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    US ‘blockade’ set to turbocharge Chinese chip development

    Fresh restrictions this week on exports of US chip technology to Chinese companies have provoked an angry reaction from Beijing, but beyond the rhetoric, China is expected to unleash a new wave of funding to boost domestic production of semiconductors.

    Washington has been steadily tightening the noose on China’s tech sector, limiting access to cutting-edge chip components and machinery. Its latest move is to introduce tough licensing requirements that are likely to block sales of high-end processors from US chipmakers Nvidia and AMD, which are used in artificial intelligence systems.

    China’s foreign ministry accused the US on Thursday of attempting to impose a “technological blockade” on China to maintain its tech “hegemony” and said it was stretching the concept of national security. The US has said it fears its tech will be adapted for military purposes.

    Unable to break such a “blockade”, “the restrictions will turbocharge China to find local replacements”, said one senior executive at a Chinese chipmaker.

    The government has already poured vast sums of money into the chip sector, with state-owned investment funds targeting chip start-ups that promise to replace foreign rivals. The largesse has prompted accusations of waste, corruption and mismanagement. Chipmaker Tsinghua Unigroup defaulted on its bonds in 2020 despite receiving tens of billions of dollars in government support.

    Analysts believe a string of high-profile failures will not deter Beijing in its quest for chip self-sufficiency, as Washington accelerates the encirclement of China’s tech sector with ever-tighter controls.

    Putting blocks in place for the supply of cutting-edge chips from Nvidia and AMD comes weeks after the US banned the sale to China of electronic design automation (EDA) software, needed to design high-end chips. The moves will hasten Chinese firms switching to domestic chipmakers to pre-empt being cut off from foreign suppliers, wrote Shanghai-based wealth management firm HWAS Assets in a note.

    In July, the US congress approved $52.7bn in grants to build chip facilities in the US for those companies agreeing not to fund high-end semi production in China, under the landmark US Chips and Science Act.

    Randy Abrams, head of Asia Semiconductors research at Credit Suisse, wrote in a note that the ban on investing in advanced fab production in China would “further limit access to overseas talent and investment to build up China’s domestic semis industry”.

    In the past, chip factories or “fabs” in China run by Korea’s Samsung, Intel of the US and UMC of Taiwan “have been a good source for China to help build up IP, talent and resources to develop its domestic semis industry”, he said.

    Analysts at investment bank Jefferies said the biggest customers for Nvidia products that were effectively banned this week are cloud service providers, internet and AI companies. They predicted there would be an attempt to switch to local graphics processing unit (GPU) substitutes, but the widespread use of Nvidia’s Cuda “operating system for AI” software would create incompatibility issues.

    The senior executive said it was only a matter of time before China developed its own functioning EDA software. The US tools “are incredibly complex and sophisticated, so you can’t replicate them overnight, but with enough money and ingenuity, you can get close,” he said.

    Others disagree that China can strike out on its own. Stephen Ezell, a director at the Information Technology and Innovation Foundation in Washington, said China’s efforts to develop a “closed loop semiconductor ecosystem” had failed.

    “It is self-defeating for a country in a high-tech industry to try and do everything by itself,” he said.

    The devastating impact of Washington’s sanctions on Huawei, which barred the Chinese telecoms behemoth from all chips using US tech in 2020, underscores the interconnected nature of the global chip supply chain. The move crippled the company’s smartphone business.

    The Netherlands has also caved in to Washington pressure and banned exports of extreme (EUV) lithography equipment to China, required to manufacture chips that power AI and blockchain technology. “China was not going to be a player once the US got the Netherlands to acquiesce,” said Douglas Fuller, an expert on the Chinese semiconductor industry.

    Even as the US successfully limits China’s access to foreign chip technology, industry insiders are sceptical about Washington’s ability to shut it out completely from the global supply chain.

    One industry veteran in Japan said that the last attempt by Washington to compete with an adversary ended in failure after political appetite waned and funds dried up. In the late 1980s, the US established a consortium of semiconductor companies driven by concerns that Japan had usurped its dominant position.

    “It was reasonably successful for a time, mainly because large companies like Intel supported it heavily. But government funding is fickle and dries up with the change of an administration in Washington,” he said.

    “The semiconductor industry is global, and it is difficult to mount an effort to help one country be competitive against its global allies and competitors.”

    Additional reporting by Nian Liu in Beijing

    US ‘blockade’ set to turbocharge Chinese chip development Republished from Source https://www.ft.com/content/ebcac5e4-f45d-418f-a617-95f1a944bc73 via https://www.ft.com/companies/technology?format=rss

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