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Five reasons why China is attacking U.S. tech

Patrick Thibodeau | June 6, 2014
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.

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."


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