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The United States has decided to deprive China of its most advanced semiconductor technologies. A decision that risks being fatal to Beijing’s efforts to build its own microchip industry and which is relaunching the latent economic war between the two powers. The news fell at the end of last week, it shook the Chinese tech sector. Washington is therefore announcing new restrictions on exports of electronic components to China.
The objective openly displayed by the White House is to limit China’s ability to acquire and manufacture certain high-end chips, used in particular in the defense industry, but not only. You should know that if the production of semiconductors is done overwhelmingly in Asia – mainly in Taiwan, around 53% of the world market, but also in South Korea, Japan and China – the design of these components is very largely dominated by Silicon Valley companies.
With this new turn of the screw, Chinese companies will no longer be able to buy chips using American patents or components, without prior agreement, even if these chips are manufactured by non-American companies. These are advanced technologies, latest generation, chips engraved in nodes less than seven nanometers. To give an idea, the automobile industry, very greedy in semiconductors, uses chips engraved in nodes of 14 nanometers and beyond, therefore more than twice as large. These chips relate to the more sensitive sectors of information and communication technologies.
Concretely, what are the consequences for China?
If China can no longer buy “high-end” chips, it will not be able to develop and above all maintain supercomputers, whose applications can be military. The example of calculations for the simulation of Chinese nuclear strikes is often cited. Nor will it be able to produce its own advanced semiconductors, including memory chips. Technologies that would allow it to improve military information systems and the mass surveillance it exercises over its population, this is the argument put forward by Washington.
But it is not only the defense sector that is concerned. The latest generation semiconductors are essential in the data centers of Chinese tech giants such as AliBaba, Baidu or Tencent. The shares of these groups have all fallen on the stock market, like those of Chinese semiconductor manufacturers.
This decision by Washington is a blow to Beijing’s ambitions in this strategic sector, which weighs more than 680 billion dollars.
You should know that China buys the bulk of its semiconductor needs abroad. To give an idea, the country imported in 2021 for 350 billion dollars of these chips. This represents 13% of its imports. Essential components for the automotive industry, aeronautics, the manufacture of electronic devices, computers, smartphones… Everything that China produces in mass.
Aware of the stakes, Xi Jinping launched in 2015 the plan Made in China 2025 whose ambition was to make China a great technological power, with the aim of locally producing 75% of the chips it uses. But three years from the deadline, it only produces 15%. Beijing is therefore more than ever dependent on foreign countries for its semiconductors.
This American offensive is just another step in the White House’s strategy to contain Chinese ambitions in this sector.
The Covid-19 epidemic was a shock in revealing how dependent the world was on a few semiconductor manufacturers mainly based in Asia. We have seen the damage to supply chains and the consequences in the automotive industry in particular. The Americans, but also the Europeans, learned the lesson well and decided to invest massively to relocate the manufacture of semiconductors to the United States and the European Union. Fifty billion dollars of public funds for the American Chips Act, 40 billion for the European plan. The United States, which has also launched a new front with the “Chip 4”, an alliance with three other key countries: Taiwan, South Korea and Japan. The objective is to better distribute the world production of semiconductors, it is a question of convincing these countries to build the production units of tomorrow on American soil, an approach very frowned upon by the Chinese.