Why are the US and China fighting over chips? – Digital Diary

Semiconductors are the lifeblood of the modern global economy and are found in all kinds of electronic products – Copyright AFP/File Yuichi YAMAZAKI

The United States has moved to block China’s access to the most advanced semiconductors and the equipment and talent needed to make them in recent months, citing national security.

China has dismissed those concerns, accusing the United States of “technological terrorism” and unfairly hampering its economic growth. It has sought to counter US containment measures.

AFP takes a look at the key issues in the so-called “semiconductor wars”:

– Why are tokens important? –

Microchips are the lifeblood of the modern global economy: Tiny bits of silicon are found in all sorts of electronics, from LED light bulbs and washing machines to cars and smartphones.

They are also essential for basic services, such as health care, law and order, and public services.

Globally, semiconductors are forecast to become a $1 trillion industry by 2030, according to a McKinsey report released last year.

Nowhere is its essential nature more visible than in China, the world’s second-largest economy, which relies on a steady supply of foreign chips for its massive electronics manufacturing base.

In 2021, China imported $430 billion worth of semiconductors, more than it spent on oil.

– Why target China? –

Beyond iPhones, Teslas, and PlayStations, the most powerful chips are crucial for the development of advanced technology like artificial intelligence, as well as next-generation weapons like hypersonic missiles and stealthy fighter jets.

Washington imposed a series of export controls last year, saying they were intended to prevent China’s military and its intelligence and security services from acquiring “sensitive technologies with military applications.”

The Dutch government followed suit in March this year, citing national security while imposing controls on foreign sales to prevent military use.

The same month, Japan unveiled similar measures aimed at preventing “the military diversion of technologies.”

The Netherlands, a NATO member, and Japan, a treaty ally of the United States, did not name China, but their restrictions angered Beijing.

The restrictions target the most advanced chips and chip-making technology that can be used for, among other applications, supercomputers, high-end military equipment and AI development.

– Why is China worried? –

Chip production is fiendishly complex and typically spans numerous countries.

But many stages depend on US input, while the other major players are Japanese companies and the Netherlands’ ASML, which dominates the production of lithography machines that print patterns on silicon wafers.

This gives the trio great influence in the global semiconductor industry.

“It will take China years to develop domestic alternatives that are equally capable of the tools it is losing access to,” Chris Miller, author of “Chip War: The Fight for the World’s Most Critical Technology,” told AFP.

“If it was easy, Chinese companies would have done it already.”

– How have the sanctions hit? –

Chinese chip companies stockpiled components and machines ahead of US export controls in October last year to soften the blow.

But a major chip company told AFP that once the inventory runs out or needs repairs, the controls will start to hurt.

Some Chinese companies suddenly unable to guarantee access to chips saw lucrative overseas contracts evaporate, forcing them to cut jobs and freeze expansion plans.

The US, Dutch and Japanese restrictions have directly affected some of China’s biggest chipmakers, including Yangtze Memory Technology Corp (YMTC).

One of the biggest ways that sanctions have begun to hit is by drying up a pool of talent that China had relied on.

A recent semi-official survey of Chinese chip companies estimated the need for 800,000 foreign workers by 2024, a gap Washington made harder to fill by restricting “American persons” from working in China’s semiconductor industry.

– How has China responded? –

Beijing has reacted with anger and defiance, vowing to speed up its efforts to become self-sufficient in semiconductors.

To transcend US restrictions, two semiconductor researchers from the influential Chinese Academy of Sciences offered a blueprint in February advising Beijing to more effectively channel investments into high-quality talent and original research.

It signaled a possible rethink of the strategy, and one of its main beneficiaries appears to be YMTC.

Company records show the US-sanctioned firm has received a $7.1 billion injection since new export controls took effect.

– Is more investment the answer for China? –

The tens of billions of dollars that China has poured into the development of a national industry have not yet borne much fruit.

China had a goal of 70 percent chip self-sufficiency by 2025, but some think tanks estimate it currently meets less than 20 percent of demand.

“Money is not the problem,” said Qi Wang, co-founder of Hong Kong-based MegaTrust Investment, pointing instead to waste, fraud and talent shortages.

“China has no good options except to double state support for the industry,” said John Lee, director of consultancy East-West Futures.

Experts say China may well reach its goal of self-sufficiency, but it will take much longer in the face of such restrictions.

“I don’t think the US will ever succeed in stopping China from having great chips,” Microsoft co-founder Bill Gates said on a podcast in March.

“We’re going to force them to spend time and a lot of money to make their own.”


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