Chinese chips will keep powering your everyday life

Chinese chips will keep powering your everyday life

China Report is MIT Technology Review’s newsletter about technology developments and China.Sign upYou will receive it in your inbox every Tuesday

What could be better than to make predictions for 2023? Today, I published a Story In MIT Technology Review’s “What’s next in tech?“Series, looking at what will occur in the global semiconductor industry this coming year.

For a quick overview, many experts told me that the already-stressed global chip supply chain would be further challenged by geopolitics in 2023..

The US began to take steps to stop China from entering the industry in the latter half of 2022. An alliance with Japan and the Netherlands The country has been imposed restrictions on chip exports. These measures have forced the once-market-driven business to develop contingency plans to survive the cold war-like environment. They include diversifying from China’s supply chain and building factories elsewhere. In the coming year, we may see similar plans. The US government will also enforce its punitive restrictions and provide industrial subsidies to domestic chip manufacturers. This could mean that new companies will be able to make it big while others will be penalized for selling to China.

Read the full article to learn more about the industry and how the US, China and Taiwan may navigate it this year. Here.

But I want to also highlight something that didn’t make it into this story: a rather unintended consequence of the chip tech blocade. The country may play a larger role in the production of older-generation chips that are still widely utilized in everyday life, even though the chip industry’s high-end segment is suffering.

This may seem counterintuitive. Aren’t the US restrictions that China placed last year on semiconductor production meant to severely harm China’s industry?

Yes, but the US government has taken steps to limit the impact on advanced chips. In the case of logic chips, which are chips that perform tasks and not store data, the US rules do not limit China’s ability produce chips with 14-nanometer Nodes or better. This is the main chip-making technology introduced in eight years. These restrictions do not apply to older technologies.

This is because older chips are used in electronics, cars, as well as other everyday objects. The US could impose a restriction that would completely shut down China’s electronic manufacturing industry. This would likely anger China enough to take action that would be detrimental to the US. “If you want someone to get pissed off, push them into the corner and give them no escape. Woz Ahmed, a UK-based consultant who was formerly a chip industry executive, says that they will then come after you and punch you really hard.

Instead, the idea is not to inflict any pain in certain areas, such as the most advanced technologies that could power China’s supercomputers and artificial intelligence, or advanced weapons.

[US] China’s domestic chip industry is not affected by any of the policies immediately. Because very few Chinese companies have achieved advanced processing, except HiSilicon,” He Hui, a research chief at Omdia, who focuses on China’s semiconductor market. “But HiSilicon had already been [placed on the blacklist] Three years ago.”

The subsector in which China has an advantage is the lower-end legacy chips. This does not refer to chips that power the artificial intelligence of self-driving cars, but chips that control specific parts, such as airbags. The Internet of Things technology is rapidly evolving, but it still requires many small chips that aren’t so advanced.

“That stuff will still be made in China, at the very least, based on the current settings that have been communicated by the Biden administration.” John Lee, director of East West Futures Consulting, who studies the global impact of China’s tech industry, says that this clearly leaves a huge incentive and a large market for foreign companies, European, Japanese, and South Korean.

China has an advantage because it is a market with mature, lower-end technology. This is why China is able to maintain its advantage. China is a great country for low-cost mass production. This is due to its low labor costs and generous government subsidies.

Some Western observers are already concerned about a future in which China dominates low-end chips. A report Lawfare published this warning as “a huge supply chain vulnerability.” Normal companies cannot compete because they can’t make that much money at these levels,” Dan Hutcheson (an economist at TechInsights), said. Reuters.

Other countries, including the United States will continue to try to grab a piece of the legacy chip market. The US CHIPS Act, which was passed last year, set aside $2 billion to encourage domestic production of these technologies. Experts believe that the European Union could introduce its own chip legislation within the next two-years.

This industry is notoriously slow to convert capital investment into actual products. Even foreign companies such as TSMC, based in Taiwan, can take a long time to see capital investment turn into actual products. Announce Investment plans for US-based factories won’t likely shift more capacity to the US unless they have consistent government support. This is difficult to guarantee in America’s volatile and polarized political environment. “I think we need to wait and watch to see if it happens. [these companies] He Hui says that they are willing to keep their promises.”

Lee describes this dynamic as one of the most interesting trends emerging from the current fight for chip control. “Much of this capacity is already in China. These are the main sources of new capacity. [mature] China is building nodes, but there is a limited capacity. [of chipmaking equipment supply]Even if the money and political will are there to develop it in the US or EU, it is not enough. Lee said. The footprint of China in “supplying the more mundane, high-volume, lower-margin, lower-sophistication, but still indispensable chips,” he adds, “is becoming bigger rather than smaller.”

Looking ahead, there are two key questions. Will China’s legacy chip sector prosper while it struggles to build the high end sector? Or will the US government put more restrictions on China? These are the questions I hate to predict, but I don’t believe we will have definitive answers by 2023. These are important to remember as the semiconductor industry navigates a new era in geopolitical volatility.

What impact will China’s dominance in low-end chip manufacturing have on the world? Let me know what you think at zeyi@technologyreview.com

Catch up with China

1. The Chinese state media was once the primary force behind patriotic sentiment and rage on social media. However, individual pro-government accounts have taken over the baton in recent times. (Nikkei Asia $)

2. Chinese officials and researchers have started uploading genome sequence data from recent covid cases to a global academic repository. This shows that sub-variants such as XBB, which are widely distributed around the globe, are also circulating in China. (Financial Times $)

3. Millions of elderly Chinese have been made vulnerable by the current wave covid infections in China. Many have already died. Here’s the heartbreaking story of one mother who died in Wuhan. (The Atlantic $)

4. In an attempt to stop leaks from occurring, ByteDance employees improperly accessed data of two Western journalists as well as several other US users. This was revealed by the company in an internal investigation. (New York Times $)

5. Tencent finally won state approval to release three of its most successful international games domestically–including the Pokemon franchise game it co-developed with Nintendo. (Bloomberg $)

6. A Russian state broadcaster has leaked emails that reveal how Russian and Chinese state media collaborate to share news and social content. (The Intercept)

7. China was offered free covid vaccines by the European Union. China rejected the offer. (Financial Times $)

8. Concerned individuals have started to stockpile oximeters to monitor their blood oxygen levels at home, as hospitals in China are becoming more crowded. (Pandaily)

Translation lost

Beijing is a global climate leader and local governments are leveraging on this business to protect the environment and become important players. According to a recent report, the past five years have been characterized by a significant increase in local government involvement in environmental protection. Analyse According to Qingshan Research, 17 of China’s 34 province governments have created state-owned “super corporations” that are focused on securing government contracts in the environment sector. Although they may differ in size and expertise most of these companies offer services such as wastewater treatment, garbage disposal, climate investment management, and environmental monitoring.

They are state-owned and have access to government funding and endorsement. This allows them to enjoy preferential treatment during the procurement process. They also have to compete against private companies and with each other. While the leaders have been able to get contracts worth hundreds of millions of dollar per year, others have struggled to secure enough deals and have even ended up in bankruptcy.

Another thing

Have you had any difficult conversations with your family about politics last week? You are not the only one. Many young Chinese people are doing this. It happened many times During the protests against zero-covid last year, young people marched to the streets and supported the protesters via their WeChat timelines or in their family group chats. Some people find it as difficult to speak out about their nonconformist political beliefs than it does about sexuality.

Continue reading