5 Reasons Why China is Attacking U.S. Tech

China's blistering attacks on U.S. tech firms is more than quid pro quo over cyberspying charges. It's a signal of China's growing confidence in its own technology capabilities.

China's blistering attacks on U.S. tech firms is more than quid pro quo over cyberspying charges. It's a signal of China's growing confidence in its own technology capabilities.

China makes its own computer chips, has the world's fastest supercomputer, and is on target to surpass the U.S. in R&D spending. It has built its own social media empire for its 600 million Internet users, keeping Facebook and Twitter on the fringes.

Lenovo, a company that claims dual headquarters in North Carolina and China, is today the largest PC maker in the world.

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But China is now engaged in something of a war of words against U.S. tech firms, as it counters American criticism and more of it's activities, which include the recent indictment of five people from China on cyberspying charges.

In response, China's government is taking aim at hardware vendors and information providers such as Google. Its state run media ran a story Wednesday saying "Foreign tech firms pose threat on Internet." It'srattling Microsoft with TV spots that threaten to ban Windows 8. Chinese server maker Inspur is running an "IBM to Inspur" initiative, which according to reports, might seem like a spin from an old Sun vs. IBM server battle.

But this isn't just about cyberspying. China is picking and choosing its targets carefully.

Here are five reasons China is acting the way it is now.

1. China is asserting itself

China President Xi Jinping, a chemical engineer by training, is clearly wielding power. He took office last year.

Six months after taking office, Jinping approved an air defense identification zone in the East China Sea, requiring aircraft to report flight plans, and provide other information. It is also exercising territorial rights for drilling in the South China Sea, antagonizing Vietnam in particular.

China's military capabilities are rising. It now has an aircraft carrier, and gave Chuck Hagel, the U.S. defense chief, a tour of it in April. China is working on stealth aircraft, and made that clear in a slide presented at a conference showing how its high performance computing (HPC) systems are used in its military aircraft development operations.

Andrew Bartels, an analyst at Forrester, sees China's recent posture on U.S. tech companies as part of its overall approach. China "Has become more assertive of its position in foreign policy," he said.

2. China's innovation policy pushes U.S. tech to the side

China wants to wean itself from as much foreign tech as possible. Its plan is to reduce its dependency on foreign technology from about 50% today to 30% by 2020, according to a report released last last year by the Congressional Research Service.

There's much hostility about China's indigenous innovation program in Washington because of how it operates.

Foreign firms are under pressure to transfer technology in exchange for access to China's market. U.S. Sen. Ron Wyden (D-Oregon) called the process a "shakedown" at a hearing in May.

China, in its attacks, is not targeting databases or other business systems.

It's going after hardware and information services, because that's where it is making the most progress.

3. China's hardware capability is increasing

China's most obvious display of tech innovation is in its development of HPC systems. It is now building systems made entirely of indigenously developed products, including chips and interconnects.

It builds big systems, and it took the world's number computer performance ranking one year ago this month, with a nearly 34 petaflop system. It's still on top of the list.

As China's hardware confidence rises, the resistance to U.S. vendors may increase. Forrester's Bartels said that for U.S. hardware makers, "there are now increased barriers to sales to China that are higher than they were a year ago or two year ago." That may put hardware revenue at risk, he said.

Crawford Del Prete, an analyst at IDC, said the strategies used to sell in China and other emerging markets will have to get more sophisticated.

"This is an awakening moment," said Del Prete. He expects to see vendors respond by doing more to cater to the market, "and demonstrating to the Chinese government, as well as Chinese consumers, that their products are best in class when they are, and need to be made available to Chinese customers."

4. China's attacks are limited for a reason

A huge amount of China's software is pirated. Analysts say piracy has worked against the country by undercutting incentives to build homegrown systems. "China's capabilities in software are so basic they really don't have an option," said Bartels.

That's why China isn't railing about business software, and is keeping its focus on hardware and information services.

5. There's no downside for China right now

Even if it becomes increasingly difficult to sell in China, the government knows its consumer market is so vast, U.S. tech firms will only work harder.

China's IT spending increased more than 8% last year, nearly double the U.S., according to IDC, and has been forecast to do much better this year. China's IT spending, overall, is less than a third of the U.S., but it surpassed Japan last year to become the world's second largest IT market.

China's attacks on U.S. firms, and its belief that it can reduce its reliance on U.S. technology, is backed by money.

John Holdren, who heads the White House Office of Science and Technology Policy, recently warned that China's R&D investments would surpass the U.S. "in a matter of years."

This story, "5 Reasons Why China is Attacking U.S. Tech" was originally published by Computerworld.


Copyright © 2014 IDG Communications, Inc.

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