For one way of getting a sense of how a nation views itself at a particular point in time, a look at its favourite TV programmes can be a very good bet.
Back in 1961, the most-watched television show in the United States was Wagon Train, drawing deeply on the genre of the Wild West. Each week viewers kept track of the fictional escapades of these American pioneers, who to some were much like their great grandparents (and in some cases grandparents) who had traversed the country in reaching new frontiers.
This was the same decade that the Cold War was intensifying and the same year that President John F Kennedy inspired his fellow Americans with talk of beating the Soviets in putting a man on the Moon.
The country relished having another new frontier to conquer: in this case the ‘final frontier’ as another popular TV series put it. Indeed, Star Trek was originally pitched to network executives as ‘Wagon Train in space’.
The space race was fuelled by the development of semiconductors that could power the computers that propelled astronauts like Neil Armstrong to the Moon (for a fascinating insight into how the lunar programme led to the miniaturisation of semiconductor chips, WiC recommends the BBC podcast 13 Minutes to the Moon).
Fast-forward 60 years and silicon chips are once again at the centre of a new geopolitical battle, this time between the US and China. But they are also the inspiration for another potentially era-defining TV series.
One of China’s largest production houses, Shanghai Media Group, hopes its new series Silicon Waves will win public interest by “distilling the essence of the nation’s spirit”. The 40-episode drama will follow the journey of two young graduates from US colleges who decide to return to China, taking advantage of government incentives to build a leading domestic semiconductor firm and pass on their hard-won wisdom to future generations.
Entrepreneurship, patriotism and an unwavering determination to defeat hostile forces from overseas all seem likely to feature prominently in the plot. And in real life, Shanghai’s municipal government is also incentivising young talent to come to the city in the hope of cementing its status as the country’s premier semiconductor hub. Newly announced enticements include: a highly sought-after hukou (city residency permit), a discount on local property prices and other tax incentives.
The government will also offer to pay up to 30% of the investment needs of semiconductor start-ups in areas of the industry where Chinese firms have struggled to catch up with companies from other markets: principally the making of semiconductor manufacturing equipment and EDA (software design) tools. Most of the new entrants are expected to base themselves in the city’s emerging semiconductor cluster, the Lin-Gang Free Trade Zone, which was formally established in 2019 to the southeast of Shanghai.
Such moves come in response to policies in Washington, which has deployed export bans on advanced technologies in a bid to block Beijing’s efforts to develop a domestically controlled semiconductor supply chain. The campaign has had a devastating effect on companies like Huawei, which has seen its market share crumble in key sectors such as smartphones. However, it has also galvanised efforts to build domestic capacity that no longer relies on foreign inputs. This push might take another key step forward this year, thanks to two of Shanghai’s leading lights: the chip manufacturer SMIC and the lithographic machinery manufacturer, SMEE (Shanghai Microelectronics).
The Chinese press reports that SMEE is poised to deliver its first DUV (deep ultra-violet light) lithographic machine at the 28nm production node, possibly by the summer. Lithography is the most complex part of the manufacturing process and the Chinese government wants to foster a viable alternative to Holland’s ASML, which has a global monopoly for machines that support production at the most advanced nodes.
SMEE’s biggest customer is set to be Huawei, which has also set up its own manufacturing arm after losing access to its former foundry partner TSMC for the most advanced of its chip designs. Since the end of last year, Huawei has been producing its own chips at 45nm, at the lower end of the semiconductor tech curve. The Chinese press claims that the company is ready to do the same at 28nm, once it gets SMEE’s new lithography machines.
There have also been unconfirmed rumours that Huawei plans to establish a new foundry with SMIC in its hometown of Shenzhen. SMIC, which is spending $8.9 billion on the construction of a new 28nm foundry in Lin-Gang in Shanghai, has finished trial production at the far more advanced 7nm node. However, yields and capacity lag well behind industry leaders TSMC and Samsung. This is partly because SMIC doesn’t have access to ASML’s next-generation lithography machines, which deploy EUV (extreme ultra-violet) rather than DUV.
Unsurprisingly, SMEE and SMIC’s breakthroughs have put both companies at the sharper end of US government policy. This week SMEE was added to Washington’s export watchlist, while lawmakers have been urging the Biden administration to close “loopholes” that allow SMIC to win US export licences.
Sina Finance quotes International Data Corp’s Mario Morales in his view that China is still three to four generations of technology behind the semiconductor leaders, which approximates to about a decade of efforts to catch up.
At the end of January a group of researchers at Peking University came to the same conclusion. In a report, which was soon removed from the internet, they also flagged how the US government is getting traction in creating a “democratic technology alliance” with its key Asian allies Japan, South Korea and Taiwan. “Both the US and China will be hurt by the [tech war] decoupling, but now it looks like China will lose more,” the authors concluded.
As for AI, the report also confided that China was lagging in terms of computing power and algorithms, despite having a clear lead in Big Data. Ultimately, “the US has a clear advantage in original, groundbreaking research,” it explained.
Talk about losing out to the Americans doesn’t chime with the official line from Beijing. Instead, newspapers like the Global Times have been demanding a stronger “sense of urgency” from Chinese firms in countering the American grip on the semiconductor supply chain. The same newspaper has been talking loftily about the imperative of an “Asian Semiconductor Alliance”, claiming that the Chinese will find willing partners as “the whole region is now facing serious challenges of being deprived of the competitive edge”, following a growing focus in the US on rebuilding capacity at home rather than relying on Asian-based manufacturers.
As such, Japan’s Nikkei reports that Chinese officials are setting up a ‘Cross-border Semiconductor Working Committee’ under the Ministry of Commerce to encourage partnerships between domestic and foreign semiconductor companies.
Of course, China’s relationship with its near neighbours is complicated to say the least. And when it comes to semiconductor trends, Japan, South Korea and Taiwan have all been moving further into America’s orbit rather than cosying up closer to China, even though they have bristled commercially at some of the American pressure to do less with the Chinese.
That process should speed up following the passage of the COMPETE Bill through the US House of Representatives in early February. Provisions in the legislation include $52 billion of incentives for groups like TSMC and Samsung to manufacture more of their chips on American soil, plus $45 billion to improve supply chains and $160 billion in new funding for R&D.
Writing in The Hill, John Neuffer, the president of the Semiconductor Industry Association, says that America needs to rebuild in-country manufacturing capacity for its own geopolitical security. He highlights how the US global share in chipmaking has declined from 37% to 12% since 1990, while China’s has risen from 1% to 15%.
The Americans originally seeded the semiconductor expertise of its Asian allies in the decades after the Second World War. It wants the same ties to be binding with its favoured partners in Asia today. In mid-January, for example, researchers from Samsung and Harvard announced the development of a new type of memory chip – MRAM – that might become an improved successor to DRAM.
Late last month Micron also said that it was shutting its Shanghai R&D centre. Meanwhile, the Idaho-headquartered chip giant plans to spend $7 billion on a new DRAM plant across the East China Sea from Shanghai in Japan’s Hiroshima prefecture.
The Yomiuri Shimbun newspaper says that Japan and the US are also considering new plans to bring like-minded Asian and European companies together to create a multilateral framework that regulates the exports of advanced technologies to countries that might use them to boost their military capabilities.
It says this framework would not only serve as a successor to the Wassenaar Agreement but also introduce a modernised version of CoCom (the Coordinating Committee for Multilateral Export Controls), which the Western allies used to curtail the USSR’s technological ambitions during the Cold War.
China’s determination to avoid isolation in technological terms has in recent months also brought more emphasis to find partners from other parts of the world, rather than outright competition with them. The Global Times says one of the latest overtures is being made to Europe, which also wants to boost local semiconductor production. To build their own capacity, the Europeans “should not be hijacked by US politicians’ selfish policies,” the newspaper urges. “Cooperation will always be the main theme of China-EU relations,” it assured.
Of course, amid all this grand strategic talk and long-range planning, the greatest ‘known unknown’ for the semiconductor industry is the future of Taiwan’s TSMC. The ‘elephant in the room’ is what happens to TSMC should Beijing ever invade the island (a possibility WiC first flagged in issue 407 back in May 2018). That would be a ‘gamechanger’ in the truest sense of the word…
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