China's relentless pursuit of technological self-sufficiency takes a dramatic turn with Document 79, a classified directive demanding state-owned giants to purge American technology from their IT systems by 2027. This audacious move, dubbed "Delete A" by some, marks a pivotal moment in the escalating tech war between the U.S. and China.
For decades, American tech titans like Microsoft, Dell, and Oracle fueled China's economic boom. Now, they face expulsion. Document 79, shrouded in secrecy, targets software crucial for daily operations, from email to supply chain management. This move threatens to sever the final lucrative stronghold for American tech companies in China.
Driven by a desire to unshackle itself from Western dependence and national security concerns, China is on a self-reliance crusade. Leader Xi Jinping champions "Xinchuang," a policy promoting domestic innovation and "trustworthy" technology. This push for independence extends beyond tech, encompassing food, raw materials, and energy.
Issued in September 2022 amidst heightened tensions with the U.S., Document 79 isn't just policy, it's a weapon. It leverages the immense purchasing power of state-owned enterprises (SOEs) to bolster domestic tech companies. SOEs, including over 60 of China's largest listed companies, are mandated to replace foreign software with Chinese alternatives and report progress quarterly.
A stark contrast exists from the early days of China's tech boom. A former U.S. trade official laments the lost sense of opportunity, replaced by a feeling of clinging precariously to a shrinking market.
The "Delete A" initiative is just one facet of Xinchuang. This policy gains further momentum as the U.S. tightens chip export restrictions. China's central government significantly increases science and technology spending, signaling its commitment to domestic innovation.
Across China, vendors proudly promote homegrown tech as the answer. Software usability improves drastically. KylinOS, a military-linked operating system once cumbersome, now offers functionality comparable to Microsoft's Windows 7. Additionally, government tenders increasingly favor Chinese tech offerings.
The shift away from U.S. tech is palpable. Over the past decade, Western brands like Dell and Hewlett Packard have seen their market share in China plummet, replaced by domestic players like Tsinghua Tongfang, a state-owned company with ties to China's nuclear program. Even government officials have swapped their iPhones for locally-made phones.
Revelations of U.S. spying by Edward Snowden in 2013 fueled Xi Jinping's resolve for technological independence. This distrust further strengthens the case for "Delete A."
U.S. tech giants are feeling the heat. IBM's China revenues have plummeted, leading to downsized operations. Cisco laments losing orders to local vendors fueled by nationalistic buying. Microsoft, despite maintaining a presence, acknowledges China's declining contribution to its overall sales.
While some SOEs express reservations about the stability and performance of domestic alternatives, the pressure to comply is undeniable. However, Chinese tech boasts compatibility with local ecosystems like WeChat, a ubiquitous business communication tool.
The "Delete A" initiative extends beyond SOEs. Private companies are increasingly inclined to buy domestic software, a trend Morgan Stanley's CIO survey confirms. Cloud computing further propels Chinese tech forward. Companies like Alibaba and Huawei have developed database management products successfully replacing American offerings.
Western tech giants aren't just being replaced by national champions like Huawei; smaller, specialized companies are seizing the opportunity. Yonyou Network Technology, a Shanghai-based firm, is capturing market share in HR, inventory, and finance software, leaving Oracle and SAP in the dust.
While pockets of opportunity remain for advanced tech and sales to multinationals, analysts predict a bleak future for Western companies in China. As China's domestic offerings mature, fueled by preferential state sector demand, the gap between American and Chinese tech is likely to widen significantly. The "Great Decoupling" is well underway, and the future of the global tech landscape hangs in the balance.
