D.he hero of the day cannot be found at the world’s largest semiconductor fair. The “Semicon” in the futuristic Pudong district of Shanghai has 4,000 stands. But SMIC, the country’s most important chip producer and a symbol of the hope that China can free itself from its dependence on foreign technology, is not there. But even Apple never presented itself at the CES consumer electronics fair in Las Vegas. In the eyes of the Chinese government, the Shanghai manufacturer SMIC, the Semiconductor Manufacturing International Corporation, is even more important for the rise or fall of their country than the iPhone manufacturer for the technological supremacy of America.
The People’s Republic is threatened with an “unprecedented shortage of chips”, the speakers warned at the start of the fair. The amount of semiconductors that would be needed in three years in the world’s second largest economy for the production of smartphones, entertainment electronics, electric cars and applications with artificial intelligence, the country could only cover a fifth from its own production, said Wu Hanming of the Zhejiang University. For Beijing, this is a horror idea, since the United States had partially cut off its rival from semiconductors during the trade war, thus exposing China’s vulnerability.
New factory should help
SMIC, one of the first victims of Donald Trump’s sanctions, is now set to strike back. Although he was not present at their show, the company electrified the industry on Thursday by announcing that it wanted to alleviate the need for chips with a new factory. Together with the government of the technology metropolis Shenzhen, SMIC wants to manufacture processors with a node size of 28 nanometers in the neighboring city of Hong Kong by 2022. The owners want to invest around 2 billion euros. According to a mandatory announcement by the listed company, SMIC will hold 53 percent of the factory and the city government will hold 23 percent. Further capital is to be collected from other investors.
The size of the billions of tiny transistors that turn on and off inside a chip and calculate data determines its performance. The general rule is: the smaller, the better the semiconductor. A nanometer corresponds to a millionth of a millimeter. 28 nanometer chips were found in Apple’s iPhone 5, which came on the market in 2012. In the current iPhone 12, the size is only 5 nanometers.
So far not a single Chinese company has been able to manufacture them. SIMC creates chips with a size of 14 nanometers that are built into smartphones from the Chinese manufacturer Huawei, which has also been sanctioned by Washington. The 28-nanometer processors that will roll off the production line in Shenzhen in the future are sufficient for devices that do not have such high requirements in terms of installation size and power consumption – 5G base stations, for example, or televisions. The fact that China had to import the most powerful chips for use in smartphones, e-cars and network technology for 350 billion dollars last year from warring states like America or Taiwan is absurd for China’s president.
China wants independence
Xi Jinping wants self-sufficiency. Six years ago, in the year of Trump’s election victory, Xi had warned that foreign dependency was his country’s “biggest hidden problem”. Not long after Xi took power in the country in 2012, Beijing provided an estimated one trillion yuan in subsidies to develop the domestic semiconductor industry. With success: in 2020 chip production increased by 16 percent compared to the previous year. In the new five-year plan, Beijing is picking up the pace again. The new SMIC factory is just the beginning.
The manufacturer is the most technically skilled semiconductor producer in the country, says the Shanghai consultant Georg Stieler, who has been observing the industry in China for more than a decade. But in a newly presented study, Stieler identified a further ten locations in the country for the leading manufacturers alone, in which the existing factories of chip manufacturers are being greatly expanded. As a result, the market value of leading companies has risen sixfold in two years. The expert has calculated that the industry in China will grow by an estimated 10 percent annually until 2025.
The fair in Shanghai is like a gold rush. After Beijing declared chip self-sufficiency as a national goal, more and more companies pushed into the market, reports a consultant at the Shanghai Giga Force Electronics booth. “Incredible amounts of money” poured into the industry, confirms an employee of Shennan Circuits in Hall N5. The question is whether this is only due to the panic after the trade war and the pandemic and whether it will soon subside again. “It will be a long time before we catch up with America.”
Industry observer Stieler also sees it that way. Even if SMIC and Huawei are currently testing chip production with purely Chinese equipment, the gap to the global market leaders from America and Taiwan is still large. However, Stieler believes that Trump’s chip delivery ban against Huawei was a wake-up call for the country. Only thanks to America’s export ban could Chinese founders enter the hotly contested market against established competition from overseas. For China’s chip industry, says Stieler, this is a “unique opportunity”.
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