China painted in a corner of semiconductors behind Taiwan, South Korea


As Washington embarks on a decade-long, multi-billion-dollar semiconductor development drive, Beijing is relying on its own largely failed 20-year efforts. Both will face wasted funds and misguided goals as they catch up with Taiwan and South Korea.

The architects of China’s ambitious efforts could face music for failing to produce cutting-edge technology, Bloomberg News reported this week. The multiple corruption probes announced by authorities stem from anger among the country’s top leaders over an inability to develop semiconductors that could replace U.S. components, he said. Two of the most scrutinized areas are the $9 billion bailout of Tsinghua Unigroup Co. and the National Integrated Circuit Industry Investment Fund, known as the Big Fund.

For all intents and purposes, China has failed to meet its semiconductor goals, and those charged with achieving them are being held to account. Beijing will not be frustrated by the loss of money – it has been willing to burn money – but at the lack of progress such spending was meant to buy.

Those who look at China’s achievements mainly find what they are looking for and ignore the rest. Semiconductor Manufacturing International Co., for example, recently attracted a lot of attention when industry analyst TechInsights wrote, “SMIC was able to manufacture features small enough to be considered 7nm.” That ‘nm’ number refers to nanometers, a measure of the size of connections within a chip (smaller is better), and these days it’s as much a marketing term as it is a scientific one. .

Chinese chipmakers see this as an incredible breakthrough, bringing the Shanghai-based company closer to the capabilities of world leaders Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. But that’s not really the case. What SMIC appears to have done is produce a somewhat standard chip, used for bitcoin mining, and with little evidence it can produce them with good yields or at scale.

Any budding chef trying to make soufflé will end up pulling off some great samples. But mastery can only be claimed when almost all attempts are successful (yield), and can be done consistently and in large quantities (scale). By contrast, TSMC and Samsung launched mass production at 7nm four years ago – a demonstration that they had gotten the process right. The question of how the SMIC handled this, while being cut off from Western manufacturing equipment, also remains. As TechInsights notes, it’s not impossible to make 7nm with older, but much more complicated machines. And it’s an established fact that TSMC has in the past sued SMIC for stealing technology. The company has not been accused of any wrongdoing with regards to the 7nm processes.

Whatever the reason for this potential breakthrough, you could forgive Beijing for holding back its applause. The government and many feeder funds failed to spend the past 20 years and over $100 billion to find themselves four years behind. He expected his semiconductor industry not only to catch up, but to set the country on the path to technological independence. A single example of a chip close to what others had a few years ago falls far short of this goal.

If the Big Fund’s goal was to provide a strong financial return – like any mutual, hedge or venture fund – then we could conclude that it has done its job. He invested in at least 23 chip companies between 2014 and 2019, then started selling after massive increases in their stock prices.

But there is little evidence that the Big Fund itself, or the enormous prestige of being associated with a state-backed organization, has actually accelerated the development of the industry. SMIC had been in business for 15 years before announcing in 2015 that China’s Integrated Circuit Industry Investment Fund would buy 4.7 billion new shares for a total of nearly $400 million. At the time, he hung around TSMC, but not much. In December 2014, it built its first Snapdragon processor for Qualcomm Inc. using 28nm technology, just over three years after TSMC achieved a similar feat. It’s convenient to compare SMIC to Intel Corp., the US giant that has struggled in recent years and also lagged behind TSMC and Samsung, but the harsh reality is that the gap between SMIC and the leaders is widening. is barely shrunk.

Then there’s Tsinghua Unigroup, whose name alone has benefited from association with one of China’s most prestigious academic institutions. Although he drew much fanfare for both himself and President Zhao Weiguo, he did little to make the nation less dependent on foreign technology. One of Zhao’s biggest moves was to buy out established local players, including Spreadtrum Communications Inc. and RDA Microelectronics Inc., for a total of $2.6 billion. An attempted venture with Western Digital Corp. failed when the US government vetoed an investment of nearly $4 billion.

Unigroup’s big win was backing Yangtze Memory Technologies Co., a company that is slowly climbing the ranks of the world’s memory chip players. But if the goal is to wean China off foreign technology, YMTC largely serves for public relations gain. Memory chips are a commodity – the silicon equivalent of a filing cabinet – that simply stores information rather than the calculations performed by processors. If China wants semiconductors capable of driving artificial intelligence or guiding missiles, it will have to do much better than boast about memory chips.

Yet it was a problem created by China itself. Money alone is not enough to be a semiconductor leader. If so, then Intel and UAE-backed GlobalFoundries Inc. would be further ahead. Instead, China and the United States must learn the importance of not only developing their own technology, but also building trust among their industry peers so that they collaborate freely. Neither TSMC nor Samsung have become leaders with a go-it-alone attitude. They rely heavily on vendors of equipment, software, and materials — many of which are in the United States, Japan, and Europe — instead of going solo in the pursuit of technological independence.

If China’s goal is to enhance its prowess and cut itself off from the world, then it will fail at the first and surely succeed at the second. The United States, if it spends billions of dollars with a similar independent attitude, is likely to repeat the same mistake.


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