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TriOrient Research

Chip Dreams: Will China Catch Up With The West?

已更新:2022年6月16日


The China Institute put on an online symposium to discuss China’s semiconductor industry. Below are notes from that discussion, written into a story. The information is all from the panelists.


The seminar focused on whether or not China can become a technology powerhouse in advanced semiconductors.


The answer: Yes, but the industry is harder than rocket science, and the U.S.-China relationship is a major hurdle.


China needs help from the U.S., which controls much of the technology for advanced semiconductor manufacturing.


Friction in the relationship has led to problems.


The panelists pointed out a few key technology-related issues that have soured relations between the two nations.


One was China’s massive national semiconductor industry investment promotion plan, which looked to the U.S. like it was trying to expropriate the entire industry.


The other was the U.S. banning Chinese companies from using U.S. technology, as punishment for not following certain rules.


In 2014, China launched a US$30 billion national semiconductor investment fund. The fund was aimed at developing an industry vital to its technology sector and reduce reliance on foreign exports.


Most of the semiconductors China needs are manufactured outside the nation.


In 2020, for example, China imported $350 billion in semiconductors, up from $306 billion the year before, the panelists noted.


China hoped the national investment fund would cut future import figures.


Trouble began when U.S. officials noted that that $30 billion fund from the central government, combined with additional funds from provincial and municipal governments, turned quickly into $150 billion.


With $150 billion, the China funds appeared far more threatening, for U.S. industry and defense.


Semiconductors are used in a range of military items, from ballistic missiles to fighter jets, radar and communications systems, and more.


The second issue was U.S. government sanctions on China tech firms.


In 2016, the Obama administration placed the China’s ZTE on the entity list over sales of certain items to Iran, banning the sale of U.S. semiconductors and other technology to the firm.


ZTE worked its way off the entity list by paying a fine and disciplining certain executives.


Shortly thereafter, the Trump administration decided ZTE was not living up to its agreements and put it back on the entity list.


It nearly destroyed the company.


“That was a huge moment for the China-U.S. political relationship,” said panelist Winston Ma, an adjunct professor, author, and former head of the North America Office for China Investment Corporation (CIC), China’s sovereign wealth fund.


China clearly understood its vulnerability in the digital age after the incident.


It’s important to note that at the time, ZTE was the biggest smartphone company in China, and had over 250 suppliers in the U.S. for semiconductors and other components, so the government decision hurt American companies as well.


President Xi and President Trump agreed in July, 2018 on a plan to get ZTE off the entity list and the company was bailed out.


Shortly thereafter, in 2019, China’s Huawei, was put on the entity list, also for failing to follow U.S. regulations regarding the sale of certain items to Iran and for being perceived by the U.S. government as a security threat.


The issue with Huawei continues today.


In the case of U.S. sanctions against China semiconductor foundry SMIC, the broader issue of China’s military modernization came into play.


The ability to manufacture advanced semiconductors means the ability to make chips, for example, for high performance computers that can model advanced military weapons systems.


China chip manufacturers had already been barred from purchasing equipment for sub-10-nanometer production, but were allowed to buy equipment for more mature technologies. These rules remain in effect.


China continues to seek ways to further develop its semiconductor sector.


In March of this year, China launched a new initiative to increase R&D spending by more than 7% per year between 2021 – 2015 in pursuit of major breakthroughs in technology.


Another interesting question for the panel was about China’s lack of success so far in developing its semiconductor sector, despite billions of dollars in subsidies and investments.


“It’s a very difficult industry,” said Ma.


It’s capital intensive and R&D intensive. The amounts of money are in the billions, more than the cost of a brand new aircraft carrier, and the R&D takes years to move forward even an inch.


“It’s rocket science. It’s even more difficult than rocket science.” said Paul Triolo, an analyst at Eurasia Group and a senior official in the U.S. government for 25-years, who focused on China’s rise as a science and technology cyber power.


Ma added as an example that many of his university classmates across industries had already moved on to new professions, many in investments or venture capital.


But classmates that had gone into the semiconductor industry remain there because the industry is so difficult.


“They have not risen in their industry like the rest of us. It’s not because we’re smarter, but because the industry is so difficult,” he said.


Building talent in the semiconductor industry also simply takes time. It’s not just technology or money, it’s the intangible engineering know how that is accumulated over many years, he said.


End.


The China Institute, founded in 1926 in New York by Chinese and American educators, is a non-profit focused on education and other issues related to China.





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