Can China Become Self-reliant in Semiconductors?

The U.S. added China’s biggest computer chipmaker SMIC to a blacklist of alleged Chinese military companies last week, a move that will further widen the gap between China’s chip technology and the rest of the world.Despite its status as the world’s factory, China has never figured out how to make advanced chips. In recent years, Beijing has been planning a series of sweeping government policies and pouring billions of dollars into the industry to fulfill its chip self-sufficiency goal.So far, under ever-tightening international export controls, however, the country has only found itself mired in some of the most embarrassing industrial failures in its recent history. Most notably, one of the nation’s most high-profile chipmakers was taken over by municipal authorities in its home city of Wuhan, and a Beijing-based chipmaker, the Tsinghua Unigroup, defaulted on a corporate bond.FILE – A Chinese microchip is seen through a microscope set up at the booth for the state-controlled Tsinghua Unigroup project which is driving China’s semiconductor ambitions during the 21st China Beijing International High-tech Expo in Beijing.In this highly internationally integrated industry, experts say, no country can manufacture chips on its own, and China’s efforts to develop its semiconductor sector remains out of reach.Highly globalized chainSemiconductor production is considered one of the most sophisticated manufacturing processes in the world, involving more than 50 disciplines. Billions of transistor structures must be built within a few millimeters.The core equipment used to manufacture computer chips includes lithography machines. A Dutch company called ASML is the only company in the world currently capable of producing high-end extreme ultraviolet lithography machines. Of its 17 core suppliers, though, more than half are from the United States, and the rest are companies located throughout Europe.The company is jointly owned by shareholders from dozens of countries. According to its official website, among the top three major shareholders, two are from the United States and one is from the United Kingdom. Capital Research and Management Co. is the largest shareholder, and the second largest is the BlackRock Group; both are in the U.S. Additionally, Taiwan’s TSMC and South Korea’s Samsung also hold shares in ASML, allowing these two manufacturers to enjoy the priority right to purchase the machine.   In Bid to Rely Less on US, China Firms Stockpile Taiwan Tech HardwareChina wants to become technologically self-reliant in 10 years but needs help for nowWhile ASML may dominate the chipmaking machine market, it is only one part of the long chain in the industry. The lens of its lithography machine is manufactured by Zeiss of Germany, the laser technology is owned by Cymer of the United States, and a French company provides key valves.Jan-Peter Kleinhans, a senior researcher at the Berlin think tank New Responsibility Foundation and director of the Technology and Geopolitics Project, said no country can make chips without foreign companies’ technology. He told VOA in a telephone interview that it took ASML more than two decades to develop their machines, and “they rely themselves on a network of around 5,000 suppliers to build this machine.”Kleinhans said that without the participation of any one of these companies, the entire global semiconductor chain would break.Kobe Goldberg, a researcher at the New American Security Research Center, told VOA that what China is trying to do is to build a totally nationalized supply chain in a highly internationalized industry. “That is much more difficult in an industry like semiconductors since it is so internationally integrated.”John Lee, a senior researcher at the Mercator Institute for China Studies, a think tank in Germany, said several Chinese firms already have the capacity to manufacture or fabricate some semiconductors. But they can easily face a crackdown by the U.S. government since American companies have a very strong dominance in the upstream segment of the supply chain, such as chip design.
 Huawei’s Survival at Stake as US Sanctions LoomStarting Sept. 15, China’s telecom giant Huawei will be cut off from essential supplies of semiconductors and without those chips, Huawei cannot make smartphones or 5G equipment on which its business depends, business analysts say”The dominance of U.S.-origin technology in upstream sectors of the global semiconductor supply chain means that Chinese ICT [information and communications technology] firms across the board are exposed to U.S. export controls, regardless of what happens to SMIC or Huawei as individual companies,” Lee added.Multilateral export controlThe multilateral export control implemented by democratic countries can be traced back to the informal multilateral regime called the Coordinating Committee for Multilateral Export Controls (CoCom).  Established in 1949, the 17-member organization, including the United States, the United Kingdom, Japan, France and Australia, attempted to coordinate controls over the export of strategic materials and technology to communist countries. In 1952, a separate group was established to scrutinize exports to China.US Imposes Curbs on Exports by China’s Top Chipmaker SMICNew Commerce Department requirements mean American suppliers of certain technology products to SMIC must apply for individual licenses before they can exportAlthough CoCom ceased to function on March 31, 1994, the list of prohibited items it formulated was later inherited by another multilateral export agreement, the Wassenaar Arrangement, which was signed in 1996. As many as 42 European, American and Asian countries joined the program, which allows member states to exercise control over their own technology exports, and China is again included in the list of targeted countries.Last December, the group reached an agreement to add chip manufacturing technology to the list of items subject to export controls.  While this revision does not explicitly target China, it points out that export restrictions are targeted at nonmember states, while China, along with Iran and North Korea, are not member states. Some Chinese observers called the jointly implemented move a “collective action” against China by countries that dominate the chip manufacturing supply chain.The Bureau of Industrial Security of the U.S. Commerce Department also announced in October of this year that six emerging technologies would be included in a new export control under the Wassenaar Agreement. All these technologies are directly related to chip manufacturing, including extreme ultraviolet lithography necessary for advanced chip manufacturing.Martijn Rasser, a senior researcher at the Center for New American Security’s Technology and National Security Project, told VOA the world’s liberal democracies have a huge advantage in their network of alliances and partnerships, adding: “It’s something that China just completely lacks, and that’s a big, a big headwind for them.”


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