China plans to overtake the US in chip development. How realistic is this?

The United States is tightening the screws on China as it strives to remain the world leader in the technology sector, including the semiconductor industry. But China is not going to expose itself to the threat of a technological blockade by the United States. By BloombergBeijing a few weeks ago announced its intention to support the creation of an industry that is capable of producing the so-called third generation of semiconductors from scratch. The plan is designed for five years, that is, by 2015, China should have the largest enterprises producing the most advanced components for electronic devices.

The PRC still maintains a five-year planning horizon; the current five-year plan is already the 14th in the country’s history. In October, the plan is to be approved by the country’s leaders, after which more than a trillion US dollars will be allocated for the implementation of the project for the development of the domestic semiconductor infrastructure. According to analysts, China is well aware that a country that owns the technology for producing modern chips, if not ruling the rest of the world, is able to exert strong pressure on other states.

After the announcement of the Chinese government, shares of Chinese semiconductor manufacturers began to rise sharply. For example, Fudan Microelectronics Group Co. increased in price by 4.3%. Will Semiconductor Ltd. increased capitalization by 10%. Two more semiconductor component manufacturers, Xiamen Changelight Co. and Focus Lightings Tech Co. rose in price by 14% and 5.6%, respectively.

What’s the problem?

Despite the fact that China has a powerful industry, including the production of semiconductor elements and electronics in general, the rights to most of the technologies belong to American companies. If they decide to break off relations with China, the country will have a hard time.

The situation is also getting worse because China imports about $ 300 billion of electronic components a year. If the United States wants to, the country can block these supplies, and then problems will begin for Chinese companies that produce electronics and everything related to it.

Now everything is heading towards this – the United States has already blacklisted several dozen technology companies from the United States. Those on this list have lost the ability to purchase the necessary elements and use the American technologies they need. There are workarounds, but they are quite complicated, expensive, plus risky. If one of the partners of a blacklisted Chinese company falls into “smuggling”, the intermediary will also go to the same list. As for the principle of operation of such schemes, before, to explain what it is, you can simply recall the “Belarusian shrimp”, a meme that became very popular after Russia introduced a ban on the supply of a number of European products.

So if China is not willing to buy someone’s shrimp, the country really needs its own semiconductor industry.

Not only semiconductors

China plans to gradually replace imported equipment that allows the production of semiconductor components with domestic ones. By 2025, the country plans to meet its own needs for equipment for the production of semiconductors by 70%. 30% remains for imports, but this figure will decrease every year. The likelihood of increased confrontation between the United States and China is too high, and the PRC does not want to risk it.

China has created a specialized fund to accumulate funds that will be used to implement the semiconductor import substitution program. It is called in a simple way – “Big Fund” (Big Fund). Primarily, it will finance electronics manufacturing equipment suppliers such as Naura, Advanced Micro-Fabrication Equipment, Hwatsing, ACM Research, Mattson Technology and Shanghai Micro Electronics Equipment. These companies are critical to achieving the first goal of China’s plan to roll out production for 28nm chips.

Are the goals achievable?

The reality of the plan of the Chinese authorities is doubted by many representatives of the industry, not only foreign, but also Chinese experts. Xu Canhao, a professor at Suzhou University, believes that the goals of the Chinese government are too ambitious: “If we are talking about 40 nm process technology or even older technologies, of course, Chinese companies can master them. But if we talk about the 5 nm process technology, there is a dead end – it is impossible to bypass American companies. China has always lagged behind in semiconductor development. Besides, there are too many chains involved in the production of chips. ”

Perhaps he really is right. The fact is that Chinese factories can provide only 20% of the necessary equipment and technologies required to master the 28 nm process technology. Everything else will have to be imported – from the USA, Japan, South Korea or the European Union. The United States cannot be completely excluded, since American technology is used by virtually all foreign companies. China will have to build its own production of modern chips practically from scratch. There is no other way.

The European company ASML, for example, produces photolithographic systems. But they are based on American technology. The development of these systems is a long process that involves various production chains. The creation of a 100% national system of this class without the participation of international companies and the attraction of foreign technologies is an impossible task.

Earlier, the US government banned this Dutch company from selling equipment to SMIC, one of the largest manufacturers of electronic components in China. The company had to listen. ASML is still awaiting a decision from its own government on this matter. If the wait drags on, the Chinese will have major problems.

“Without these tools, China will be far behind. If the US decides to deny Chinese companies access to technology, there is little that China can do. Chinese enterprises need equipment and technologies to continue their work, “- reported Den Wang, analyst at Gavekal Dragonomics.

Despite the fact that Chinese companies are well-financed, they received tax breaks, they will have to spend a lot of time creating analogues of American technologies. The USA, Europe and Japan have spent half a century reaching the current level. And China is going to go the same way in just 2-3 years. Is it possible? It’s hard to say, but the likelihood of success is still low.

In China, of course, there are companies that design and manufacture innovative products. In the spring, Yangtze Memory Technologies announced a prototype of a 128-layer 3D NAND chip. So far, no one has such technologies. But this company uses American technology, equipment that cannot be made entirely in China. Therefore, if the United States ceases business contacts with this company, it will not be able to repeat its achievement – it simply will not have the necessary tools.

Do not wash, so by rolling

Despite everything that has been said above, China has a chance to achieve its goals. One of the factors is the determination of the Chinese. Several decades ago, the country produced only inexpensive and not very high-quality consumer goods, and it was not electronics at all.

In just a couple of decades, the Chinese have been able to become the largest electronics manufacturer in the world. Provided that efforts are properly focused and the funds are spent in a targeted manner, it is still possible to cover a 50-year path, if not in 2-3 years, but in 5-7 years.

The positive factor is the size of the country and the number of people. China does not necessarily need to rely on the international market for its electronic products, although it is highly desirable. Local producers have a huge domestic market of trillions of dollars.

In addition, the country may try to become the largest manufacturer of chips and components for the Internet of Things first, which is not as difficult as in the case of the production of chips for smartphones and PCs. The volume of the IoT market is gradually expanding, now even coffee makers with refrigerators have become smart, not to mention cameras, cleaning robots and everything else. So China can first seize leadership in this area, and then, using the best practices and the created infrastructure, try to import substitution of American products and technologies.


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