China seeks to be self-sufficient in technology

To help convert to China in a self-sufficient “technological superpower,” the ruler Communist Party is pushing the world’s largest e-commerce company to take on the complicated and expensive task of designing its own computer integrated circuits – a business unlike anything Alibaba Group has done before.

Its three-year-old microchip development unit T-Head introduced its third processor in October, the Yitian 710, to Alibaba’s cloud computing business. The Chinese giant claims that for now it has no plans to sell the chip to third parties.

Other novice chip developers, including social media and gaming giant Tencent and cell phone brand Xiaomi are pledging billions of dollars in line with official plans to create computing, clean energy and other technologies that can build the China’s wealth and global influence.

Chips play an increasingly important role in all kinds of products, from phones and cars to medical devices and home appliances.

The shortage brought by the pandemic of coronavirus it is disrupting the manufacturing of those products around the world, increasing supply chain fears.

Chips are a top priority in the ruling Communist Party’s marathon campaign to end China’s dependence on technology from the United States, Japan and other suppliers that Beijing sees as potential economic and strategic rivals.

If the campaign is successful, business and political leaders fear it will discourage innovation, disrupt global trade and make the world poorer.

“Self-reliance is the foundation of the Chinese nation,” President Xi Jinping declared during a speech in March. He then called for China to become a “technological superpower” to safeguard “national economic security.”

“We must strive to become the world’s leading scientific center and the high ground of innovation,” Xi said.

Beijing, however, could run into a costly disappointment. Even with large official investments, entrepreneurs and analysts believe that chipmakers and other companies will have a hard time competing if they separate themselves from global suppliers of advanced components and technology, a goal no other country is seeking.

“It’s hard to imagine a country rebuilding all of that and having the best technology,” said Peter Hanbury, an industry specialist at Bain & Company.

Beijing’s plans are fueling tension with Washington and Europe, which see China as a strategic competitor and complain that it is stealing technology from them. They have responded by limiting your access to the tools you need to improve your industries.

If the world becomes uncoupled or divided into markets with incompatible standards and products, parts made in the United States or Europe may not work in Chinese computers or cars.

Phone makers with a single dominant global operating system and two network standards may need to create unique versions for different markets, which could slow development.

Washington and Beijing must “prevent the world from falling apart,” UN Secretary General Antonio Guterres said in September.

China’s factories assemble the world’s phones and tablets, but they need components from the United States, Europe, Japan, Taiwan, and South Korea. Microchips are the product that China imports the most, ahead of oil, worth more than $ 300 billion last year.

Official urgency over the campaign grew after Huawei Technologies Ltd., China’s first global technology brand, lost access to American chips and other technologies in 2018 under sanctions imposed by the White House.

That stopped the telecommunications equipment maker’s ambitions to become a leader in next-generation cell phones. US authorities allege that Huawei is a security risk and could aid Chinese espionage, an accusation the company has denied.

Huawei and some Chinese rivals are close to matching Intel Corp., Qualcomm Inc., Samsung Electronics and Arm Ltd. in the ability to design “cutting-edge” logic chips for phones, according to industry analysts, but when it comes to making them, Factories like state-owned SMIC in Shanghai are up to a decade behind industry leaders like TSMC or Taiwan Semiconductor Manufacturing Corp., which makes chips for Apple Inc. and other global brands.

Even companies like Alibaba, which can design chips, will likely need Taiwanese and other foreign factories. Alibaba’s Yitian 710 requires precision that no Chinese manufacturer can achieve. The company declined to say which foreign producer it will turn to.

“My country still faces a huge gap in chip technology,” admitted industry analyst Liu Chuntian of Zero Power Intelligence Group.

China accounts for 23% of the world’s chip production capacity, but barely 7.6% of sales.

Packing millions of transistors into a fingernail-sized piece of silicon requires about 1,500 steps, microscopic precision, and technologies owned by a few US, European, Japanese, and other vendors.

Among them are KLA Corp. in California for super-precise measurements and Japan’s TEL for machines capable of applying coatings just a few molecules thick. Many are covered by restrictions on “dual use” technologies, which can be used in weapons.

China “is significantly behind” in tools, materials and production technology, the Semiconductor Industry Association reported this year.

Washington and Europe, citing security concerns, have blocked access to the most advanced tools that Chinese chipmakers need to match world leaders in precision and efficiency.

Without them, China is falling further and further behind, Bain’s Hanbury said. “The TSMC horse is running while the Chinese horse is stopped. They cannot advance, ”he added.

Washington increased the pressure on Huawei last year by banning global factories from using American technology to produce their chips. US providers can sell chips to the company, but not for next-generation “5G” phones.

For its part, the European Union said it will review foreign investment after complaints that China has been eroding Europe’s technology leadership by buying major assets like German robot maker Kuka.

Alibaba’s Yitian 710 chip is based on Britain’s Arm architecture, highlighting China’s continuing need for foreign technical expertise. Alibaba stated that it will continue to work closely with foreign vendors Intel, Arm, Nvidia Corp. and Advanced Micro Devices, Inc.

T-Head’s first chip, the Hanguang 800, was announced in 2019 for artificial intelligence systems. The second, the XuanTie 910, is for autonomous vehicles and other functions.

In November, Tencent Holding, which operates the WeChat messaging service, announced its first three chips for artificial intelligence, cloud computing, and video.

Beijing has said it will spend $ 150 billion from 2014 to 2030 to develop its chip industry, but even that is a fraction of what world leaders spend. TSMC plans to spend $ 100 billion over the next three years on research and manufacturing.

China is trying to gain experience by hiring engineers from TSMC and other Taiwanese producers. Taiwan, which Beijing claims as part of its territory and which it has threatened to attack, has responded by imposing restrictions on job advertising.

Beijing is encouraging phone makers and other manufacturing companies to turn to suppliers within China, even if they cost more, but officials deny that China wants to separate from global industries.

“We will never go back in history seeking to disengage,” Xi said in November during a teleconference address to a meeting of Asia-Pacific leaders in Malaysia.

The latest conflict is photolithography, which uses ultraviolet light to etch circuits in silicon so small that they are measured in nanometers – billionths of a meter.

The leader is ASML in the Netherlands, which makes machines that can engrave transistors just five nanometers apart. That allows you to put two million together in a space just one centimeter wide.

By comparison, China’s SMIC firm can do it to about a third of that precision, 14 nanometers apart. Taiwan’s TSMC is preparing to increase its precision to two nanometers.

SMIC wants to upgrade by purchasing the latest ASML machine, but the Dutch government has not yet agreed. “We will await their decision,” said an ASML spokeswoman, Mónica Mols.