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Opinion | The greatest challenge facing China’s chip drive? It’s neither funding nor talent, but resource allocation
- China can plug the talent gap by revving up its universities and use its powerful state apparatus to pool semiconductor funding
- But getting the resources channelled to the right companies and minds is a path riddled with subsidy fraud, R&D incompetence and corruption
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The United States has stepped up its chip war against China over the past year. The Chips and Science Act blocked China’s access to advanced semiconductor technologies through restrictions on US companies, and this was followed by sweeping US export controls on high-end chips and chipmaking technology. The US has even pressured countries such as the Netherlands and Japan to restrict their hi-tech shipments to China.
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All of this is a step up from 2020, when Washington merely targeted specific Chinese companies, institutes or individuals, such as Huawei Technologies Co and Semiconductor Manufacturing International Corporation (SMIC), by putting them on its Entity List, an export blacklist. The attack has seemingly widened into an indiscriminate effort to suppress China.
China’s predicament is reminiscent of Japan’s plight during its 1980s chip war with the US. In 1986, Tokyo finally signed the US-Japan Semiconductor Agreement, ceding a targeted 20 per cent of its domestic market to foreign companies – only for the Reagan administration to still impose a 100 per cent tariff on imports of Japanese tech goods later.
Yet there are differences between China’s semiconductor industry today and Japan’s then. In the 1980s, Japan accounted for more than half of the global semiconductor market. China had just 4 per cent of the market in 2021. Even so, Washington has decided to stifle China’s semiconductor industry, from the upper to the lower reaches of the supply chain. Its chip sanctions on China are far worse than those unleashed on Japan decades ago. It appears Washington is determined to snuff out the industry in China before it fully matures.
Beijing is clearly unwilling to be a sitting duck. But as a more vulnerable competitor, China can expect a tough journey.
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Faced with crippling US sanctions, China has no choice but develop self-sufficiency in advanced semiconductors – an enterprise for which talent and capital are indispensable. But China remains short of semiconductor talent, with an estimated gap of over 200,000 over 2022-2023.
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