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Semiconductor shortage: China’s chip manufacturing efforts decline without technological advantage

 


China’s desire to become a true technological rival in the United States faces fundamental challenges. China does not control the semiconductors that make up everything from smartphones to self-driving cars. In 2020, the Chinese economy spent more than $ 350 billion on buying chips, primarily based on Western technology, more than it spent on oil.

For decades, the Beijing government tried to create a nationwide business to independently design and manufacture state-of-the-art chips, but with little failure. The country has a local chip industry, but state-of-the-art products remain in the domain of companies such as Intel, Samsung and TSMC.

China’s concerns grew during the Trump administration, and the U.S. effectively destroyed Huawei Technologies Co.’s global smartphone business by forcing chip suppliers to cut it off, undermining its device manufacturing capabilities. .. Companies affiliated with the United States dominate the industry that manufactures the machines needed to make chips, further complicating China’s self-sufficiency ambitions. Meanwhile, semiconductor shortages, which are the result of soaring demand and long-term trends in the Covid era, indicate that supply turmoil can have a major impact on the global economy. Chinese authorities know that the country is vulnerable. “For our country, innovation is not just for growth,” Deputy Prime Minister Liu He told the country’s top scientists in May. “It’s a matter of survival.”

Xi Jinping President, which is a close political ally Liu in the intimacy of childhood, was prosecuted as was turn things around. Liu planned to implement what he calls the “national system.” This is reminiscent of the development of a Chinese nuclear bomb under Mao Zedong’s rule, in which the government mobilized scientists, factories, and troops to create weapons aimed at offsetting US nuclear hegemony. Although China has largely transformed into a market economy, Chip’s efforts show how much China retains aspects of the tradition of central planning.

Liu’s strategy relies primarily on chips called compound semiconductors, or third generation chips. These chips are made of new materials such as silicon carbide and gallium nitride, which allow electrons to move faster and theoretically increase processing speed. Compound semiconductors offer a novel approach and give China the opportunity to take the lead in areas that are not as late as traditional chip manufacturing.

It’s far from a sure bet. The United States and other countries are also aware of the potential of composite chips and are competing for their development. Still, Citigroup Inc. Li-Gang Liu, an economist at China, believes that China has the opportunity to drive rapid technological progress by taking its own path rather than piggybacking on foreign companies. “Decoupling could be China’s” Sputnik Moment “. This is an external trigger in an era of rapid technological progress, “he wrote in his June research note.

One of the advantages of China is the huge domestic market. China plans to spend $ 1.4 trillion on advanced technology by 2025. These technologies have the potential to drive demand for third-generation chips, and according to China’s advanced semiconductor industry innovation, Chinese chip makers have already spent about $ 10.8 billion to expand their ability to build such semiconductors. I’m spending. Alliance. Since 2014, the government has invested approximately $ 53 billion in two separate national funds to support domestic operations.

However, China’s history of chip manufacturing shows that money cannot solve all problems. The chip effort, which began over 20 years ago, is characterized by unfulfilled promises, stillbirth projects, and government waste. While government initiatives have helped establish several large companies, including Shanghai’s Huahong Group and Semiconductor Manufacturing International Corp. (SMIC), China is one of the world’s largest single chip makers with major cross-border rivals. Is not in production. In an industry where essentially all economic benefits of all categories go to the top one or two, only the largest companies can remain relevant.

SMIC headquarters in Shanghai.

Photo Illustration: 731; Photo: Bloomberg

As a result, China was unable to maintain its pace. Chips are generally evaluated in nanometers and are traditionally a measure of the gate width of a chip’s transistors. The smaller the gate, the faster the operation with less energy. SMIC states that it can manufacture 14nm chips, but its current main business is manufacturing 28nm chips and other mature technologies. By comparison, Taiwan Semiconductor Manufacturing Co. aims to increase mass production of 3nm chips in 2022 and delay SMIC by 5-6 years.

Despite China’s very large population, looking inward may not be enough. Christopher Thomas, a non-resident senior fellow at the Brookings Institution, said the non-Chinese market is still larger than the domestic market, and the few chip makers that dominate the world are more than Chinese companies that operate primarily domestically. It states that it is set to make money. On the other hand, continued geopolitical tensions could increase the barriers facing Chinese chip companies abroad. All of this provides existing enterprises with the resources to develop advanced technologies faster and further enhances their benefits. “The economics of the’China only for China’supply chain doesn’t work,” Thomas wrote on the Brookings website in January.

In addition, the amount of money the Chinese government invests in chip manufacturing efforts distorts the market in ways that can make it less competitive. Strong local interests chased government money by defending unrealistic projects in the hope of securing subsidies and sometimes political fame. According to an analysis by the South China Morning Post, approximately 15,700 new semiconductor companies registered between January and May. This is three times the same period last year.

Some of the resulting failures were spectacular. Hongxin Semiconductor Manufacturing Co, a government-sponsored $ 20 billion chip project in Wuhan, central China. Let’s take as an example. It promised to produce 30,000 wafers each month for 7nm chips and collapsed before producing one wafer in late 2020. State media accused private investors of failing to provide the promised capital, and the government took over.

Increased government control does not necessarily improve some of the adverse effects of the central command model. This approach hasn’t worked so far, and research firm Gartner Inc. Roger Sheng, a chip analyst in Shanghai, says there is reason to be skeptical of change. “The semiconductor industry is very market oriented,” he says. “It’s not like launching a space station. It’s a combination of the best technologies. There are many things to consider in the chip industry, from cost to efficiency. Incorporating these factors into government policy. Is difficult. ”— Edwin Chan and Yuan Gao Read more: Beijing’s technology crackdown allows China to model national law

Bottomline-China’s strategy for semiconductors shows how it retains aspects of centralized planning, and the results show the difficulties inherent in that model.

Sources

1/ https://Google.com/

2/ https://www.bloomberg.com/news/articles/2021-07-27/semiconductor-shortage-china-s-chipmaking-efforts-falter-without-tech-edge

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