Can Chinese semiconductors break out of the US encirclement?

Source: Content from Nikkei Chinese website ,Thanks.

Think about what is happening in the mainstream field of the world's semiconductor market today. If we use one sentence to summarize this mainstream trend, it is "the competition for hegemony over semiconductors between China and the United States."

This may give the impression that China and the United States are competing with each other in a position of almost equal strength, but at present, the United States is clearly ahead in terms of development capabilities, production capabilities, IP (intellectual property) accumulation, and related industries such as semiconductor manufacturing equipment. However, what worries the United States is that this advantage "will sooner or later be threatened by China's offensive and may damage the industrial ecosystem that brings innovation."

China to invest $150 billion in next 10 years

Let’s start with China’s actions. In the “Outline for Promoting the Development of the National Integrated Circuit Industry” issued by the Chinese government in June 2014, specific goals were set: by 2015, the manufacturing process of 28nm circuit line width will be put into mass production, by 2020, the manufacturing process of 14nm will be put into mass production, and by 2030, the main links of the integrated circuit industry chain will reach the international advanced level. This became the clarion call, and investment funds from the central and local governments were successively established. According to the statistics of the President’s Council of Advisors on Science and Technology (PCAST) mentioned below, the scale of these funds “will reach US$150 billion in the next 10 years.”

China has set a goal of having the world's highest level of capabilities in the semiconductor field by 2030.

Why is China so enthusiastic about catching up with advanced countries in the field of semiconductors? This may be because China has realized that as long as it is unable to independently manufacture semiconductors, which are called the "industrial food" of the IT era, industrial upgrading will be difficult. There is a symbolic number. Looking at China's trade statistics in 2016, it can be found that the trade deficit of "semiconductors and other electronic components" reached 166.4 billion US dollars, far exceeding the 114.3 billion US dollars of "petroleum and crude oil".

Of course, China assembles imported semiconductors into smartphones and re-exports most of them, so the actual trade deficit should be small, but the huge trade deficit in the semiconductor field reflects the backward industrial structure that cannot independently manufacture cutting-edge components and can only make profits through assembly and other foundry models. In order to solve this problem, China even spends a lot of money to acquire foreign companies to obtain technical resources and human resources whenever necessary. This is the actual situation of China's nationwide promotion of the semiconductor industry in the past three years.

One of the parties that has expressed concerns about this trend is Taiwan. When Taiwanese companies build semiconductor factories in mainland China, they need to obtain approval from the Taiwanese authorities. In addition, these Taiwanese companies are prohibited from introducing the most advanced production processes in related factories in mainland China, and are only allowed to introduce technologies that are one generation behind. From this, we can feel that the Taiwanese authorities want to prevent the semiconductor technology, which is a basic industry, from easily flowing out.

Another country standing in the way of China’s ambitions is the United States. The President’s Council of Advisors on Science and Technology, an advisory body to the US President mentioned above, submitted a report on “ensuring US leadership and initiative in the semiconductor field” to then-President Obama in January 2017. The working group that wrote the report included executives from Intel, Qualcomm, and JPMorgan Chase.

The report points out that semiconductors "can be called the foundation of new generation technologies such as robots and artificial intelligence (AI), and are also crucial for national defense technology, and are an area where the United States cannot give up its dominant position to other countries." The report also sounded the alarm about the distortion that China's industrial policies may bring to sound market competition, and called for measures to be taken when necessary. It is worth noting that this report was not proposed under the Trump administration, which advocates trade protectionism, but at the end of the Obama administration, which adopted a stance of integration with China. It can be seen that maintaining the United States' leadership in the semiconductor field is a unanimous idea of ​​all parties in the United States.

The United States is increasing its vigilance and intends to build a siege

Even before this report was released, Chinese capital's attempts to acquire US semiconductor companies had been repeatedly frustrated. The most famous of these was the 2015 acquisition proposal of Micron Technology by China's Tsinghua Unigroup. The proposal was eventually stopped by the US government. In addition, in November 2016, the Committee on Foreign Investment in the United States (CFIUS) also stopped a Chinese investment company's acquisition of a semiconductor manufacturer (the US legal entity of Germany's Aixtron) on the grounds of "security concerns."

Although China has refuted the allegations, pointing out that it lags behind three generations in technology and process and poses no threat to the United States, and hopes that the United States will not be afraid of China's actions and welcomes American manufacturers to actively invest in China to make profits, the US attitude has not changed so far.

Japan is not immune to the tension between China and the United States. The US President's Council of Advisors on Science and Technology used the terms "ally" and "like-minded partners" in its report, suggesting the need to work with partners to counter China's offensive. It will be interesting to see who will eventually take over Toshiba's semiconductor business, which has cutting-edge technologies such as 3D multilayer LSIs.

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