China’s technology behemoths have been pushing for the development of their own semiconductors or chips, which is seen as progress toward China’s goal of becoming self-sufficient in critical technology.
According to one expert, even though China is one step closer to self-sufficiency, the country is still heavily reliant on foreign technology and lags in the so-called leading edge segment of the chip market.
Semiconductors are used in everything from smartphones to modern refrigerators to automobiles. They’ve also become a focal point in the broader technology battle between the United States and China. For years, the world’s second-largest economy has invested heavily in expanding its domestic chip industry, but it has struggled to catch up with rivals in the United States and other parts of Asia. Semiconductors are increasingly seen as critical to many countries’ national security and as a sign of technological prowess.
Baidu released Kunlun 2, its second-generation artificial intelligence chip, in August. Alibaba released a chip designed for servers and cloud computing this week. Oppo, a smartphone manufacturer, is also developing its own high-end processors for its devices.
Even if these companies are designing their own chips, they may still need to use foreign tools to do so. However, when it comes to manufacturing and the broader supply chain, China’s internet behemoths remain heavily reliant on foreign firms.
Take, for example, Alibaba’s new Yitian 710 chip. This is based on the architecture of the British semiconductor company Arm. It will also be built on the so-called 5-nanometer process, which is currently the most advanced chip technology.
Baidu’s Kunlun 2 chip is manufactured using a 7-nanometer process. Meanwhile, Oppo is said to be working on a 3-nanometer chip.
The country lacks a company capable of producing these cutting-edge semiconductors in these sizes. They will have to rely on only three companies: Intel in the United States, TSMC in Taiwan, and Samsung in South Korea. Power is concentrated in the hands of a few in that area: ASML, a Dutch company, is the only one in the world capable of producing a machine required by chip manufacturers to produce the most advanced chips.
Because of their reliance on foreign firms, Chinese firms are vulnerable to any geopolitical tensions, as was the case with Huawei and SMIC.
Huawei developed its own smartphone processors known as Kirin. The chips were typically based on cutting-edge technology, assisting the Chinese smartphone behemoth in becoming one of the world’s largest smartphone players. However, in 2019, the United States placed Huawei on a trade blacklist known as the Entity List, effectively cutting the Chinese company off from certain U.S. technology. Last year, Washington enacted legislation requiring foreign manufacturers using American chipmaking equipment to obtain a license before selling semiconductors to Huawei.
TSMC manufactured Huawei’s chips. However, when the US rule was implemented, TSMC was no longer able to produce semiconductors for Huawei. This harmed the company’s smartphone business worldwide.
President Joe Biden of the United States has called for a $50 billion investment in semiconductor manufacturing and research, and he has encouraged chipmakers to invest in the country. Intel announced plans in March to invest $20 billion in the construction of two new chip factories, known as fabs, in the United States.
In September, leaders from the United States, India, Japan, and Australia, known as the Quad, announced plans to launch a semiconductor supply chain initiative aimed at identifying vulnerabilities and securing access to semiconductors and their critical components.
Much of the recent discussion on semiconductor supply chains has been sparked by a global chip shortage, which has impacted industries ranging from automobiles to consumer electronics and has worried leaders about their countries’ ability to secure semiconductors when needed. China may be ahead of its peers in some areas of chip development, but catching up with cutting-edge technology will be difficult, at least in the short term.
SMIC, for example, can mass-produce 28-nanometer chips on a large scale. These could be used in TVs or even automobiles, an area where China could excel, given the current shortage of semiconductors.
To put things in context, TSMC is already working on 3 nanometer technology. Before SMIC could catch up, it would need to master the manufacturing processes that TSMC has been using for years.