A number of foreign outlets has claimed that investments in advanced technologies will be a priority topic at the 3rd plenum of China's ruling Communist Party (CPC) due in Beijing on July 15 to 18. They came to this kind of conclusion by analyzing the Chinese authorities’ performance preceding the venue.
Thus, the Chinese government has tacitly “asked electric-vehicle makers from BYD Co. to Geely Automobile Holdings Ltd. to sharply increase their purchases from local auto chipmakers, part of a campaign to reduce reliance on Western imports and boost China’s domestic semiconductor industry,” Bloomberg writes. And the Wall Street Journal reports: “The Ministry of Industry and Information Technology of China has ordered local telecom providers to check their networks for any foreign-made chips” and replace them with local analogues by 2027. So, while earlier setting an unofficial goal for purchasing a fifth of their chips domestically by 2025, the Chinese authorities are now directly instructing firms to avoid foreign semiconductors. This has come as a response to American sanctions aimed to strengthen the country's cybersecurity.
Assessing their aftermath, let’s note significant uncertainty faced by Western companies, from Nvidia Corp. and NXP Semiconductor NV to Renesas Electronics Corp. to Texas Instruments Inc., all of which compete with local firms for supplies to the world's largest electric vehicle market. They may force foreign chip manufacturers to produce silicon at local foundries such as Semiconductor Manufacturing International Corp. or Hua Hong Semiconductor Ltd., a number of experts have argued.
Beijing's actions towards achieving self-sufficiency in critical technologies have made the European Commission (EC) anxious, Bloomberg writes, as European chip manufacturers risk losing a major market share in China. Dutch NXP Semiconductors NV, German Infineon Technologies AG, Japanese Renesas Electronics Corp., and others may get harmed by Chinese efforts to develop domestic competitors, according to the EC. These companies produce microprocessor control units (MCUs) and other chips needed in key sectors of economy. The EC believes that "discriminatory standards, local content requirements, and other non-tariff barriers could be used (and are being used already) to incentivize the growth of domestic MCU companies in China, that can leverage its vast EV market, at the detriment of European and Japanese suppliers of chips <…> Microcontrollers, or MCUs, are effectively small computers on a single chip that usually control a single function within a piece of electronics, for example activating an airbag in a car or controlling the water temperature in a washing machine. China already accounts for 30% of the global MCU demand.”
Apart from that, the PRC State Council has adopted a list of rules regarding trade, extraction and smelting vital rare earth elements used in manufacturing high-tech products from e-car magnets to consumer electronics, which is also aimed to protect supplies in the national security interests. The rules identify rare earth element resources as belongштп to the state, with the government to control the development of 17 minerals in which China has become a world leader in recent years (almost 90 percent of the world's refined production). By the time they enter into force on October 1, an information system is planned to be launched for tracking their production and distribution.
All of this has been undertaken by the Chinese authorities in response to US efforts to get technologically "separated" from the PRC as part of "containing it" in the last five plus years, starting with the export control reform law signed by US President Donald Trump in 2018. It initiated a series of export restrictions in the semiconductor industry, including the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act, which has stipulated measures to limit cooperation with Chinese manufacturers. These moves by the United States triggered the fragmentation process in the global supply chain when producing integrated circuits, while entailing higher competition and huge losses with Western manufacturers. And the United States does not limit itself to breaking supply chains between American and Chinese manufacturers, but is also forcing its allies — Japan, South Korea, and Taiwan — to technologically "divorce" with China. Thus, the US authorities have recommended that the Netherlands stop supplying China with equipment or technologies of both the latest and the previous generation. In 2023, US-pressed South Korea and Japan passed laws supporting the national semiconductor industry by providing tax incentives to companies.
The entire thing shows that Western countries are getting increasingly scared to "share technology" with China. But, according to Bloomberg columnist Justin Fox, this does not prevent Chinese companies from “rising up the list of the world’s biggest spenders on research and development — a sign that perhaps they won’t need that Western technology much longer.” Rather, sanctions against Chinese tech companies push the PRC towards technological sovereignty, strengthening its resolve to acquire independence in innovation.
Indeed, all the bans by Washington and its allies have created development woes to Chinese companies, but not undermined their global market competitiveness. Thus, August 2023 saw Huawei excite Western experts by announcing the launch for Mate 60 Pro premium smartphone with a 7nm processor. And in February 2024, there were reports that SMIC and Huawei planned to create a new 5nm processor this year. Both require the use of stocked US- and Dutch-made equipment. Even though 5nm chips are slightly underperformed by the most advanced 3nm ones, this move shows that China's semiconductor industry is attaining major progress despite US export controls. Over the longer term, this will allow for Huawei’s production of the most powerful processor for Ascend 920 AI systems, reducing the gap between Chinese AI chips and Nvidia GPUs.
All of this confirms the broad view by Chinese experts that "the deepening cracks in the global industrial chain may also provide opportunities for China to cooperate with other technologically advanced regions." Meanwhile, steps taken by the Chinese authorities to set the scene for a high-tech self-sufficiency have "fueled" fears in the West that restrictions on the work of Western companies in the Chinese market and supplies of rare earth elements may result in deteriorated positions of Western companies both in the Chinese and global markets.
