Thursday, April 2, 2020

Semiconductors, the Achilles heel of China

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China is rapidly advancing in its quest for technological independence. Evidenced by its advance in 5G or in artificial intelligence. However, it has a serious Achilles heel, the semiconductor industry (integrated circuits, transistors, processors, etc.). According to a report from the Center for Strategic and International Studies (CSIS) published in February 2019, the country produces only 16% of the semiconductors it consumes and only half is produced by Chinese companies. Insufficient to support Beijing's sovereignty ambitions.

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The world market, estimated at 450 billion dollars per year (402 billion euros), is largely dominated by American, Taiwanese and South Korean manufacturers, Intel, TSMC and Samsung to name the main ones. These have factories in China and several countries in Southeast Asia. Driven by the proliferation of components in the consumer electronics, communications, automotive and industrial markets, the market is expected to grow by at least 4.1% per year on average to reach 573 billion dollars in 2024 (Research and Market).

"Electronic components are high-tech what petroleum is to the automobile: without them, the entire industry is down"sums up an expert from the sector. China has long sought to develop its own industry in order to reduce its supplies to Western firms which it suspects of placing cookies in the components. Its goal: to produce 40% of the semiconductors it consumes in 2020 and 70% in 2025.

Beijing plans to invest heavily

In an article on the subject, the School of Economic Warfare (EGE) specifies that the country "Wants to multiply its national chip manufacturing industry by five, from 57 billion euros in 2016 to almost 270 billion in 2030, with a predominantly national supply". To achieve this, China has planned to invest massively, some 150 billion dollars according to various sources, to build factories and develop – finally – its semiconductor industry. In its report, the CSIS stresses, however, that "Despite forty years of investment and espionage, the country is unable to produce advanced semiconductors."

The sovereignty reflex caused by a ban on American firms to deliver components to Huawei and ZTE could change this situation. "For twenty years, China has nourished itself on American technologies, the whole business model of its technological sector rests on it. Banning the sale of components to Chinese companies was a real penalty, ” notes Rémi Bourgeot, associate researcher at the Institute for International and Strategic Relations (IRIS).

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