Xi Jinping wants China’s businesses to ‘Delete A’ from their supply chain. Left with a bruised chin, Chinese companies are acting fast to build domestic capabilities in order to reduce their dependence on the United States of America. Shorthand for ‘Delete America’, ‘Delete A’ is a Chinese government directive that aims to replace American technology with domestic alternatives within Chinese state-owned companies by 2027. Companies in Finance, Energy, and other crucial sectors are expected to lead this change.
The Chinese government has issued a directive called Document 79, which is colloquially called “Delete A,” for Delete America. It is highly sensitive and is reported to have been shown only to high-ranking officials and executives, and no copies were allowed to be made.
A Longstanding Ambitious Agenda
While this directive may be a bit too targeted, protectionist measures are not new for China, nor for other ambitious economies in the world. China has had the ‘Made in China 2025’ plan active since 2019. MIC 2025 is an initiative that strives to secure China’s position as a global powerhouse in high-tech industries. It aims for self-sufficiency in core technological areas like semiconductors and artificial intelligence (AI).
Chinese officials believe that the US controls the most important core technologies, especially in semiconductors, which means it controls the upstream and downstream segments of the industry value chain. Semiconductors represent the foundation of much of modern technology in the information age. These postage-stamp sized electronic devices power the modern economy by serving as the brain for everything from computers, tablets, smartphones to robotics, military radars, and satellite systems in underpinned by semiconductors.
That’s why a total tech transformation of its domestic industry matters so much to China.
Closing the Gap
In pursuit of its tech dominance, China has significantly increased funding for domestic R&D initiatives. R&D expenditure in China’s high-tech industry has grown more than three and a half times from 170 billion yuan in 2012 to 650 billion yuan in 2022.
China is also leveraging state-owned enterpirses to steer resources and investments towards achieving its technological goals. This allows for centralized control and quicker decision-making. As a consequence, domestic companies in China have been able to up the manufacturing of hardware, chips, and software.
The ramifications of these measures have already been felt by American multinationals. Leading hardware makers such as Dell, IBM, and Cisco Systems have been gradually losing market share, with businesses opting for cheaper equipment made by their Chinese competitors.
As part of its ‘Delete A’ directive, China has now set its sights on America’s premier software providers such as Microsoft and Oracle. While the impact on these companies is not expected to be immediate as China has a lot of catching up to do, history dictates that it’s only a matter of time.
Image generated by DALL-E.
Countermeasures by the US
The irony is that these American tech giants are the ones who have powered China’s meteoric industrial rise over the last few decades. Deeming itself to be tech giant in its own right, China is now aiming to overpower America.
However, total economic domination is not the sole aim here. Concerns over the country’s long-term security are a key contributor towards this Chinese tech push. The tensions run across both sides in this regard.
For example, Huawei, once hailed as a symbol of China’s technological rise, has come under intense scrutiny from the US government, which views the company as a Trojan horse for Chinese espionage. Allegations of backdoor access to sensitive data and close ties to the Chinese Communist Party have led to a global backlash against Huawei, culminating in its exclusion from key markets and alliances.
The US has even restricted the sale of certain sensitive technologies to China, hindering their access to cutting-edge components. There is also heightened scrutiny of Chinese investments in US firms, aiming to safeguard sensitive technologies from falling into unwanted hands.
A Global Issue
The tech standoff between global superpowers could have far-reaching consequences.
Disruptions in the flow of technology between the two largest economies can cause ripple effects across global supply chains. Manufacturers across the globe may face shortages of crucial components, impacting production timelines and potentially driving up consumer prices.
Limited collaboration between US and Chinese researchers and businesses could also hinder the overall pace of technological advancement. Sharing of knowledge and expertise is often crucial in accelerating breakthroughs, and restricted interaction can slow down innovation globally.
This tech rivalry may also act as a accelerant to existing geopolitical tensions. Distrust surrounding technological capabilities can fuel broader political disputes, potentially spilling over into other areas like trade and military relations. This can create a more unstable international environment.
Delete or Undo?
The tech war between the United States and China could shape the rest of the 21st century, with far-reaching implications for geopolitics, economics, and the future of technology.
A complete decoupling, however, where the US and China sever all technological ties, is unlikely. Both economies are deeply intertwined, making complete isolation economically unfeasible. However, a partial decoupling, with limitations on specific technologies and increased domestic production focus, seems more probable.
As Chinese companies embracing the concept of ‘Delete A,’ it remains to be seen whether the strategic move will indeed give the nation’s businesses a leg up or if they’ll find themselves in need of an ‘undo’ button.
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Written by: NIMESH BANSAL
