The West joined forces with the chip industry to accelerate the “de-communization”

Chip is the “food” of modern industry and has become the focus of international competition. On the one hand, the United States, Taiwan, Japan, Europe, South Korea and India have launched their own ambitious chip development plans, and on the other hand, they have strengthened mutual cooperation and intend to decouple themselves from the Chinese Communist Party. This shows that chips have become a powerful tool for the West to counter the Chinese Communist Party. It is not difficult to imagine that if the Chinese Communist Party and the West start a full-scale economic and technological war, semiconductors will be a major battlefield, and the Chinese Communist Party is currently powerless to fight back.

U.S., Taiwan, South Korea, Japan and Europe join forces to restructure the global chip supply chain

The Great Plague of 2020 ravages the world. On the one hand, the Chinese Communist Party is the main culprit, and its evil nature is widely recognized by the international community; on the other hand, the global supply chain has suffered a major impact, and the understanding of globalization has deepened, with multinational companies and many governments deeply adjusting their global supply chain policies; therefore, “de-communization” has become a trend, among which the chip industry is the most prominent. As a result, “de-communization” has become a trend, among which the chip industry is the most prominent (the global shortage of chips is also contributing). Here is the example of the United States, South Korea, Japan, Europe and Taiwan.

The United States. Although U.S.-based companies account for nearly half of semiconductor sales, but by 2020, the U.S. chip manufacturing accounted for only 12% of the world, far below the manufacturing capacity of about 30% in the 1990s. The Biden administration’s thinking is to unite allied countries to accelerate the return of chip manufacturing and defend the chip technology leader position. On March 24, U.S. chip giant Intel (Intel) proposed a multi-year strategic plan to invest $ 20 billion in the United States in Arizona to build two new semiconductor plants using advanced processes, is expected to be put into operation in 2024. April 12, Biden hosted the “Semiconductor and Supply Chain Resilience On June 8, the U.S. Senate passed the American Innovation and Competitiveness Act. The bill provides a $250 billion budget to expand U.S. investment in high-tech industries over the next five years. In addition, the U.S. is actively promoting the world’s chip giants to build factories in the U.S.

South Korea. South Korea is the world’s largest memory chip manufacturer and has the world’s second largest chip foundry (Samsung.) On May 13, the South Korean government announced a 10-year plan to achieve its goal of becoming a semiconductor powerhouse, with a proposed investment of about $450 billion by 2030 to create the world’s largest chip manufacturing industry center. South Korea’s semiconductor investment plan will be dominated by private companies. The South Korean government plans to provide policy support to the private sector in the form of grants, tax breaks and support for infrastructure. In addition, the U.S. and South Korea have joined forces, and Samsung has planned to invest $17.7 billion to build a new chip foundry in Austin, Texas.

Japan. The Japanese government sees the future of semiconductor development as a “national project” as important as ensuring food and water security and reviving Japan’s status as a chip power (according to Bloomberg data, Japan’s share of global semiconductor sales fell from 50% in 1988 to 10% in 2019). announced the establishment of a semiconductor digital industry strategy aimed at expanding domestic production capacity. Among other things, Japan will take special measures to strengthen cooperation with overseas to jointly develop cutting-edge semiconductor manufacturing technologies and secure production capacity. Another Japanese media “Industrial News Daily” reported on May 26 that the Japanese government wants TSMC and Sony to invest 1 trillion yen (about $9.19 billion) to build Japan’s first 20-nanometer semiconductor factory to prevent future shortages.

Europe. In February, the EU 19 countries announced a new chip strategy, ready to invest about 50 billion euros for the European chip industry (which is more than the current annual revenue of European chip makers) to create Europe’s own complete semiconductor ecosystem. The EU plans to double its semiconductor market share target by 2030 (accounting for 20% of the global total), while also having the ability to produce the most advanced 2nm chips. The EU is considering the establishment of a semiconductor alliance, currently interested in joining the ASML, NXP (NXP), STM and Infineon (Infineon) and other European semiconductor companies. The EU also expects to bring in one of the three major international chipmakers – TSMC, Samsung and Intel – to set up a state-of-the-art factory in Europe; on May 19, EU Internal Market Commissioner Thierry Breton said that funding could come from several projects the EU is advancing, such as the €800 billion COVID-19 recovery fund, which will spend 20 percent of the program on the continent’s digital transformation.

Taiwan. Chip manufacturing is the first industry in which Taiwan has gained an absolute advantage in global competition and is known as Taiwan’s most important strategic force. According to recent data from market research firm Trend Force Tiburon Consulting, 64% of the global foundry market share in 2021 will fall to Taiwan, most of which will be occupied by TSMC (as the world’s largest semiconductor company, TSMC produces almost all of the world’s most advanced chips, including many in mature processes). In the context of geopolitical tensions and the world facing a massive shortage of cores, for the world, Taiwan’s chip industry can be said to be involved in the whole body. Taiwan’s chip strategy focuses on two things: consolidating its absolute dominance in chip manufacturing; strengthening the Taiwan-U.S. alliance (on June 1, TSMC invested $12 billion in a chip plant in Arizona, U.S., and construction has already begun; TSMC is said to be planning to build a total of six plants).

The above-mentioned chip strategies of the U.S., South Korea, Japan, Europe and Taiwan present two major features: first, emphasis on local production of chips; second, emphasis on the alliance among the U.S., South Korea, Japan, Europe and Taiwan, which is based on the common values of freedom, democracy and rule of law, so that the Chinese Communist Party is naturally excluded.

From September 4, 2020, a forum on “restructuring the supply chain” was held in Taipei to June 22, this year, another forum on “global supply chain cooperation in the technology industry” was held in Taipei, in which the U.S., Japan and Europe all participated. This means that the “de-communization” focusing on the chip industry is advancing in an orderly manner.

The chip industry is the soft underbelly of the Chinese Communist Party

From 2004 to 2019, China’s chip industry has grown at a high rate, with output value increasing nearly 14 times and an average annual compound growth rate of 19.2%, much higher than the global average annual compound growth rate of 4.5%. Despite 15 years of rapid growth, however, for various reasons, China’s chip industry is only “fat” (see the author’s “Why is the mainland chip industry lagging behind?” ), and has not established core technological capabilities and manufacturing systems.

China’s semiconductor industry has two outstanding features. First, the dependence on imported chips. In 2018, China imported more than $300 billion of chips for the first time, while the mainland only produces about $37 billion of chips. What is the concept of importing more than 300 billion U.S. dollars? First, it exceeds the oil imports of about 600 billion RMB that year, and China’s foreign dependence on oil has reached 70%; second, it far exceeds the military spending of the Communist Party of China that year (official budget of 110.6951 billion RMB); third, the global chip market size that year was about 469 billion USD, which means that about 67% of the world’s chips were bought by the Chinese. This is still the figure for 2018, and by 2020, chip imports climb even higher to nearly $380 billion.

What is more interesting is that in 2018, for example, although China imported $312 billion of chips, but $170 billion of them were exported overseas after being made into complete machines, and only about $150 billion of chips really stayed in China itself. This shows that the import of chips has become a strategic factor affecting China’s exports.

Second, there are fatal shortcomings in local production. Although, according to the National Bureau of Statistics data, January-May this year, the mainland’s production of semiconductor chips up to 139.9 billion, a year-on-year increase of 48.3%, especially in May, a record output. However, for one, the above production China, a large part from Intel, Samsung and other foreign companies in China’s manufacturing manufacturers, China’s local Semiconductor Manufacturing International, Huahong Semiconductor, etc. accounted for a limited proportion of domestic chip foundry is still dependent on foreign companies; second, China’s advanced process capacity vacancies, only in the mature process chips with independent production capacity, SMIC but to achieve the mass production of 14nm chips, in more The breakthrough in more advanced processes is still not achieved.

CCP’s strategy of semiconductor reversal is inevitably a failure

The Chinese Communist Party is also anxious about the international competitive situation of the chip industry and the current state of the industry in China, and has been introducing supportive policies and smashing money for years, but overall it all comes down to failure.

In September 2020, Bloomberg reported that Beijing was preparing to develop a new all-encompassing policy to spend 9.5 trillion yuan ($1.4 trillion) on developing “China’s chips” by 2025; and that the task was “as high a priority as building an atomic bomb “. However, this new round of chip policy, it now seems to be a mess, failure is inevitable.

First, the chip industry has made a great leap forward, with a flurry of activity all over the place. For example, in more than a year, China has six tens of billions of dollars or more semiconductor planning projects to stop (see the author’s “Great Leap Forward in the chip industry, the deeper the Communist Party is in” article).

Second, the Chinese Communist Party’s “bend and overtake” is a strategic risk. According to a June 18 report by Bloomberg News (titled “Can the Chip Czar Guarantee China’s Success? It’s an impossible goal”), Xi Jinping appointed Liu He to lead a key plan to help China’s domestic chipmakers overcome the impact of U.S. sanctions. The core of the plan is not to catch up with traditional silicon-based chips, but to bend the curve and focus on the emerging third-generation semiconductor chips (which, at present, have not been around long enough for China to fall far short of the international advanced level). However, the Chinese Communist Party has overlooked precisely one point: the development of chip technology is indeed rapidly changing, but precisely because of its rapid development, the probability of failure is very high. For a normal decision-maker, national strategy should never be based on a gamble. The Chinese Communist Party is now taking a gamble, which is probably a manifestation of its desperate run.

Third, the chronic problem of the “national system”. The Fourth Plenary Session of the 19th CPC Central Committee proposed to “continuously explore the construction of a new national system for key core technologies under the conditions of a socialist market economy”, which is the basis of the chip policy. Chip is a highly globalized and market-oriented industry, and the core competitiveness of chip companies is the basis for the success or failure of the chip industry in this country, and national policies can only play a supporting role (note that national policies can also be wrong and fail, and Japan has many lessons in this regard). The Chinese Communist Party’s fetish for the “national system” will surely eat bad fruit again.

Fourth, the development of China’s chip industry since 2000 is mainly driven by two factors: first, a large number of chip technology talents returned to China to start their own businesses (for example, Anji, Lanqi and SMIC, which are highly touted in the A-share market, were all founded by overseas elites in 2004); second, international acquisitions of chip companies (for example, the mainland’s chip design, packaging and testing, equipment and other sub-sectors are rapidly becoming part of the world through overseas mergers and acquisitions). (for example, the mainland chip design, packaging, equipment and other sub-industries are fast becoming part of the world through overseas M&A). However, in the current context of “de-communization”, the international environment for the development of China’s chip industry has been reversed. All the practices that worked well in the past (such as forced technology transfer, plagiarism, hacking, and overseas M&A) have become a thing of the past.