Are you in a dilemma: to buy key technologies or to independently develop domestic chips?

 On September 8, according to the South China Morning Post, China has long debated whether to import or purchase strategic technologies. For chip technology, senior Chinese industry professionals have always advocated direct introduction or self-reliance.

The following is the translation:

After working in the United States and Singapore for 17 years, Xie Zhifeng returned to his hometown of Shanghai in 2000 and joined the founding team of what would become China's largest semiconductor manufacturer.

In the interview, Xie Zhifeng talked about Shanghai Pudong District, where SMIC's headquarters is located, and said, "In 2000, most of Pudong was still farmland, and the entire Zhangjiang High-tech Park was still a village. Today, the supply chain in the Yangtze River Delta is basically complete, only 5 to 10 years behind the global leading level."

Despite China's astonishing progress in technological development, industry veterans worry that if China continues to follow the old path of importing foreign technology rather than developing its own, the chip technology gap with leading countries may never be closed, which means that China will have to rely on friends who may become future enemies. The mentality of importing technology from foreign countries instead of developing its own was first reflected in color TV assembly lines, then cars and integrated circuits, but according to Xie Zhifeng, the technology sold to China by foreign countries is often outdated or even obsolete. He worked for Intel and Singapore's Chartered Semiconductor before returning to China to join SMIC and was the company's vice president when he left in 2011.

Chinese employees wearing dust-proof suits work at the Semiconductor Manufacturing International Corporation (SMIC) factory in Beijing in 2012.

The desperation is exacerbated by the fact that China does not have much choice in importing high-tech, given how far it lags in technology and manufacturing expertise.

"There's a Chinese saying that goes 'A good cook cannot cook without rice.' But back then we not only lacked rice, we didn't even have a stove, a frying pan or other cooking utensils," said Xie Zhifeng.

Today, in order to slow China's rise, the Trump administration intends to prevent China from obtaining all technological resources from software to semiconductors to core technologies.

Signs that the world’s two largest economies are decoupling are sending shockwaves through global supply chains while also exposing China’s reliance on American technology for a key economic pillar.

The threat is most evident in the semiconductor sector after the United States put Huawei on a trade blacklist, blocking American companies such as Intel and Qualcomm from selling chips to it.

These intricate micro-devices are essential to the functioning of everyday consumer electronics, communications and computing products, as well as increasingly complex equipment in a range of sectors including aerospace, financial services, healthcare and retail. However, the semiconductor industry is capital intensive and currently based on a complex global supply chain.

China has redoubled its efforts to narrow that gap by channeling more money and state support into the industry, reigniting a debate that has been going on since at least the 1990s: whether it is better to make chip technology in-house or to buy it outright.

Interviews with chip industry executives and senior researchers by the South China Morning Post revealed a common theme: China must weigh the huge investments required to succeed in the industry against the possible returns such spending may (or may not) produce.

They note that advanced technologies are developing rapidly and require large, repetitive investments with no guaranteed payback.

Technology isn’t a problem that can be solved simply by throwing money at it, they say, although that helps. Too often in this industry, what appears to be an open highway can quickly narrow into a dead end.

Supporters of "direct technology purchases" include industry veteran Hao Lichao of Huada Semiconductor, who noted the futility of trying to be self-reliant in all aspects of the manufacturing process, from specialized production equipment to design software to advanced materials.

Hao Lichao bluntly said, "This is impossible... unless we agree to take a big step back to the micron era." (1 nanometer is two orders of magnitude smaller than 1 micron. The chip used in Apple's iPhone XS uses the most advanced 7-nanometer manufacturing process.

Ni Guangnan, an academician of the Chinese Academy of Engineering, holds the opposite attitude. He is one of the most enthusiastic supporters of technological self-sufficiency. In the 1990s, he had serious disagreements with Liu Chuanzhi, another core figure of Lenovo. Chief Engineer Ni Guangnan advocated taking the technical route and choosing chips as the main direction; while President Liu Chuanzhi advocated taking advantage of the cost advantages of Chinese manufacturing and increasing the creation of independent brand products.

"When I was working at the Institute of Computing Technology of the Chinese Academy of Sciences, one of our tasks was to research mainframes, but these devices were either banned from export to China, or they would only sell you products that matched your level," Ni Guangnan said last month.

“That was when we first realized that we could only rely on our own efforts when it came to autonomy in key technologies.”

There are no shortcuts in technology, as the different fates of his former employers Lenovo and Huawei prove.

In December 2018, Ni Guangnan used the story of the tortoise and the hare to contrast the two companies during a keynote speech in Beijing, noting that Huawei's decades of investment in research and development had paid off, with a valuation nearly 50 times that of Lenovo.

In an interview last September, Liu Chuanzhi recounted Lenovo’s reluctance to get involved in chip development at the time.

“It may take years of investment to start generating returns, and you can easily make the wrong decision,” he said. “For a company with only 1 billion yuan ($140 million) in profit, we lack the ability to continue investing and spend $2 billion on chip development.”

Ni Guangnan admitted in an interview that there is no need to reinvent the wheel or copy others' practices, unless there are only one or two suppliers of a particular technology, which can easily be monopolized and used against China. In these cases, China must assess the risks and decide whether to invest in its own research and development, he said.

Ni Guangnan said that even in domestic industries, China should ensure that there are multiple suppliers so that China is not tied to the fate of any particular company.

“We must learn from the experience of being strangled,” said Ni Guangnan, wearing a Huawei smartwatch. “We should not expect the other side to let go. We must take immediate action to fill the gaps in core technology.”

In May this year, a group of Huawei's chipsets were unveiled at its headquarters.

When asked where China is weak in achieving technological self-reliance, Ni Guangnan pointed to areas such as operating systems and electronic design automation.

However, having multiple suppliers in the semiconductor industry is inherently contradictory, as the huge investments and high technical expertise required will, over time, drive out weaker suppliers.

“The most advanced technology has become a VIP club for very few players because it requires timely delivery and a group of loyal customers,” said Zhao Haijun, co-CEO of SMIC, at a recent chip conference in Shanghai. “SMIC’s goal is to be among the top two in the industry because only the top two can benefit from it, and the No. 1 is the biggest winner.”

Most industry insiders interviewed believe that China needs to increase its investment in the semiconductor industry.

Xie Zhifeng, former vice president of SMIC, said that compared with global industry leaders such as Intel, which spends $13 billion a year on research and development, Chinese companies' current research and development spending is just a drop in the ocean.

By comparison, the 13th Five-Year Plan for 2016-2020 calls for a total investment of 140 billion yuan (US$19.5 billion), while the National Integrated Circuit Industry Investment Fund is raising 200 billion yuan.

“If the investment level doesn’t match, it’s hard to believe we can narrow the technological gap,” Xie said.

Chips from Huawei subsidiary HiSilicon Semiconductor were displayed at the Huawei China Ecosystem Partner Conference in Fuzhou, China, in March.

Some industry insiders pointed out that China is currently in a relatively advantageous position in terms of industrial foundation, economic strength, and quality of basic research and development.

The Shanghai Stock Exchange has launched a new "Sci-Tech Innovation Board" to attract private capital to finance high-tech companies.

Dai Weimin, founder and CEO of chip design service company VeriSilicon, pointed out that "over the past two years, China's industry regulators have stepped up their support for the development of the chip industry. The newly established Science and Technology Innovation Board also provides an excellent financing platform, which is conducive to attracting more and more outstanding entrepreneurs."

Dai Weimin predicts that China will enter a "golden decade" of chip development. By the end of this decade, China's own chips will account for 40% of the chips it needs, a significant increase from the current 14%.

In the view of Wang Shijiang, deputy secretary-general of the China Semiconductor Industry Association and director of the Integrated Circuit Research Institute of CCID think tank, as the upcoming 5G network will drive the popularization of various artificial intelligence applications and automated driving, Chinese companies "at least this time are on the same starting line and do not have to catch up with others. This industry needs a little time and confidence."