China Quietly Shutting Out Foreign Makers of IT Equipment

Yomiuri Shimbun file photo
China’s national flag

An internal Chinese government document is instructing that all office-related equipment and information technology systems used by government entities and state-owned enterprises should be produced by Chinese companies by 2027, it has been learned.

China has expressed its willingness to join the Agreement on Government Procurement (GPA) of the World Trade Organization, which requires GPA parties to eliminate discrimination against foreign companies.

China has also applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), which aims to open up government procurement to foreign companies. However, the latest revelation shows that Beijing is trying to squeeze Japanese and other foreign companies out of domestic markets.

According to multiple diplomatic sources in Beijing, the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) notified government entities and state-owned enterprises in September 2022 that they should fully promote and expand the use of domestically produced IT systems.

The internal document, titled “Document No. 79,” reportedly requires parties concerned to submit quarterly updates on progress in the use of domestically produced products to the SASAC starting in January 2023.

The document covers office equipment such as computers and multifunction printers and systems such as servers, the sources said. It reportedly sets out three stages.

In the first stage, the Chinese Communist Party and the government will jointly promote the domestic production of those products and systems, increase their quality and develop mid-sized manufacturers.

In the second stage, the use of domestically produced products will be expanded to the “eight key industries” of finance, telecommunications, electricity, petroleum, transportation, aerospace, education and healthcare.

In the third stage, the use of domestically produced products will be expanded to all other industries.

According to informed sources, when the SASAC explained Document No. 79, it did not allow those who were shown the document to keep it, although they could take notes by hand. Also, Document No. 79 is not available on the SASAC’s website. The SASAC apparently tried to leave no evidence behind so as to avoid criticism from other countries that China is fencing out foreign companies.

China has been engaged in negotiations to join the GPA for more than 15 years and has emphasized its commitment to an opening-up policy. However, an increasing number of diplomats and other officials are now skeptical of China’s efforts to open up its markets.

According to a U.S. industry organization source, a state-owned bank in China has already stopped procuring from foreign suppliers by not adopting products provided by major U.S. companies such as IBM and Adobe.

The Chinese government positions “information” as one of its national security priorities. The purpose of the latest measure is believed to be to build up the capabilities of domestic companies to produce high-performance products on their own.

The move is highly likely to be extended to private companies in the future, making it more difficult to sell foreign products in Chinese markets going forward. Also, some believe that Chinese companies will try to increase their world market shares in this area.