Thursday, May 13, 2021

Beijing chip’s quest for independence is in Taiwan

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On Monday, we learned that the Chinese economy roars back at a pre-pandemic growth rate of 6.5% in the last quarter of last year, pushing the expansion for the full year to 2.3%. That left China the only major economy in the world to avoid a contraction in 2020 – and prompted many economists to push forward their year forecasts that China, now the world’s second-largest economy, will overtake the United States as that n ° 1 (the new consensus appears to be somewhere between 2028 and 2030.)

But despite all this strength, the Chinese economy remains extremely vulnerable in a very specific way: it is totally dependent on American manufacturers and a handful of key allies for the cutting edge technologies needed for large-scale semiconductor production. speed. Imported china 350 billion dollars semiconductors in 2020, an increase of 15% compared to 2019. Like us Noted often in this space, China passes much more to import crisps than to import oil.

The Trump administration has ruthlessly exploited this weakness in its past year by increasing restrictions on the ability of any company around the world using U.S. semiconductor technologies to do business with a growing company.blacklistChinese companies. Trump’s Commerce Department imposed the latest restrictions last week, informing the US chipmaker Intel Corp and dozens of other suppliers revoke their permission for sale to Huawei Technologies, the Chinese telecommunications equipment giant. President Joe Biden has signaled that it is unlikely to reverse Trump’s bans on tech sales to China anytime soon.

For three decades, Beijing has struggled to break this strangle by developing a self-sustaining, world-class semiconductor manufacturing industry – with limited success. In 2014, China announced plans to spend $ 150 million to develop the local semiconductor industry. President Xi Jinping has made semiconductors a centerpiece of his $ 1.4 trillion six-year investment plan to 2025 to build critical high-tech industries, from mobile networks to intelligence artificial. Beijing is expected to significantly increase its financial support for the chip industry as part of the 14th five-year plan due to be unveiled in March. Already tens of thousands of Chinese companies interference to qualify for what should be a multi-billion dollar grant bargain. Chinese planners have set a target of increasing the share of domestic chips it consumes to 70% by 2025, up from the current 16%.

And so I was fascinated to read the Financial Timesinternal account of how Beijing’s national self-sufficiency campaign is playing out at the country’s largest chipmaker – and by all accounts the most advanced – Shanghai-based Semiconductor Manufacturing International Corp (SMIC). The story explores a boardroom battle between its two co-CEOs Liang Mong-song, who joined the SMIC in 2017 after a rich career with his international rival. Taiwan Semiconductor Manufacturing and co-chef Zhao Haijun. The drama revolves around Zhao’s decision to recruit Liang’s former boss at TSMC, Chiang Shang-yi, as vice president of the SMIC. Liang threatened to resign, and in a letter to the SMIC board last month, he accused Zhao of not consulting him. It’s a story with a lot of corporate intrigue; Liang seems to have changed his mind about quitting smoking.

But what is really remarkable about FT is the extent to which it reveals how dependent mainland chipmakers are on the expertise of debauched semiconductor engineers from Taiwan. The story begs the question whether America’s efforts to ban the sale of technology will be enough to hamper the long-term rise of mainland chipmakers when it’s so easy for the most talented engineers in the world. industry to cross the Taiwan Strait for a higher salary.

More Eastworld news below.

Clay chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Grady McGregor. Reach it atgrady.mcgregor@fortune.com.

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