On 5/6/2022, there was a news report that Beijing ordered central government agencies, state-owned enterprises and government-related enterprises or institutions to replace the currently used foreign brand computers with domestic equipment. Then there were friends in the Facebook group of this blog, Leave a message, wish to hear my opinion. I had a quick reply on the the technology gap between China and US, but still want to make it clear here.
I think this matter is worth discussing, but it would be too complicated and too broad. I want to limit the scope of this discussion to purely commercial and market-related issues, especiallyfocus on office and workplace software and hardware only, excluding political, national defense, military, space and other more complex areas.
The goal of this article is to look at the gap between China technology and US from this point of view. After all, what we are interested in is the commercial market, the impact on related companies and stocks, and even the impact on the capital market.
Is this news?
Strictly speaking, this is not news, let me explain:
- Beijing’s mandatory state-owned enterprises use domestic computers, which means to all hardware and software, including central processing units, storage devices, memory, and all components and peripherals in the computer. The software in the computer, including the operating system, and the applications installed and executed on it, must all be made in China.
- It has happened repeatedly before.
- In fact, China has already done this for a long time, but people just doesn’t know it. I mean at present many Chinese state-owned enterprises, military units, sensitive government units have implemented this policy more than ten years ago, it is just that China has not shouted. It now turns out that China had long been prescient about the U.S. embargo.
About 15 years ago, at that time, the Beijing Municipal Government (only for institutions affiliated to Beijing, excluding the rest of China) had ordered all institutions to purchase domestic software for the software on the computers used in the office from the next year. If I remember correctly, the annual purchase volume is hundreds of thousands of computers).
At that time, this order was very targeted, and it was the software of Microsoft (ticker: MSFT), there was no cloud computing at that time, that is, mainly Microsoft’s Windows operating system and Microsoft’s Office software (of course, the Exchange Server for e-mail and SQL Server for database, but these two are less familiar to most people, and Microsoft did not have a monopoly in these two fields at the time, and the media rarely talked about it).
Then why only in Beijing area? My guesse is that at that time China was still full of pirated software that could be downloaded everywhere on the Internet. However, the government and state-owned public entities in the Beijing area are still law-abiding, and of course they will not use illegal software. The background at that time was that China had just joined the WTO, and the BSA could only turn a blind eye to the pirated software all over China, because China was too big. The main sponsor of BSA is Microsoft, but Microsoft is not soft on the global pirated software investigation, but is patient with China (at least at the time), because it looks at the long-term market.
It can be seen that the Chinese government has realized that this is a major event at that time. The subsequent development does not seem to be successful! You might think so, otherwise there would be Windows and Microsoft Office all over the place. Some friends will refute that after I have worked in China, I still have a lot of Windows and Microsoft Office, and I have not seen Chinese software on the computers of local Chinese colleagues.
This is a fact. But I want to remind you that similar policies of the Chinese government are aimed at government units, state-owned enterprises, and related non-private organizations. These are all units under the control of the government, and they must all act in accordance with the government’s procurement laws. In 2007, I went to a super-large research institute in Beijing. When I held a meeting with them, the software on their laptops and desktop computers were all non-Windows, beyond my imagination. China is very big, beyond your imagination. Don’t justify based on the size of Taiwan.
In fact, it is not. About two years after this order, when I worked for the commercial notebook department of an American laptop company, the company also specially produced the first non-Windows and non-DOS bootable laptop for the Chinese region in company’s history. All of this series of laptops are built-in using China’s RedFlag Linux to boot, and built-in many office software developed by local Chinese manufacturers.
You might think no one buys it? No true, half million of units were sold in a not-so-long life cycle. Laptops are not smartphones, and this volume is astronomical. This is my own personal experience, because I myself am in charge of this project.
Another thing is less understood by friends outside China. This policy of the year gave birth to many local Chinese software companies, and the official annual purchase order provided them with a guaranteed market. These software include operating system, office software, back-end software; including database, email, enterprise ERP, and even accounting system. In fact, these companies still exist today, and they have not shut down. After mergers and acquisitions, the names may be different. Even DigiWin, the largest enterprise ERP vendor in Taiwan, was delisted from the Taiwan stock market and went to China for listing.
Russia has similar plans
In the past, the domestic laptops in Russia were all equipped with Intel or AMD processors, which were manufactured by Taiwan or Chinese manufacturers, but sold under the Russian brand. However, Russia has stipulated that all state-owned enterprises and government units must purchase Russian-made computers from 2020. Promobit is preparing to produce a notebook code-named Bitblaze Titan BM15, equipped with the Baikal-M processor by Baikal, using the Arm architecture, and then paired with the Astra Linux or Alt Linux operating system.
Around the time when the Beijing government first decided to ban foreign software (not this time on 5/6/2022), German government agencies in Europe in 2005 also issued the same procurement regulations as the Beijing government at that time. Upgade Microsoft software on government computers to other compatible OpenOffice and Linux to show the support for open systems, and Microsoft software was no longer the only solution; this matter caused a lot of discussion at the time.
Fast-forward to 2021, and things will repeat themselves. The government agency in the German state of Schleswig-Holstein has decided to abandon Microsoft’s systems in favor of Linux, LibreOffice, OnlyOffice, and Jitzi.
Taiwan does not have the software level and basic software industry of China. Interested friends can refer to the article I wrote earlier, “The failed Taiwan software industry policy“, which has caused a lot of echoes. Of course, the government cannot, and dare not offend, the United States to formulate procurement policies similar to those of China or Germany.
But I’m going to give an example. About 25 years ago, a top semiconductor company in the Hsinchu Science Park one day decided to replace the company-wide Microsoft Office with an alternative from IBM and other competitors. This incident caused an uproar in the industry at the time (IBM was very influential at the time, not like now).
I would say that the case caused a lot of resistance within the semiconductor company inside at the time (employees were mainly worried about a bunch of internal existing files, as well as incompatibility of documents from clients), although planned to move to IBM, it was unsuccessful afterwards, and returned to Microsoft Office a few years later.
I cite the example of a semiconductor company in the Hsinchu Science Park to illustrate why the 5/6/2022 news only mentions PC hardware, not software.
Why only limit hardware?
The prerequisite is that Chinese PC vendors can still buy processors from Intel (ticker: INTC) and AMD (ticker: AMD). Then the thing will be easy, because China’s Lenovo and the United States’ Hewlett-Packard (ticker: HPQ) are the top two laptop vendor for a long time, they have been tied for the first place in the world’s personal notebook shipments at almost the same time.
As for the server part, Inspur Group’s global server market share is about 10%, second only to the two companies in the United States, Dell (ticker: DELL) and Hewlett Packard Enterprise (ticker: HPE).
In addition to Lenovo and Inspur, Huawei’s hardware strength and shipments are not bad. It’s just that the personal computer industry is not profitable, and it’s not Huawei’s focus (I mean Huawei is strong enough, but it doesn’t want to mess with it).
Do Taiwanese vendor get market share?
I know that many people will think that Taiwan is the kingdom of personal computers, and it should be able to benefit from this offensive strategy and share the benefits. People who hold this kind of thinking I want to pour cold water on you. Wake up! Taiwan’s competitiveness is not the brand, but earning meager profits from the foundry fee, and now the Chinese computer brands are more aggressive than the American manufacturers, many models no longer need Taiwan’s foundry, unlike the American computer manufacturers who are still using Taiwan ODM manufacturing.
Isn’t there Acer and Asus in Taiwan? First of all, these two Taiwanese manufacturers only have consumer laptops, and nothing else matters; they don’t have commercial laptops, and they don’t have a server department. Acer (about 4-5th in the global ranking of personal laptops) had a market share of about 2% in China ten years ago at its best, and now it has no visibility, let alone ASUS. China has Lenovo, the world’s first laptop vendor, do you think China needs Acer or Asus?
But still stuck in US processor
But what if Intel and AMD processors don’t supply Chinese PC makers? That’s another story. But I personally don’t think Intel is willing to give up this huge market that accounts for 1/3 of the company’s total revenue (please see my previous post for this topic “The importance of the China market: more than 10% of listed US companies, 14.98% of Taiwanese companies income come from China“), and the reason is very simple; the strongest opponent of the semiconductor ban in the Trump era is Intel.
If Intel processors cannot be imported into China, then the relationship between China and the United States can only be said to have reached the point of incompatibility. Is this possible? It is still possible. In the past 30 years ago, the United States banned even the export of then-advanced Intel 386 processors to the Soviet Union. After the Tiananmen incident, the United States also offered a similar plan to China.
In fact, things are not so pessimistic, because if you only ask for usability, and do not pursue performance and speed, China has his replacement of Intel and AMD processors. I’m not mistaken, it’s fully compatible with Intel and AMD’s x86 processors, and has been on the market for many years; we’ll talk more about this later.
How does China deal with the processor stuck?
It is undeniable that Intel and AMD’s x86 processors are still the mainstream of PCs, accounting for about 92% of the market, and 8% are non-x86 processors from Apple (ticker: AAPL). Of course, China knows that this is a checkpoint problem, so in recent years, it has spared no effort to invest in the open source Risc-V processor, and there are also preliminary small achievement.
Currently, most of them are MCU or IoT. Alibaba (ticker: BABA) and Huawei have both positive progress, but nowhere near the big commercial processors for PCs or mobile phones. You may ask why not switch to the ARM camp? ARM is a British company and is a Western camp (please see my previous post “Why is no one happy to see ARM acquired by nVidia?“) Will China be so stupid as to send a tiger away and welcome a lion to bite back?
People who are interested in this topic can refer to my previous blog article “Intel’s current difficult dilemma“.
What about the server part? As far as business processors for general business PCs are concerned, Intel and AMD’s x86 processors are still exclusive. However, in the fields of new generation data centers, accelerators, artificial intelligence and other fields, Nvidia (ticker: NVDA) has the same market share in China as it is in the world. In this area, Alibaba, Huawei, Baidu (ticker: BIDU), and Tencent (ticker: TCEHY) all have their own server processors, with Alibaba taking the lead. But the strength is still far from Nvidia.
In areas other than commercial enterprise use, China actually has its own unique server processor for a long time, they are non-x86-based and customized instruction sets for China, the most famous one is Loongson. Loongson is a RISC system with the MIPS instruction set, and the license is already in the hands of Chinese manufacturers, so there will be no problem of blocking.
However, MIPS is not the mainstream of the server, coupled with the lack of peripheral software support, resulting in Loongson’s efforts for decades, the commercial results have been very limited maily due to poor software support. There are other Chinese companies like Loongson, such as Mateng and Shenwei (this is the processor used in China’s world-leading supercomputer), but Loongson is still the most representative of them. At present, Loongson is mainly used in the servers of some special and sensitive official, military, research units, or government units that need security control, and has a certain amount of shipments and popularity.
China’s x86 comptible processors
China Zhaoxin has legal license of x86 intruction set processor, that is, it can produce processors compatible with Intel, and of course it can run Windows and all compatible applications. Zhaoxin has announced that it will launch an x86 architecture processor that will be developed using a 7nm process in 2022.
If the facts come true, the problem of the previous processor stuck will no longer exist; the situation of Americans stuck in China discussed in this article, at least in terms of hardware, will be out of the question.
In fact, there is no need to wait until 2022, if only it is usable; in 2019, the performance will reach the level of AMD Zen 2 (released in 2019), and the Zhaoxin KX-7000 supporting DDR5 and PCIe 4.0 has already been launched in the market. And there are KX-5000 and KX-6000 before.
In December 2023, Zhaoxin officially launched on the market the KX-7000 series, the most powerful self-developed central processor in mainland China’s history. Its computing performance is twice as fast as the previous generation KX-6000. It is currently the fastest central processor in mainland China. It is expected to be the key to breaking away from dependence on Western technology.
While the KX-7000 isn’t particularly impressive compared to its x86 competitors, including the ultra-mid-range Ryzen 7 7700X and Core i5-13600K, both have significantly faster clock speeds than the top-end KX-7000. But for the mainland, whether the KX-7000 can defeat its opponents is not the focus. The ultimate goal is to get rid of dependence on Western technology in order to achieve technological independence.
Zhaoxin previously revealed that the KX-7000 has been adopted by mainstream mainland machine manufacturers such as Lenovo Kaitian, Tongfang, Unisoc, Shengteng, Lianhe Donghai, etc. to introduce new products and aggressively seize the mainland domestic market.
In addition, in 2016, AMD also licensed x86 IP to Tianjin Haiguang, which is very similar to AMD’s EPYC processor. Linux kernel development is also long overdue.
Regarding the results of the processors currently developed by the big Chinese tech companies, I suggest you refer to my other blog post “Intel’s current difficult dilemma“.
Chinese system software
Since this article discusses the software and hardware of the corporate office, we will only focus on the operating system and Office software, and will not discuss China’s Internet software, mobile programs, game industry, and social network software.
Operating System Software Development in China
After reading the previous discussion, you should have a good idea. Except for the high-end Intel processors (explained earlier), China’s personal computer hardware is very strong. But that’s not the case in terms of software, the system software in mainland China is weak (at least compared to its hardware capabilities), there are many factors, and this is compared to the United States, because the software of the United States now dominates the world , even Europe has no way to take the United States, so basically this is a common phenomenon in the world, and it is difficult to solve it in the short and medium term.
The most powerful office operating systems in mainland China are Chinasoft International and Union Tech’s UOS. Chinasoft International has merged the winning software and Tianjin Kirin, which have two operating system brands, “Winning Kirin” and “Galaxy Kirin” respectively. Among them, Union Tech UOS was praised by Ni Guangnan, an academician of the Chinese Academy of Engineering, for the highest level of domestic operating systems.
But they are Linux, cannot execute Windows programs, compatibility equals zero, and the possibility of a short-term solution is zero.
Office suite in China
The biggest office software is Kingsoft (Lei Jun’s). Kingsoft software package is a big suite of packages, basically including most of the software that the office will use. In terms of functions, the WPS, spun off from Kingsoft, can replace Microsoft’s Microsoft Office, with no problem, it has 460 million users now. I used it 20 years ago and it’s not bad; a lot of its features Microsoft Office came many years later. So the problem is operating system, not office software.
Document and file management software
Adobe (ticker: ADBE) software, PDF file reading and writing and file management, China has Foxit, which is a well-known good software in the world. But for other multimedia software of Adobe family, China has some alternative software, but none of them can be replaced or replaced.
As for the ERP part, the largest one in China is YonYou, and the KIS is also large. It is widely used in ordinary Chinese local enterprises. However, most of the large and well-known multinational companies still use foreign SAP (ticker: SAP) or Oracle (ticker: ORCL).
Development of System Software in China
China’s hardware for office use is now completely fine, very good. The software of Kingsoft, WPS, and Foxit are not bad. Others are unable to find competitors of the same level that can compete with the American rivals. In the short and medium term, it should still be the case. In short, it is bound by a bunch of software compatibility on Windows that has been used for 20 or 30 years. This phenomenon is a common phenomenon in the world, not a headache unique to China.
What is the possibility of full Chineseization?
Hardware has the strength
Can manufacture x86 compatible CPU
Many schadenfreude Taiwanese frogs in the well hope that the United States can jam China’s neck, proud that China cannot survive without Taiwan’s TSMC (ticker: TSM). I recommend that who hold this view look in the mirror for themselves, and then go back and read the explanation of another blog post I wrote earlier, “6 Common Semiconductor Investment Myths“
From the perspective of chip design, the performance of China’s self-produced chips can already meet the needs of users in office work. If it is matched with the domestic graphics card developed by Jingjia Microelectronics, it is not difficult to use JingJia Micro’s x86 processor. What’s more, the requirements for the process technology of office processors are not so strict, 14nm is enough, and SMIC’s 14nm process has been put into production, which can provide them with protection.
An enormous market
The hardware aspect will definitely be implemented according to the announcement, which means that all public institutions and state-owned enterprises (this is a large order, at least 50 million units of copunters, so after the news was released, the relevant stocks have skyrocketed). In the future, PCs can only be bought from Lenovo, and servers can only be bought from Inspur. Because these two are now the world’s top three notebook and server manufacturers.
Who cares Cisco?
This happened before, after Lenovo bought the IBM laptop division, the original IBM laptops with the highest utilization rate in US public institutions were all replaced by HP, which was a big news at the time. More than a decade ago, Cisco (ticker: CSCO) competed witht Huawei’s network communication infrastructure products.
At that time, the United States ordered official units not to use Huawei’s products. But more than a decade later, now Huawei has been able to produce a cheap and powerful of 5G telecommunications system, so powerful that the western world is afraid that it must do everything possible to ban it with false rumors, what about Cisco? Still can only produce basic communication products.
The possibility of fully implementing localized software and hardware
Where is the plan?
Gap between China technology and US is still big, especially on software area. Unless China “forces” Chinese companies to use below combination of software and hardware:
- Lenovo personal computer
- Inspur server
- Operating System from Union Tech or Chinasoft
- Kingsoft suits and WPS
- A bunch of alternative software on Linux (a lot of such software in China, even if not, there are many open source software, in terms of usability , this is not a problem).
When it will happen?
This could happen if the long-term relationship between the US and China deteriorates to something like the US-Soviet relationship during the Cold War.
Nothing is impossible in the world, only when it will happen and how likely it will happen.
What about Taiwan?
Look at China and think about ourself. Strength is everything. It is recommended to read another blog article I wrote before, “The failed Taiwan software industry policy“, and you will see how far we are from others.
By the way, I personally hold a very pessimistic view of software being controlled by the United States, unless there is policy support (for example, China and the United States will be fully decoupled in the future, and the Chinese government will force the country to fully switch to self-made software and hardware, this is what you are current reading, this article), or the Europeans will also wake up (the probability of this is super low, almost impossible, because basically Europe and the United States have common interests, and they are all ruled by white people).
Otherwise “Americans’s monopolizing global software will contine in the next 2 decades, or I should say it will not change in the next 50 years.”
Don’t think I’m talking nonsense, all global big companies that use Microsoft Windows and Office now, they all started to use them thirty years ago, have you ever heard of any one that got rid of it? Just give me one case, zero! And I want to emphasize that everyone underestimates the seriousness of software being monopolized by the Americans in the global software. Its importance is much more serious than the embargo on key components of Chinese semiconductors in the West that everyone is discussing!
But what about the hardware? It is possible to break free from Western control for the foreseeable future. Why do I say that? What about the evidence? China’s current achievements in hardware development and this pile of information I have written for a long time are not evidence.
- “Chinese apps are taking over the world, accounting for 33% of global downloads“
- “How does the all-powerful Huawei make money?“
- “TikTok, the rival of all social networks“
- “Failed Taiwan Software Industry Policy“
- “The hardware and software gap between China and US, is all China-made software and hardware possible?“
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