Nvidia CEO Jensen Huang declared this week the US would take ten to 20 years to achieve chip independence: ironically, many pundits following the semiconductor industry have made similar predictions about China’s push for self-sufficiency.
The US share of global chip fabrication capacity fell more than threefold over the past 30 years to around 12 per cent. The nation’s CHIPS and Science Act, supported by $52.7 billion in semiconductor R&D and manufacturing incentives over ten years, aims to quickly reverse that trend.
In China, the key driver behind a massive push to develop a cutting-edge semiconductor industry has been a raft of US-led trade sanctions, restricting not only the import of advanced chips but also chipmaking machinery with US parts or software, along with equipment from Japan and the Netherlands.
In a research paper, S&P Global Ratings argues while the many restrictions will challenge China’s progress for years, the trade measures will drive the nation to “marshal its considerable resources in a moonshot-style push” to advance the sector.
The research company noted China has a large and mature chip industry, but is unable to produce cutting-edge silicon without imported technology, with bans making catching up even more difficult and all the more urgent for the government.
Indicating the magnitude of the gap, leading global electronic design automation software companies, chip-design outfits and foundries on average have four- to seven-times more patents than their Chinese counterparts, the S&P Global Ratings highlighted.
Production of chips by Chinese companies in the mainland have yet to top 20 per cent of total local demand, requiring imports of more than $400 billion a year. In 2015, the country set the ambitious target of reaching 40 per cent self-sufficiency by 2020 and 70 per cent by 2025 as part of its wider Made in China 2025 goals.
S&P Global Ratings suggested the trade restrictions imply it could take decades for Chinese companies to produce the most advanced chips. But, motivated by what it sees as unfair trade tactics, the government is channelling its considerable resources across the public and private sectors to narrow the gap.
In September, the government reportedly was preparing to launch a CNY300 billion ($42.2 billion) fund to shore up its semiconductor industry, ramping efforts following investment moves in the US and Europe.
The research company noted, however, innovation does not always follow a straight line, with some unexpected developments along the way, pointing to Huawei’s new Mate 60 Pro sporting a 7nm chip produced locally.
With a ban on Huawei importing 5G chips, the launch created a stir across the industry as to the origin of the processor and speculation about whether the device is compatible with the technology.
The equipment used by state-owned Semiconductor Manufacturing International Corp to make the chip is said to be imported deep ultraviolet lithography machines, which are now subject to wider controls.
News of the device’s genesis was a huge PR win for Huawei and the government, with local buyers rushing to support a domestic brand with indigenously-produced high-end chips despite growing curbs from a bullying US.
The vendor had to expand production to keep up with demand.
Hard to deter
Former Taiwan Semiconductor Manufacturing Company (TSMC) VP Burn Lin summed up what many in the industry believe when he said US efforts to restrict the sale of advanced chipmaking equipment to China will not stop its champions from advancing in-house technologies in the long term.
Even as the US and allies introduce new obstacles, the many constraints increasingly appear unlikely to deter China’s ambitions, as Huawei poignantly demonstrated without having to pitch a breakthrough.
What often is overlooked when government policy, driven by national security concerns and geopolitical positioning, determines private investment are the long-term costs.
Seeking technology independence results in two incompatible networks, which Radio Free Mobile founder Richard Windsor insists will generate less value than one global network, slowing long-term growth for the entire technology sector over the next ten to 20 years.
S&P Global Ratings acknowledged government support in the industry can make a difference, but emphasised continued global integration is crucial. It warned the approach of pushing localisation and escalating restrictions may prove costly over time, particularly for global consumers and chip producers, given it raises costs, requires additional expenditure and obstructs the industry’s development.
The cost of independence is extraordinarily high: working out differences to improve cooperation and keep supply channels open do not capture the headlines or win political points, but bring significant benefits the technology industry has witnessed for decades.