China rushing to self-reliance in technological sectors
March 9, 2021 Category Macro-economy, Weekly
China is moving swiftly to determine potential weaknesses in dozens of technological sectors and draft a sweeping plan to address areas that are exposed to external risks, Chinese officials said, as the country aims to further bolster its rising technological prowess and counter a looming cut-throat race initiated by the U.S. over core technologies such as chips, software and raw materials that will determine the global power structure. Addressing the country’s over-reliance on foreign supplies of critical components has already become a hot topic in the week when the annual sessions of the NPC and CPPCC started, with lawmakers and political advisors making proposals and suggestions aimed at addressing various aspects of the issue, including increased government spending, talent building and other support measures. Ambitious goals and detailed policies are expected to come out of the two sessions, analysts said.
Xiao Yaqing, Minister of Industry and Information Technology, said that while China’s industrial capabilities were on full display during the Covid-19 pandemic, the process also exposed “certain shortcomings and weaknesses” in China’s industrial and supply chains. The Ministry has started conducting a full review of 41 sectors and map out key industrial chains to “find empty spots as well as our weaknesses,” Xiao said. “Fixing the chain is to fix our shortcomings and weaknesses, ensuring that the chain won’t break during crucial times.” Minister Xiao said at a press conference that China will focus on areas such as integrated circuit, core software, essential new materials and major equipment to address the “issue of the bottleneck.” “These are areas without alternatives if the U.S. decided to cut off supply. They are the most important core technologies that we have to master,” Fang Xingdong, Founder of the Beijing-based technology think tank ChinaLabs, told the Global Times. According to analysts, China is much too reliant on foreign supplies of chips and crop seeds, which have been called the “chips of agriculture”.
While China’s long-term development requires significant breakthroughs in core technologies, an escalating technology crackdown launched by the U.S., which has seen restrictions on supplies of chips and other crucial components to China, added urgency for China to address these “bottleneck” problems. The Biden administration plans to implement bans imposed by the previous U.S. administration on technology transactions with China and is also pushing to form tech alliances with allies to counter China in core technologies such as semiconductors and artificial intelligence (AI).
Currently, China imports about 90% of chips used in the country, worth around USD300 billion, but China is aiming to reverse that with 70% of chip supplies coming from domestic manufacturers by 2025, when China’s chip market could reach CNY2 trillion, compared to around CNY884.8 billion in 2020, according to Xiang Ligang, Director General of Information Consumption Alliance. “That is a very ambitious goal that will require massive investment in a lot of areas,” Xiang told the Global Times, adding that China’s investment in chip development has already increased sharply from around CNY30 billion in 2019 to CNY140 billion in 2020. “That level of investment will stay in place, if not rise further,” he said.
China has set a long-standing goal of increasing R&D expenditures. In 2020, China’s total R&D spending increased to CNY2.4 trillion from around CNY1.42 trillion in 2015. China is already the world’s second-largest spender on R&D and is rapidly closing the gap with the U.S. “Whether it is internal needs or external risks, what we can be certain of is that in the next five years and longer, China will deploy its massive national strength to achieve technological and supply chain independence, and I have no doubt we will have a completely different picture of the global technological power structure in the end,” Minister Xiang said, as reported by the Global Times.
China’s major chipmaker Semiconductor Manufacturing International Corp (SMIC) has received licenses to import equipment from some U.S. companies, but the U.S. is not expected to ease restrictions on SMIC for advanced chip technologies, such as 7-nanometer or smaller processes. The licenses involve technologies of 14 nm or larger. At present, there are 66,500 chip-related enterprises in China, and 22,800 of them were newly registered enterprises in 2020, a year-on-year increase of 195%, according to market information platform Qichacha. Since 2021, the growth has been more rapid, with 4,350 registrations in the first two months, a year-on-year increase of 378%.
SMIC also extended a deal with the Netherlands-based ASML Holding to pay USD1.2 billion for equipment purchases till the end of the year, which will ensure SMIC’s production capacity. ASML is the world’s largest supplier of photolithography devices needed by wafer plants to make chips and some of its equipment is not available from any other supplier. The deal means SMIC is capable of making chips with “mature technology” of up to 14-nanometer processing which can be used in automobiles, computers and some smartphones. Devices with advanced processing technology such as 7-nanometer are still subject to the U.S. tech ban.
China is positioned in the third tier of a four-tier global manufacturing hierarchy and is at least 30 years away from achieving its goal of becoming a strong manufacturing power. China’s manufacturing industry has made marked progress lately, but the general view that it is “big, but not strong” and “comprehensive, but not excellent” has not fundamentally changed, Miao Wei, former Minister of Industry and Information Technology, said in a speech at the two sessions. Miao highlighted problems restricting the high-quality development of China’s manufacturing industry. “Since the China-U.S. trade and technology conflict began, the supply chain has been disrupted, and now we need to rebuild the competitiveness of the industry and supply chains on our own,” Hong Tao, Director of the Institute of Business Economics at the Beijing Technology and Business University, told the Global Times, noting that the chip issue is also forcing China to make a change.
This overview is based on reporting by the China Daily, Shanghai Daily and Global Times.
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