China is preventively stockpiling U.S. computer chips
December 10, 2019 Category China News Round-up, Weekly
China is stockpiling U.S. computer chips, a sign that tech companies are preparing for worsening trade relations that could lead to being cut off from American technology. Chinese imports of American semiconductors, integrated circuits and the equipment to make them have risen strongly in the past three years, despite overall purchases from the U.S. declining dramatically since 2018 amid the trade war. Imports of chips and related machinery from the U.S. were almost USD1.7 billion in August, the most since at least the start of 2017, and were close to that again in October. The risk of a “silicon curtain” descending is real for many Chinese firms who are not yet able to source hi-tech components domestically. “It’s politically intolerable to China that the U.S. has an at-will ability to turn off major companies like ZTE and Fujian Jinhua, as well as being able to deal major operational blows to Huawei,” said Dan Wang, Technology Analyst at Gavekal Dragonomics in Beijing. “So the government and the companies are trying to be more technologically independent.”
China has invested billions in an attempt to develop a domestic semiconductor industry, but it still lags in key areas such as high-performance microprocessors and graphics chips. The U.S. blacklisting of Chinese companies is one factor driving the surge in imports. The emergence of home-grown smartphone brands such as Huawei and Oppo as well as a rapid adoption of cloud computing is also helping propel the import of high-performance silicon. Huawei has built up inventory from around 2018 and continued to do so in 2019 in anticipation of losing access to U.S. supplies.
Surveillance company Hangzhou Hikvision Digital Technology is one of eight Chinese technology companies facing restrictions over accusations they were involved in human rights violations in Xinjiang. The company said in October that it had stockpiled enough key parts to keep operations going for some time. In October the government formally created a new USD29 billion state-backed fund to invest in the semiconductor industry, advancing its goal of reducing dependence on U.S. technology. State-backed Tsinghua Unigroup is the nation’s top chip maker and one of the local giants leading the charge. Its most ambitious project is a USD22 billion plant in Wuhan that was funded from the first fund in 2014.
Investment in the sector slowed in 2019 after the blacklisting of Fujian Jinhua Integrated Circuit basically shut down one of the country’s fastest-growing fledgling chip makers. Imports of chip-making equipment are down somewhat from 2018, when total purchases jumped to over USD26 billion from 2017’s USD16.4 billion, but China is still importing almost USD2 billion a month from the top five suppliers, the South China Morning Post reports.
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