China’s demand that the public sector step up use of domestic semiconductors can best be seen within Huawei’s Qingyun L540 laptop.

The “safe and reliable” device features a self-designed processor and a Chinese-made operating system, having stripped out foreign-made components and software as much as possible.

The computer, which is being snapped up by governments and state groups across the country, has become the signature model of China’s localisation campaign known as Xinchuang, or “IT application innovation”.

For decades, Chinese officials have dreamt of creating a domestic tech supply chain, especially in building-block components like semiconductors. Progress was slow. But Washington’s ratcheting embargo on high tech goods has spurred Beijing to redouble its efforts. 

“We must ramp up R&D efforts in semiconductors, machine tools and foundational software,” President Xi Jinping exhorted top scientists and policymakers this summer. “They provide the technological backbone for independent, secure and controllable supply chains,” he said.     

Chinese officials are now combining the heft of state spending and financial support with top-down directives to buy local tech, particularly in semiconductors.

Late last year state buyers were directed to phase out computers powered by American processors.

Since implementing the directive in March, central agencies have transitioned from exclusively purchasing laptops running on Intel and AMD processors last year to now acquiring three-quarters of their devices with chips from Chinese companies like Huawei, Shanghai Zhaoxin and Phytium, according to public records. Huawei’s Qingyun L540 has won a majority of the orders. 

What kicked off as a campaign to cut foreign tech products out of the offices of governments and state-owned groups has gradually expanded into a wider array of products.

Automakers, including major European groups which produce cars in joint ventures with Chinese state-owned firms, have been directed to step up their use of domestic semiconductors, according to four people familiar with the matter.

Two of the people said they had been given a target to use Chinese chips for 25 per cent of the total by next year, though there were not yet consequences for failing to do so. Nikkei Asia previously reported this directive.

China’s Ministry of Industry and Information Technology, which is leading the country’s tech localisation efforts, has outlined a plan for national auto chip standards. The goal is to “provide space for our country’s indigenous innovation in auto chips”, MIIT said in December. 

An engineer at a major European vehicle maker said they have begun to inventory their components and where their chips came from. “It will not be easy to design-in Chinese chips,” the person said. “But if we are able to do so successfully, I expect they will be pushed into global products because they are so much cheaper.”

Major foreign telecom kit makers are also being encouraged to substitute domestic semiconductors into their gear to maintain sales, two people familiar with the matter said.

State-backed China Telecom recently tendered for 150,000 servers for its network. Two-thirds of the order was reserved for servers equipped with domestic processors, procurement records show.

Huawei’s Qingyun laptop, tested by the FT, also contains Chinese software running on the local hardware. The device ran on the Chinese-made Unity Operating System, based on Linux. Users can play music, edit photos or create word documents and spreadsheets, similar to a Windows machine. But all of the applications are made in China. 

The laptop’s Word-like application is made by Chinese software group Kingsoft and saves text files as “.wps” instead of the “.docx” format used by Microsoft. Chinese agencies like MIIT, the State Tax Administration and Maritime Safety Administration have started to publish some government documents in the format.  

But Huawei’s Xinchuang laptop is not yet fully divorced from foreign technology, showing the challenges ahead for Xi’s campaign. 

Its Huawei Kirin 9006C processor was manufactured in Taiwan in 2020 ahead of tighter US export controls to the Chinese national champion, which came into effect in September of that year, according to an examination by research group TechInsights. Huawei stockpiled a mass of the 5 nanometre chips ahead of the sanctions cut-off.

The laptop’s USB controller hub comes from American company Microchip while two memory chips come from South Korean company SK Hynix. The 512GB storage was packaged in December 2020, according to TechInsights.

SK Hynix said it strictly complies with the US export controls and has suspended transactions with Huawei since they were announced. Microchip did not respond to requests for comment. 

Lin Qingyuan, a Chinese hardware expert at Bernstein, said that while Beijing’s Xinchuang policy had accelerated adoption of local tech, Washington’s sanctions were actually having a more pronounced impact. 

“When companies have no choice, it creates a market for the local players, like for AI chips,” he said.

TechInsights’ analysis showed that most of the important chips were designed by Chinese groups, representing about $109 of the $182 worth of integrated circuits in the laptop. 

Stacy Wegner, a senior technology analyst at TechInsights, said it was not what you would typically find in a laptop. “This was a very Chinese IC heavy laptop,” she said. “That’s for sure.”

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A potential partnership between Volkswagen and Renault would have brought together household names of Europe’s top two economies and formed a counterweight against Asian rivals muscling into the local market.

As an American-German family living on both sides of the Atlantic, I must sadly agree with Janan Ganesh’s assessment in his characteristically insightful article “Why Europe will not catch up with the US” (Opinion, September 19). He captures the core issues with precision. However, I find myself even more pessimistic about Germany’s ability to preserve the European “dolce vita” beyond Generation X.

The challenges facing Germany are multi-faceted. Entrepreneurs here continue to struggle with a lack of support and access to funding, which stifles innovation and economic growth. Despite the growing need for modernised industries and fresh ideas, the “old boys’ club” mentality persists, keeping power concentrated in the hands of the traditional elite. This resistance to change is not just limiting entrepreneurship but also the ability of Germany to adapt in a rapidly evolving global economy. Moreover, the country’s education system is underfunded, leaving younger generations with fewer opportunities to compete in a highly skilled, global workforce.

At the same time, the burden on the social welfare system is at an all-time high, with a worrying trend that many welfare recipients and their offspring may remain dependent on state support. This situation risks creating a growing divide between those who contribute to the system and those who rely on it, further hampering economic progress.

My 20-year-old, who sees these issues first-hand, recently commented that if things continue this way, she may reluctantly move back to the US — a decision she views as a last resort.

It’s a sentiment I hear echoed more often by young people in Germany, and it’s deeply concerning for the country’s future.

Alka Schumacher
Cologne, Germany