Semiconductors, Technology
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US-China Semiconductor Rivalry: The next 5 years are everything.

Being on the leading edge of semiconductor technology is the preeminent concern of both China and the United States, and both governments have implemented domestic and international policies to support their semiconductor industries.[1]   Tiny semiconductors (“chips”, integrated circuits, IC) control the speed of calculations and, therefore, the most advanced chips give strategic advantage in artificial intelligence, quantum computing, military equipment, and tele-communications. Chips are also essential for manufacturing consumer electronics, and the semiconductor industry itself is worth nearly $500 billion in annual revenue.[2] For these reasons, semiconductors are vital for economic competitiveness, dominance in financial markets, and national security interests.

Making it Better

Manufacturing capabilities for advanced logic and advanced memory semiconductor manufacturing, the fastest growing market segments, are of crucial importance.[3]  Manufacturing capabilities for advanced logic are found only in Taiwan, South Korea, and the US. China is not yet capable of producing such chips. However, China has increasingly aimed policy at developing advanced logic and advanced memory manufacturing capability, with the further aim of self-sufficiency in all high-tech industries.  China’s 2015 industrial development action plan, “Made in China 2025” outlines modernization of the domestic supply chain and foundational high-tech ecosystem in order to facilitate semiconductor innovation and manufacturing.[4]  The 2014 “National Guideline for the Development of the IC Industry” aims specific policy efforts at 14nm semiconductor design and packaging for advanced chips.  China’s 14th Five Year Plan (2021-25) released on March 11th, 2021 confirms that high-tech manufacturing and “self-reliance in science and technology” remain national priorities through 2035.[5]

Back to the Future

The intensity of China-US technological rivalry parallels the Cold War’s Soviet-US race for nuclear arms and satellite capabilities in that it similarly threatens international security and economic cooperation.  Given the aforementioned high stakes, we might plausibly attribute current international tensions primarily to the semiconductor issue. In other words, although intellectual property violations, unfair business practices and subsidies, militarization of the South China Seas, Hong Kong’s democracy, and Uighur human rights may be purported reasons for the US’s punitive anti-China policies, these are minor issues relative to America’s urgent need to rejuvenate its domestic semiconductor industry before China achieves total manufacturing self-sufficiency. For China’s government, the high economic and national security stakes make forfeiting its “Made in China” dream a non-viable option and, moreover, would be reckless management of the futures of China’s 1.4 billion citizens.

In US President Biden’s first news conference, he vowed that, “China has an overall goal… to become the leading country in the world, the wealthiest country in the world, and the most powerful country in the world… that’s not going to happen on my watch.” Given the speed of technological advance, the next five years might be a case of winner takes all – for the next two decades at least. China’s centenary goals of 2049 would be embarrassed by a loss and, thus, we should expect increased national tech industry efforts from China. We should also expect escalating political and trade tensions as the US realizes that, like objects in the rearview mirror, China may be closer than it appears.

[1] Xinhua. “China to Take Sci-tech Self-reliance as Strategic Underpinning for National Development.” The Top News. March 5, 2021. Accessed April 17, 2021.

[2] Deloitte. “Semiconductors – the Next Wave Opportunities and Winning Strategies for Semiconductor Companies.” April 2019., p5.

[3] SIA. “Semiconductor Industry Association 2019 Factbook.” May 21, 2019., p14.

[4] “Premier Li on ‘Made in China 2025’.” The State Council The People’s Republic of China, August 10, 2017.

[5] Xinhua. “China to Take Sci-tech Self-reliance as Strategic Underpinning for National Development.” The Top News. March 5, 2021. Accessed April 15, 2021.

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