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How China plans to lead the computer chip industry



Professor Patrick Yue

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Professor Yue is working on next-generation computer chips

At a university campus outside Hong Kong, a group of engineers are designing computer chips that they hope will be used in the next generation of Chinese-made smart phones.

Patrick Yue leans back in his chair at a campus cafeteria, sporting a Stanford University T-shirt. He is the chief engineer and teacher who oversees the project.

His research team designs optical communication chips, which use light instead of electrical signals to transfer information, and are needed on 5G mobile phones and other Internet-connected devices.

He tells me about the challenges China faces in developing a world-class computer chip industry.

"In fact, I think real designers will have as big a bottleneck as manufacturing. We don't have nearly as many research institutes and industry bases to train designers," he says.

Its department is partly funded by Huawei, the Chinese communications and telecommunications giant at the center of an international political storm.

In May, the US added Huawei to a list of companies with which US companies cannot trade unless they have a license, blaming security concerns.

Rivals is a season of detailed coverage on BBC News about the US-China supremacy contest in trade, technology, defense and soft power.

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Many industry watchers fear that the US-China trade war risks unraveling the global technology supply chain.

In particular, China relies on foreign companies for computer chips (or semiconductors), the small devices used in everything from consumer electronics to military hardware.

"Politically, everything can be used as bargaining power," says Yue.

"If these companies and countries start cracking down on technology, they will all get hurt. It's not technologically good," says Yue.

China has not hidden its desire to become self-sufficient in technology. The country is the largest importer and consumer of semiconductors in the world.

It currently produces only 16% of the semiconductors that fuel its technology boom.

But it plans to produce 40 percent of all semiconductors it uses by 2020 and 70 percent by 2025, an ambitious plan driven by the US trade war.

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China's President Xi Jinping wants to end China's dependence on foreign chip suppliers

In May 2018, China's President Xi Jinping met with China's leading scientists and engineers, calling on experts to work on self-confidence in the production of key technologies.

That meeting came just a month after the US government banned US companies from selling components to ZTE, China's second largest manufacturer of telecommunications network equipment.

The ban stressed to China's leaders that the country's technological boom depended on foreign technology.

In October this year, in its latest attempt to help push the country's technology sector away from US technology, the Chinese government created a $ 29 billion (22 million pounds) fund to support the semiconductor industry.

"There is no doubt that China has engineers to make chips. The question is whether they can make competitive chips," says Piero Scaruffi, a Silicon Valley historian and artificial intelligence researcher working in Silicon Valley.

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"Of course, Huawei can develop its own chips and operating systems, and the government can make sure that they are successful in China. But Huawei and other Chinese phone manufacturers are also successful overseas, and that's a Totally different question: Are Huawei chips and operating systems as competitive as Qualcomm and Android? Probably not. At best, it will be years before they are, "adds Scaruffi.

Scaruffi estimates that China is 10 years behind major producers of high-end computer chips. Most chips manufactured for high end electronics are manufactured by specialized foundries such as Taiwanese Semiconductor Manufacturing Company (TSMC). Produces over 70% of chips designed by third parties.

It is difficult to secure the best machines needed to produce state-of-the-art chips.

"For starters, the equipment is high precision. You need to print very thin resources. The equipment needed to have this type of technology is controlled by some companies around the world," says Yue.

He believes Chinese technology is three to four generations behind companies like TSMC. China has no industry experience to make high-end chips, he says. But he believes companies like Huawei are already competitive when it comes to designing chips.

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Huawei has been blacklisted by the US government

Where does that leave technology giant Huawei?

Yue argues that Huawei is trying to replicate the successful business models of companies like Samsung, which makes its own computer chips – rather than aligning with Beijing's industrial ambitions.

"You can almost see them as a company integrated with the experience of what Apple or Qualcomm have," says Yue.

Li Changzhu is a lifelong Huawei employee and president of the cellphone industry. He joined the company 23 years ago as a recent graduate and watched her grow into the international technology giant. He says the goal of companies like Huawei is simply to satisfy the needs of consumers.

"We are open to using chipsets from other vendors. Every year we buy a lot of Qualcomm chips. We are open to that. We use the best chipsets to satisfy our customers," he says, sitting next to a technology conference in Macau, a city semi-autonomous from South China.

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China plans to supply 70% of its chip demand by 2025

Growth in the semiconductor industry is typically driven by disruptive new technologies. In the late 2000s, the introduction of smartphones increased the demand for small integrated circuits that control everything from memory to Bluetooth and wifi.

Today, however, China's ambition to dominate sectors such as artificial intelligence and 5G is expected to further increase demand for next-generation chips.

Industry analysts like Scaruffi question China's ability to really innovate. "Every Chinese city wants to build its own Silicon Valley. It tends to be more run from the top. Silicon Valley had a big advantage because it was so far from political power," says Scaruffi.

He believes that China's technological success lies in implementing the technology rather than creating it.

“If your metric is how many people use smart phones to shop, China makes a lot of money. But if your metric is the Nobel Prize winner, China is losing a lot. China, of course, has been very successful in implementing the technology of a way that dramatically alters society, "he says.


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