Chips are down in China's battle for dominance

24.09.2020

As of September 15, the US controls the sale of all electronic components containing American technology to Chinese telecom giant Huawei. For China, this setback in the battle raging around Integrated Circuits confirms the fears that led to their Made in China 2025 strategy.

This strategy, published in May 2015, aims to make China the world’s top economic power by upgrading its industrial technology and reducing its reliance on foreign tech and components, which currently leaves it vulnerable.


The telecoms equipment and Integrated Circuits (ICs) industries were the first targets for improvement, and have both become battlegrounds between China and the US. The new control measures will not only threaten the dominance of Huawei’s smartphones but also its 5G infrastructure, on which many Chinese projects depend.

This is just the latest salvo in a long battle. In 2014, China funnelled $50 billion into the creation of the China Integrated Circuit Industry Investment Fund), and has since offered huge deals to acquire IC and IC production equipment manufacturers in other countries, including the US, but political pressure has foiled these attempts.


The US attack on China’s telecoms


Now the US has moved from defence (foiling mergers and acquisitions) to offence (controlling component provision), with a focus on telecoms precisely because of their importance to China’s industry – from smart grids and plants to autonomous vehicles and ships.


In 2018, the US fired its first broadside at its main national competitor, China’s no.2 telecom equipment manufacturer ZTE. A temporary veto on American semiconductors nearly destroyed ZTE overnight.

The US next attacked Huawei’s global dominance in 5G. In May 2019, the US refused the sale of American-made chips to Huawei. The Chinese company retaliated just five months later by launching a 5G infrastructure with no US components, which had been in the works since 2018 as part of the initiative to reduce dependence on foreign ICs.


Meanwhile, other Chinese firms – even those in unrelated industries, like online shopping mall Alibaba – also started acquiring or setting up subsidiary companies to develop semiconductors.


It’s less fab for fabless firms


The US followed up with a harder blow. Identifying that China’s IC industry was overwhelmingly fabless (lacking its own factories, so chip manufacture was contracted out), the US decided in May 2020 to start controlling all components made with American technology. This decision, implemented on September 15th, affects all major IC companies in China.


Chinese industry consumes 60% of the chips in the world, but only produces 15%. What’s worse,the main Chinese IC producer, SMIC (Semiconductor Manufacturing International Corp.) only makes 12 nm (nanometer) chips – not the tiny 7nm ones cutting-edge companies like Huawei need.


China is pouring more funding and tax exemptions into its IC industry, and advancements have been made, like the launch of the first Chinese laser wafer-cutting machine by CEC (China Electronics Corp.)


However, it will be years before China’s IC industry becomes fully self-reliant. In the meantime, we can expect more attacks and counterattacks between China and the US, as the battle for chip dominance has only just begun.


Sibling Recruitment 0 comment(s)

Comments