MICROCHIP - HOW CHINA IS TURNING SANCTIONS INTO A TECHNOLOGICAL ADVANTAGE - Filenews 19/9
From manually assembling integrated circuits to developing advanced AI processors, China has come a long way in the semiconductor battle. Driven by government funding, demand from Chinese tech giants and the pressure of US restrictions, Beijing is accelerating the effort for technological self-sufficiency in microchips.
In the spring of 1979, shortly after U.S.-China diplomatic relations were restored, a U.S. trade delegation visited a state-owned factory in Shanghai. There, workers manually installed and welded tiny silicon wires, using tweezers and microscopes.
The picture of that time reflected the great technological gap that separated China from the developed economies. Over the next few decades, the country watched Japan, South Korea, and Taiwan evolve into global powerhouses in the semiconductor industry.
The Made in China 2025 plan
In 2015, when the ambitious Made in China 2025 plan was introduced, approximately 85% of China's semiconductor needs were met through imports. At the time, the country spent more on importing microchips than on buying oil.
Beijing planned to allocate about $150 billion to create a domestic semiconductor industry, while additional funds would come from local governments.
The first phase of the effort did not go without problems. Several projects stagnated, corruption investigations were carried out, and Tsinghua Unigroup collapsed under the weight of its debts.
The facts, however, gradually began to change.
Huawei and the AI push
Huawei's AI chips now have the ability to support the training of complex models for autonomous vehicles and the control of humanoid robots.
At the same time, Chinese companies are developing domestic semiconductor production equipment and are looking for ways to improve the performance of older machines that were introduced before the stricter restrictions were imposed.
Washington's moves to limit China's access to the most advanced technologies also had an unintended consequence: they forced Beijing to focus capital, manpower and research on the key technological barriers that limit its ambitions in artificial intelligence.
In this way, U.S. export restrictions also acted as a catalyst for the development of a more autonomous Chinese supply chain.
CXMT's Impressive Rise
A prime example is ChangXin Memory Technologies, known as CXMT. The Chinese memory microchip company saw its stock rise by 466% after its initial public offering.
The IPO, amounting to approximately €9.8 billion. dollars, is among the largest internationally, dramatically boosting the company's market value.
CXMT was founded in 2016 by Zhou Yiming, who had previously worked in Silicon Valley. Unlike his previous business ventures, the new company started with billions of dollars in government support and a clear mission: to build modern factories and compete with Samsung, SK Hynix and Micron.
For about a decade it remained loss-making. However, it managed to move to profitability and emerge as the fourth largest player in the global market where it operates.
Government policy and large domestic customers
The history of the semiconductor industry shows that success does not depend solely on technical excellence. Targeted government policy and the existence of strong customers play a decisive role, which finance and accelerate innovation.
Texas Instruments was significantly boosted by U.S. government contracts during the space race, while its partnership with IBM helped solve critical technical problems.
Similarly, the choice of Intel as the supplier for IBM's first personal computer gave the company a strong lead in the PC era.
TSMC, with the support of the Taiwanese government and a solid industrial strategy, developed close relationships with companies like Apple and Nvidia, seizing a dominant position in the production of advanced semiconductors.
Today, companies such as Huawei, Tencent and Alibaba can play a similar role in China. U.S. restrictions are pushing them to work more closely with Chinese manufacturers, rather than relying solely on top international suppliers.
The gamble of high-bandwidth memory
CXMT's next big goal is to develop high-bandwidth memory, known as HBM. This is a technology crucial for Nvidia's AI systems and advanced processors.
China has not yet been able to commercially produce this type of memory on a large scale. CXMT has, however, a particularly strong clientele, which includes Alibaba, ByteDance, Lenovo, Tencent and Xiaomi.
These companies have a direct interest in helping domestic suppliers close the technology gap and reduce their dependence on foreign technologies.
The gap remains, but the pressure brings innovation
Despite significant progress, China still lags behind leading international manufacturers in critical industry segments. The sanctions, however, have led Chinese businesses to make continuous small improvements, which cumulatively strengthen their technological independence.
At the same time, the rapid growth of AI has caused a global shortage of memory microchips, creating increased demand and stronger revenue for companies like CXMT.
The risks have not disappeared. Partnerships between Chinese companies may be tested by business conflicts, while Washington is expected to continue efforts to limit China's technological advancement, citing potential military applications.
The battle of microchips, therefore, has not been decided. China, however, now has government funding, strong domestic demand and large technology companies that can act as customers and research partners. Above all, it has turned the pressure of restrictions into an incentive for faster innovation.
Adaptation – Editing: George D. Pavlopoulos
