The semiconductor industry will be a test bed for China’s new approach to technological self-reliance, outlined in its recent report to the party congress – especially after the US introduced export controls denying it access to essential equipment, technology and software for chip design and production at the start of October. By stifling China’s chip industry, the restrictions go far beyond merely pegging China a few steps behind and aim to choke progress altogether. They also push Beijing to double down on self-reliance, as semiconductors are essential for developing artificial intelligence and other digital technologies crucial to China’s long-term ambitions.
Until now, China’s progress has been uneven. It can produce most types of lower-end chips, is doing well in memory chips, and occasionally reports experimental breakthroughs. However, these rely on foreign inputs that China may now lose access to. Aware of this weakness, the CCP has outlined a “new-style all of state effort” (新型举国体制) to achieve self-reliance. This approach brings together various tasks such as concentrating resources under Beijing’s guidance; promoting synergies between companies, universities, and research labs; reforming national labs and research funding; and launching a batch of forward-looking megaprojects.
However, because the semiconductor industry is highly globalized with complex supply chains and technologies, stronger state orchestration may not be the answer.. Beijing’s dissatisfaction with the current situation is clear from its scrutiny of the National Integrated Circuit Industry Investment Fund, or “the Big Fund”, the organization it tasked in 2014 with building up the sector. At least twelve high-ranking officials and fund managers are under investigation for corruption, including the fund’s director Ding Wenwu.
MERICS analysis: “Simply appointing a new batch of fund managers will not make the big fund the success Beijing needs,” says MERICS expert Jeroen Groenewegen-Lau. “An ‘all of state effort’ would involve tasking an agency or company, together with key stakeholders from industry and academia. This would build national teams and shelter them from market forces, a big shift away from mobilizing capital markets in these key technology areas. However, the complexity of the technology makes success very uncertain.”
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