China pushes to design its own chips, but still relies on foreign technology – Community News
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China pushes to design its own chips, but still relies on foreign technology

GUANGZHOU, China – China’s tech giants have been pushing to develop their own semiconductors or chips, a move seen as progress toward China’s goal of becoming self-reliant in critical technology.

In reality, China is still a long way off, even if it is one step closer to self-sufficiency, according to an expert, adding that the country still heavily relies on foreign technology and lags behind the so-called leading part of the chip market.

Semiconductors are important components in everything from smartphones to modern refrigerators to cars. They have also become a major focus of the wider US-China tech battle.

The world’s second-largest economy has invested heavily for years in boosting its domestic chip industry, but struggles to catch up with its rivals in the US and other parts of Asia. Semiconductors are increasingly seen as the key to national security and a sign of technological prowess for many countries.

There have been a slew of announcements from major Chinese tech companies this year regarding chips made in China.

In August, Baidu launched Kunlun 2, the second-generation artificial intelligence chip. This week, Alibaba released a chip designed for servers and cloud computing. Smartphone maker Oppo is also developing its own high-end processors for its handsets, the Nikkei reported on Wednesday.

This is one small step towards becoming more self-sufficient in semiconductors.

Peter Hanbury

partner, Bain & Company

While these companies design their own chips, they may still depend on foreign tools to do so. But when it comes to manufacturing and the wider supply chain, China’s internet giants still rely heavily on foreign companies.

“This is one step towards becoming self-sufficient in semiconductors, but a small one,” Peter Hanbury, a partner at Bain & Company, told CNBC by email. “These are mainly examples of locally designed chips, but many of the IP [intellectual property], production, equipment and materials are still sourced internationally.”

The reason these companies design their own chips is because they can make semiconductors for specific applications to differentiate themselves from their competitors.

Foreign-dominated supply chain

A closer look at the specifics of the silicon being designed shows China’s reliance on foreign companies.

Take Alibaba’s new Yitian 710 chip. This is based on the architecture of the British semiconductor company Arm. It will also be built on the so-called 5-nanometer process, the most advanced chip technology available today.

Baidu’s Kunlun 2 chip is based on the 7-nanometer process. Oppo is reportedly working on a 3 nanometer chip.

Here lies the challenge for China.

The country does not have a company that can produce these advanced semiconductors of these dimensions. They will have to rely on just three companies: Intel from the US, TSMC from Taiwan and Samsung from South Korea.

China’s largest chip maker SMIC is still years behind its companies in manufacturing technology.

But it’s not just production. Even companies like TSMC and Intel rely on equipment and tools for the manufacturing process from other companies.

In that area, the power is in the hands of a few: ASML, a company from the Netherlands, is the only company in the world that can make a machine that chip manufacturers need to make the most advanced chips.

“The semiconductor ecosystem is large and complex, so it’s very difficult to become self-sufficient with such a wide range of technologies and capabilities,” Hanbury said.

“Overall, the most challenging area to build self-sufficiency will be the lead. Here the challenge is that you need both investment dollars, but you also have to overcome the huge requirements in terms of technical expertise and accumulated experience.”

Geopolitical vulnerabilities

Read more about China from CNBC Pro

Huawei chips are made by TSMC. But when the US rule was introduced, TSMC could no longer make semiconductors for Huawei. That crippled his smartphone operations worldwide.

SMIC is also on the US blacklist that restricts access to US technology.

These sanctions could be a concern for Chinese companies now developing their own chips.

“For example, if an attempt were made to block the shipment of smartphone processors, Oppo would have a source of chips designed domestically, for example,” Hanbury said. “However, most of these chips are still manufactured using international technology, so they could still lose access to their chips if the manufacturing partner for these chips were to block production.”

Supply Chain Concerns

Governments around the world now see semiconductors as a highly strategic and important technology.

US President Joe Biden has called for a $50 billion investment in semiconductor manufacturing and research and has looked for chipmakers to invest in the country. In March, Intel announced plans to spend $20 billion building two new chip plants, called fabs, in the U.S.

“This is about outcompeting China,” Commerce Secretary Gina Raimondo told CNBC in March.

Washington has been trying to bring semiconductor manufacturing back to the US as it is key to national security as the supply chain is highly concentrated in Asia.

But like-minded countries are also trying to work together to ensure their semiconductor supply chains are secure.

Leaders from the United States, India, Japan and Australia, a group known as the Quad, announced plans in September to launch a semiconductor supply chain initiative aimed at identifying vulnerabilities and securing access to semiconductors and their vital components.

Much of the recent discussions about semiconductor supply chains have been fueled by a global chip shortage that has affected industries from automotive to consumer electronics, and concerned leaders about their country’s ability to secure semiconductors when needed.

So where is China now?

China may be ahead of its peers in some areas of chip development, but it will struggle to catch up in advanced technology, at least in the short term.

For example, SMIC can make chips of 28 nanometers on a large scale. These could be used in TVs or even cars – an area in which China could do well, especially with the current shortage of semiconductors.

However, to put things in perspective, TSMC is already working on 3 nanometer technology. SMIC would have to master the manufacturing processes that TSMC has been doing for years before it is able to catch up.

“So even moving forward quickly with these existing technologies wouldn’t be enough to catch up and reduce reliance on the leading edge because the leading edge is constantly advancing,” Hanbury said.

“It’s like running a race to catch a really fast runner while that runner quickly runs away from you.”

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