Chinese secret committee lists to replace US technology

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China is accelerating its plans to replace American and overseas technology and quietly empowering a secret, government-backed organization to screen and approve local suppliers in sensitive areas from the cloud to semiconductors, people familiar with the matter said.

The Working Committee on Information Technology Application Innovation, established in 2016 to advise the government, has now been commissioned by Beijing to help set industry standards and train staff to use trustworthy software. The pro-government body will develop and implement the IT Application Innovation Plan, better known as Xinchuang in Chinese. It will choose from a basket of vendors that have been screened as part of the plan to deliver technology to sensitive sectors, from banking to data centers that store government data, a market that could be worth $ 125 billion by 2025.

So far, 1,800 Chinese PC, chip, network and software vendors have been invited to join the committee, people said, asking not to be identified when discussing private information. The organization has certified hundreds of local companies as committee members so far this year, the fastest pace in years, said one of the staff.

The existence of Xinchuang’s whitelist, whose membership and overarching objectives have not yet been reported, is likely to spark tension as Presidents Joe Biden and Xi Jinping conclude their first in-person virtual summit. It gives Beijing more leverage to replace overseas tech companies in sensitive sectors and accelerates the push to help local champions achieve tech self-sufficiency and overcome sanctions first imposed by the Trump administration in areas like networking and chips became.

“China is trying to develop its own technologies,” said Dan Wang, technology analyst at Gavekal Dragonomics. “These efforts are more serious now that many more domestic firms now share this political goal, as no one can be certain that US technology can bypass US export controls.”

The move to replace overseas suppliers is part of a broader effort by Beijing to exert control over its sprawling technology industry, including data security. The government has already forced foreign cloud providers such as Amazon Web Services and Microsoft to set up joint ventures to operate on the mainland. Apple has also sold its user data store business to a government-backed operator in Guizhou. The grip will tighten as the Department of Technology Industries gains more control over industrial and telecommunications data and proposes new rules that require important data to be stored in the country.

Although few details were revealed about the Xinchuang Committee or its members, all companies that are more than 25% foreign-owned will be excluded from the panel, eliminating foreign suppliers such as Intel Corp. and Microsoft are excluded. Chinese tech startups, largely funded by foreign investment, are also facing a higher bar, despite the fact that Alibaba Group Holding and Tencent Holdings, the country’s two largest cloud service providers, managed to bypass these rules by applying for membership through locally based affiliates, people said.

“The US choke-hold policy, illustrated by the Entity List, was the direct catalyst that pushed China to build the Xinchuang sector,” Shanghai-based research firm iResearch said in a report in July. “The blacklist underlined the urgency for China to invest more in technological innovations and to have the key technologies manufactured in China.”

The Ministry of Industry and Information Technology and the China Electronics Standardization Association, which oversees the committee, did not respond to requests for comments. Alibaba representatives did not immediately respond to a written request to leave a comment. A Tencent spokesman declined to comment.

According to Netis, a cloud company that claimed to have passed a complex review process, the committee had 1,160 members as of July 2020. Other well-known companies are the Beijing-based CPU manufacturer Loongson, the server manufacturer Inspur and the operating system developer Standard Software. Westone, an information security company that Beijing could hire to handle Didi Global’s data management, is also a member.

Membership in the panel could give local vendors a decisive advantage in getting their technology approved under the Xinchuang plan, opening up a billion-dollar market. The Xinchuang-related business had sales of 162 billion yuan ($ 25 billion) last year and is expected to reach nearly 800 billion yuan by 2025, according to a report co-authored by the China Software Industry Association.

“There is a significant imbalance between supply and demand in every sector of the Xinchuang industry,” it said. “Suppliers have to hit the gas pedal all the way to meet demand.”

In September, Xinhua-backed Economic Information Daily listed 40 top performers on the Xinchuang project, including Huawei Technologies, Alibaba’s cloud unit, and network security company Qi An Xin Technology Group. In a list of 70 model cases in April in the Xinchuang industry, the Ministry of Industry and Information Technology praised Alibaba’s “100% self-developed” cloud platform for “providing secure, trustworthy digital infrastructure to all levels of government.”

Communist party units, the government and the military will be the first to introduce Xinchuang products, followed by financial and state-owned companies, according to iResearch.

“Xinchuang cannot be built in a day, it is a long-term strategy that will help China develop its own IT technologies,” the report said.


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