China is doubling down on homegrown supply chains and drawing billions in cash from Beijing and investors to cultivate homegrown alternatives to produce less advanced but still lucrative semiconductors. Nearly seven months after the US trade barriers, the country’s push for a more independent chip sector has accelerated. Western technology and money have pulled out, but state funding is flooding in to overhaul supply chains and rewrite business plans. Manufacturers are attempting to work with older parts from abroad not blocked by the US sanctions, as well as less advanced equipment at home.
The tough US restrictions stemmed from alarm over what officials in Washington viewed as the threat posed by China’s use of its technology companies to upgrade its military arsenal. Under the October rules, American enterprises and citizens may no longer aid any Chinese companies building chip technology that meets a certain threshold of sophistication. The controls went beyond Trump administration trade curbs that went after specific companies like the Chinese telecom giant Huawei.
During those earlier trade tensions, Beijing mobilized vast sums to cultivate homegrown alternatives to Western chip makers. But foreign components were readily available and of higher quality, leaving many Chinese firms unwilling to make the switch. Those reservations about using materials from China appear to be easing. Chinese tech companies up and down the supply chain are assessing how to replace Western chips and related components, even those unaffected by US controls.
China’s lack of access to world-class tools needed to make chips could stymie its progress in many advanced industries like artificial intelligence and aerospace, according to Handel Jones, the chief executive of International Business Strategies, a consulting firm. International companies that had previously invested in China’s semiconductor industry are diverting their investments elsewhere. Korea and Taiwan’s leading chip manufacturers, Samsung and Taiwan Semiconductor Manufacturing Company, or TSMC, are investing billions of dollars into new production in the United States. The Taiwanese chip-maker is applying for US subsidies for its Arizona factory that force it to cap its investment into China for a decade.
