 18 approved processors were chips from Huawei and state-backed group Phytium. Both are on Washington’s export blacklist. Chinese processor makers are using a mix of chip architectures, including Intel, Arm and domestic x86, while the operating systems are derived from open source Linux software.

Beijing’s procurement overhaul is part of a national strategy of technological self-sufficiency in the military, government and state sectors, known as xinchuang or “IT application innovation.”

The standards “are the first detailed and clear national-level instructions for promoting xinchuang,” said a local government official responsible for replacing IT systems.

State-owned companies have similarly been instructed by their overseer, the State-Owned Assets Supervision and Administration Commission, to complete a technology transition to domestic suppliers by 2027, according to two people briefed on the matter. Since last year, state groups have begun reporting quarterly on their progress in overhauling their IT systems, although some foreign technology is allowed to remain, sources said.

The state-led march away from foreign hardware will hurt U.S. companies in China, starting with the world’s top PC processor makers, Intel and AMD. China was Intel’s biggest market last year, accounting for 27% of its $54 billion in sales and 15% of AMD’s $23 billion in sales. Microsoft doesn’t disclose sales in China, but President Brad Smith told the US Congress last year that the country accounted for 1.5% of revenue.

Microsoft and Intel declined to comment. AMD did not respond to a request for a response.

It may be difficult for Intel or AMD to be included in the list of approved processors. To be evaluated, companies must submit complete R&D documentation and product code. The main evaluation criteria is the level of design, development and production completed in China, according to a notice from the state testing agency.

In recent months, provincial and municipal-level finance ministries have issued dozens of notices about the new guidelines, trying to ensure compliance among thousands of buyers. Two purchasing officials who spoke to the Financial Times said there was still some scope to buy computers with foreign processors and Microsoft’s Windows.

One of the employees, in Shenzhen (city in China), said that they now needed to take an additional step to record and explain purchases from foreign processors. The government’s central procurement office this month also said limited purchases of computers with Intel and AMD processors could continue as long as departments “comply with relevant management procedures.”

Lao Zhangcheng, responsible for purchasing 16 all-Chinese computers for an organization under the administration of Shaoxing city’s transportation department, said his colleagues had no choice but to get used to domestic operating systems.

“We are replacing old computers that have foreign chips,” Lao said. “After this purchase, basically everyone in the office will have a home computer. The old computers we have with Windows systems can still be used in certain situations.”

Lin Qingyuan, a chip expert at research group Bernstein, said replacement would advance more quickly for server processors than for PCs due to the more limited software ecosystem that needs to be replaced. He expected xinchuang servers to account for 23% of total server shipments in China by 2026.

“The purchasing guide has made xinchuang policy more actionable for employees,” he added.

Analysts at Zheshang Securities estimate that the country will need to invest 660 billion Chinese yuan ($91 billion) from 2023 to 2027 to replace IT infrastructure in government, party bodies and eight major industries.

China’s finance ministry, MIIT and the China IT Security Assessment Center did not respond to requests for comment.