China Made a Chip Breakthrough That Shocked the World
Dec 7, 2023
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Dylan Patel, Chief Analyst at SemiAnalysis, and Doug O'Loughlin, Chief Analyst at Fabricated Knowledge, unpack China's remarkable progress in the semiconductor industry despite U.S. restrictions. They discuss Huawei's groundbreaking Mate 60 Pro smartphone, revealing how these advancements signal a shift in global tech dynamics. The duo explores how aggressive Chinese investments are reshaping supply chains and the competitive landscape, while questioning whether Western regulations unintentionally fuel China's growth in this critical sector.
China's semiconductor industry is rapidly making strides in chip technology and manufacturing capabilities, as seen with Huawei's impressive phone release.
China's focus on lagging-edge chips, such as microcontrollers, is driving innovation and scaling out chip production for various industries.
China's pursuit of breakthrough innovation in semiconductors, through investments in research and development and alternative technologies, positions it to disrupt traditional industry structures and potentially reshape the semiconductor landscape.
Deep dives
China's Semiconductor Industry Catching Up with the West
China's semiconductor industry is rapidly making strides, with breakthroughs in chip technology and manufacturing capabilities. Huawei's recent phone release featuring a domestically-made chip surprised many as it achieved performance on par with foreign counterparts. China's focus on lagging-edge chips, such as microcontrollers, is driving innovation and scaling out chip production for various industries. Furthermore, China is investing heavily in cutting-edge technologies like copacage optics and hybrid bonding, pushing the boundaries of chip development. Chinese companies are also looking to disrupt foreign chip manufacturers in specific areas like power chips. This industrial policy, combined with subsidies, positions China to challenge and potentially surpass Western dominance in certain semiconductor sectors.
The Complexity and Resilience of the Semiconductor Supply Chain
The semiconductor supply chain is highly complex and varied, encompassing various chips, technologies, and manufacturers. The industry is characterized by winner-takes-all dynamics, with a few major players dominating each vertical. China's investments in semiconductors seek to build a resilient and self-sufficient supply chain, focusing on both leading-edge and lagging-edge chips. While leading-edge chips have received significant attention, lagging-edge chips play a crucial role in specialized markets and generate substantial profits. China's emphasis on lagging-edge chips, such as microcontrollers, allows the country to compete with established Western companies. The development of homegrown chip technologies like copacage optics and hybrid bonding further reinforces China's goal of chip self-sufficiency.
China's Pursuit of Breakthrough Innovation
China's pursuit of breakthrough innovation in semiconductors is evident in its efforts to explore new chip technologies and scaling techniques. By investing heavily in research and development, China aims to achieve technological advancements that outpace Western counterparts. For example, China's focus on copacage optics and hybrid bonding enables potential breakthroughs in chip performance and scaling. These technologies allow for the development of chips that are not solely dependent on leading-edge lithography, which is currently restricted from Chinese companies. China's willingness to take risks and embrace innovative approaches positions it to disrupt traditional industry structures and potentially reshape the semiconductor landscape.
China's Mixed Success in Implementing Semiconductor Restrictions
While there have been efforts to limit China's access to advanced semiconductor technologies, the implementation of these restrictions has faced challenges and loopholes. Poor enforcement and the ability to circumvent restrictions through clever engineering and sourcing have allowed Chinese companies to access the necessary tools and technologies for chip manufacturing. Additionally, China's domestic semiconductor industry has invested in alternative technologies and innovative manufacturing processes, allowing it to continue advancing despite restrictions. China's push for self-sufficiency in semiconductors has stimulated its domestic industry, creating momentum and progress, albeit with some mixed results.
The Role of Industrial Policy and Subsidies in China's Semiconductor Ambitions
China's strong industrial policy and generous subsidies have played a key role in driving its semiconductor ambitions. The Chinese government incentivizes companies to invest in semiconductor manufacturing through tax benefits, R&D credits, and significant financial support. This industrial policy helps build a talent pool and stimulates technological advancements across the industry. China's strategic investments in lagging-edge chips and technologies not only aim to achieve chip self-sufficiency but also disrupt and challenge Western dominance in specific sectors. The substantial investments and supportive policies demonstrate China's determination to become a major player in the semiconductor industry.
Both the Trump administration and the Biden administration made moves to constrain China's ability to build out an advanced homegrown technology industry. But the country is still investing billions in its chip sector and there are signs that it's really starting to pay off. Huawei recently released the Mate 60 Pro smartphone, with capabilities that shocked the world in terms of its performance. So how is the country making such strides in face of technological trade restrictions? We spoke with Dylan Patel of SemiAnalysis and Doug O'Loughlin of Fabricated Knowledge about how much progress China is making, and the policies that are accelerating these gains.
