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Edward Snowden, Economic Reforms Complicate Silicon Valley's China Challenge

Nonetheless, reforms could spell good news for foreign companies with the correct skills and technologies, Brahm said. "There's going to be a big push in environmental technology as China moves to less fossil fuel usage," he added. "There's going to be huge investment in grid conversion, in energy efficiency systems and water conservation."

IBM, in particular, could benefit from its Smarter Planet initiative, which sells software and services to drive efficiency in areas such as industry, energy, transportation and government.

Still, U.S. companies have had to contend with some thorny political issues surrounding China's home-grown tech players. Last year, the U.S. House Intelligence Committee released a damning report on Chinese network-gear companies Huawei and ZTE. The 52-page document called for blocking acquisitions, takeovers or mergers involving Huawei and ZTE, citing the "threat to U.S. national security interests." The committee also said U.S. government systems and contractors should exclude Huawei and ZTE equipment.

The U.S. Government's stance may be weighing on Cisco, according to Mark McKechnie, telco equipment research analyst at Evercore Capital Partners. "I think that Cisco's sales to China were probably already a bit compromised as a result of the congressional backlash against Huawei," he told TheStreet. "That could explain why Cisco may be feeling it a bit more than some of the other U.S. tech companies."

Keen to gain market share, local firms are also increasing pressure on Oracle (ORCL), EMC (EMC) Cisco and IBM and  in China. Set against this backdrop, partnerships with major Chinese tech players, such as EMC's joint venture deal with Lenovo, could prove significant.

"China has certainly built good skills, capability and capacity to build a lot of these technologies on their own," warned Charles King, president and principal analyst of Pund-IT. "It doesn't take a big leap of the imagination to see a scenario where China says, 'thanks, but not thanks - we will buy a lot of these technologies from home-grown companies'."

Must Read: A Chart You Should See: Tesla

Underlining this trend, China's National Development and Reform Commission recently started an anti-monopoly investigation of U.S. chipmaker Qualcomm (QCOM).

"They are clearly saying 'we want to develop our own industries'," said Evercore's McKechnie. "I would say that the Chinese government wants to make sure that local suppliers are benefitting from this [economic] growth as well."

--Written by James Rogers in New York.

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