Foreign media: Chinese chips are forced to strengthen themselves, and the United States may be powerless

Semiconductors, sometimes referred to as “chips,” are at the heart of economic growth and an important part of technological innovation. Nanoscale chips, thinner than a human hair and composed of as many as 40 billion transistors, can have a huge impact on the global economy.

These integrated circuits (ICs) are extremely complex and expensive, and power everything from computers, smartphones, cars, data center servers to game consoles. The chip industry is facing a shortage crisis as the Covid-19 pandemic and international trade disputes strain supply and value chains, and demand for chips is only rising.

From the geopolitical dimension of semiconductors, the United States and China are vying for technological supremacy, which could further fragment global supply chains and disrupt international trade.

Geopolitical futurist Abishur Prakash said the chip industry is in trouble, a sign that the geopolitics of technology could threaten any sector.

Prakash, an author and consultant at the Toronto-based Centre for the Future of Innovation, told TRTworld: “Nothing is immune to the chip industry, and the chip industry is no longer the same as it used to be when countries are open to doing business with each other. Now, chip companies need to be licensed or government Approval before any action can be taken.”

He said the industry has been forced to rethink its global operations, from recruiting to rare earth metals mines, as countries increasingly want to move supply chains outside of China due to geopolitical concerns.

Since the U.S.-China friction started to hit the headlines in 2017, much of the attention has been on the trade and 5G campaign against China’s most important global tech company, Huawei.

But Washington’s recent punitive measures against semiconductors have created a more fundamental problem for Beijing — cutting off efforts to supply chips to Huawei and encouraging the construction of advanced semiconductor factories in the United States that have dragged the industry into the new technology cold war.

Last September, the U.S. government also imposed sanctions on Semiconductor Manufacturing International Corporation (SMIC), China’s largest chipmaker.

And two months later, China released its 14th Five-Year Plan, in which it talked about increasing autonomy in semiconductor production to help achieve technological self-reliance. On March 5, Chinese leaders talked about investing in core technologies such as chips, artificial intelligence and 5G as a way to catch up with the United States.

While closing the semiconductor technology gap is one of China’s top priorities, significant hurdles remain.

China pushes for chip independence

The U.S. has maintained its lead in the semiconductor industry for decades, controlling 48 percent ($193 billion) of the market by revenue. Eight of the world’s 15 largest semiconductor companies are in the United States, and Intel leads the pack in sales.

At the same time, China is a net importer: For three years in a row, China has imported at least $300 billion in chips, more than any other country, and it supplies about 30 percent of its domestic chip supply.

Because the next generation of semiconductor technology relies on the most advanced integrated circuits (ICs), it can be seen how important technology is in the field of semiconductors, but China is not lost. Given its over-reliance on foreign technology, the Chinese government is eager to rapidly develop its domestic semiconductor industry to achieve “chip independence.”

At the chip design level, Huawei has successfully developed the in-house Kirin chips used in the company’s 5G devices and smartphones, which are said to have a competitive advantage over rivals Samsung and Qualcomm.

But the main problem China now faces is the manufacture of high-end chips. Because Huawei’s Kirin chipsets are made by TSMC using American technology. In addition to semiconductors for mobile devices, in other key semiconductor areas such as memory and logic (CPU/GPU), Chinese companies lag far behind their Western counterparts in both design and market share.

In terms of semiconductor technology, the driving force behind IC design is miniaturization.

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s leading chip maker with more than half of the foundry market share, is now embarking on a 3-nanometer (nm) production process, with 2-nanometer chips expected to enter the market in 2025.

By contrast, SMIC foundries in China did not start producing 14nm chips until late 2019, putting them at least two generations behind the leading foundries in the US and East Asia.

Chinese government support has boosted domestic chip production over the years. But China’s semiconductor exports reached $101 billion in 2019, up 20 percent year-on-year.

Despite significant investment, China is unlikely to achieve independent semiconductor manufacturing capabilities within the next decade, except in a few niche markets. Like TSMC, China may be more conducive to concentrating capabilities in one segment rather than the entire supply chain.

In the long run, some believe China’s semiconductors could be at risk, as the collapse of potential startups could lead to massive job losses.

In the near future, Chinese companies cannot compete with top competitors due to restricted access to specialized manufacturing equipment and software. Other bottlenecks, such as a lack of industry talent and innovation, hinder the development of self-sufficient supply chains.

“It will take time for China to catch up. The numerous cases in China show that China is not starting from scratch,” Prakash said.

“But at the same time, in the short term, Chinese companies will feel the impact of U.S. action on chips, and China will work to address this pain point for its companies.”

The influence of Taiwan factor

Ultimately, semiconductors represent the crux of America’s and China’s interdependent technological ambitions: Every major Chinese tech company relies on American chips, and many American companies benefit from the Chinese market and customers.

Given its central role in chip manufacturing and supply chains, Taiwan is likely to be caught in an escalation of the U.S.-China conflict, as they both rely on semiconductor devices produced by Taiwanese companies.

Taiwan plays a pivotal role globally due to its position in technology.

Prakash said. “Mainland China is doing a great job of attracting Taiwanese talent and technology, and Taiwan is just as hardworking in preventing China from absorbing talent.”

Prakash believes that China’s access to markets such as Taiwan, China, while under U.S. sanctions, is critical to seeking the technology and expertise it needs to catch up.

After all, mainland China is far behind Taiwan in chip production, while South Korea and Japan play key roles in chip production. As U.S. allies during the Cold War, these economies benefited from U.S. capital and technology transfers.

The U.S. has tightened its licensing policies for Chinese entities to tighten export controls on semiconductors, and Washington has cracked down on Chinese investment and acquisitions of U.S. technology, as competition between the U.S. and China intensified under the previous Trump administration.

To maintain its leadership in chipmaking, Washington has implemented a so-called entity list to stamp out sales to Chinese companies, as it has done with Huawei and SMIC.

The U.S. appears to be aiming for an allied confrontation, prompting companies such as TSMC to decide which side to take.

Semiconductors remain one of the biggest advantages of the Biden administration’s mediation with China. In the new Cold War, you will have to fight with the weapons you need,” wrote writer and journalist James Crabtree, adding: “Biden, as he seeks to acquire global chips, may We will continue to implement a Chinese-style industrial policy. Push suppliers to move to the US. “

However, persuading other Asian and European countries to follow suit and impose similar restrictions on China would be fraught with political and economic risks.

U.S. China hawks in both parties see U.S. dominance in a key semiconductor sub-sector as a strategic policy lever that can be used to make a big fuss with China. But will America’s tech denial measures defeat themselves in the long run, prompting China to invest like crazy to close the gap?

“Now that China is forced to double down and build its own domestic technology, the U.S. has lost the levers of control. Once China develops its own advanced chip industry, it can take a major geopolitical step,” Prakash said.

“By then, there will be nothing the US can do to stop China.”