An eye for an eye, a rule for a rule? Amid an ongoing tech standoff between China and the US, the Treasury Department recently proposed rules that would “restrict investments by US individuals and companies into China, with a focus on curbing Beijing’s ability to gain ground in semiconductors, quantum computing, and artificial intelligence,” the Associated Press and Bloomberg reported on June 21.
The proposed rules, which “are expected to be finalized later this year,” according to the New York Times, would go hand in hand with an executive order from last August that “will largely affect venture capital and private equity firms that do business with Chinese companies,” the outlet wrote.
Let’s rewind. A hush-hush directive from 2022 is already pushing US tech out of China in an attempt to localize, the Wall Street Journal reported on March 7. China’s Document 79 directive, also known as “Delete A,” a reference to “Delete America,” mandates that state-owned companies in key sectors, like “finance, energy, and other” areas, swap out foreign software for Chinese software in their IT systems by 2027, the Journal also stated.
“The ‘Delete A’ directive is part of the country's broader push towards tech self-reliance, which really began to be pushed by Xi [Jinping] following the tech trade war initiated by the Trump administration in 2018,” Kenton Thibaut, a senior resident China fellow at the Atlantic Council’s Digital Forensic Research Lab, told IT Brew in an email.
According to the WSJ, Beijing’s directive has already affected tech companies like Dell, IBM, and Cisco as “much of their equipment” has been swapped for tech that’s made in China. New guidelines out of the country are also affecting Intel and AMD, whose US microprocessors will be phased out of government computers and servers, the Financial Times reported March 24.
Thibaut says the Chinese Communist Party sees this self-reliance as necessary to “China's long-term de-risking.” When asked if she believed China would be able to carry out this directive in its entirety, Thibaut said that China was “certainly going to try” even though “homegrown alternatives are nowhere near as reliable or operate as smoothly.”
“There will for sure be foot-dragging on the part of Chinese companies as many of them rely on US-based operating systems,” she said, noting Microsoft’s popularity in China. IT Brew reported in May that Microsoft had asked around 700-800 of its China-based AI employees to relocate amidst tensions between the two countries.
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Let the chips fall. When it comes to nanochips and similar tech, Thibaut asserted that China “really does not have a viable 1:1 replacement,” even with the buzz about Huawei’s China-made 7nm chip— which the company rolled out last fall.
Chip export controls placed on China since 2022 have caused the country to go elsewhere for chips, including exploring how to make them in-house and indulging in the underground gray market. Nvidia announced it was rolling out a chip for the Chinese market, which IT Brew covered at the beginning of the year, but the company recently had to slash prices due to an “abundant supply.”
“Most importantly on chips, it's not clear that they will be able to meet that deadline of 2027, which is not that far off now,” Dmitri Alperovitch, a geopolitical expert and the author of World on the Brink: How America Can Beat China in the Race for the Twenty-First Century, told IT Brew. “That doesn’t necessarily mean that they’ll accomplish [the directive in full]. But the fact that they’re trying is an important indication.”
Operation TikTok. Looking ahead, Alperovitch says the US should reduce its reliance on critical tech produced by Chinese companies, noting that China is clearly “trying to do the same.” “Our policies are in response, in many ways, to [China’s] policies and their threats and their military buildup over Taiwan and influence operations against us, and the like. We're looking at it as a national security issue,” he said. “If ByteDance were to sell TikTok to an American company, or presumably even a European company, a lot of those concerns go away.”
IT Brew has reached out to the companies mentioned for comment. Intel and Nvidia declined to comment, and Microsoft said it did not have anything to share at this time.