Chip Wars: Tech rivalry underlies US-China trade conflict
HONG KONG (AP) — Chinese and American officials will be trying to defuse tensions pushing the world’s two largest economies toward trade war in meetings beginning Thursday where analysts say chances for a breakthrough seem slim given the two sides’ desperate rivalry in strategic technologies. Treasury Secretary Steven Mnuchin and other U.S. officials including Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer arrived Thursday for the talks in Beijing. Liu He, President Xi Jinping’s top economic adviser, is heading the Chinese side in the talks.
Regardless of the huge U.S. trade deficit often decried by President Donald Trump, Chinese companies are struggling to overtake western industry leaders in advanced technologies, especially for semiconductors, the silicon brains required to run smartphones, connected cars, cloud computing and artificial intelligence.
Under Xi, a program known as “Made in China 2025” aims to make China a tech superpower by advancing development of industries that in addition to semiconductors includes artificial intelligence, pharmaceuticals and electric vehicles. The plan mostly involves subsidizing Chinese firms. But it also requires foreign companies to provide key details about their technology to Chinese partners.
Beijing looks unlikely to cede any ground on that strategic blueprint.
“The Made in China 2025 industrial policy concerns China’s longterm development plan, so the overall direction won’t change at all,” said Yu Miaojie, professor at Peking University’s National School of Development. Yu says China would rather cut the trade deficit by importing high-tech products from the U.S. that are currently tightly restricted.
U.S firms gripe that Chinese policies compel them to share technologies in order to gain market access. Those complaints bely Beijing’s decades-long, still unsuccessful struggle to catch up, especially in the area of semiconductors.
Washington’s recent decision to ban Chinese telecom gear maker ZTE from importing U.S. components in a sanctions-related case drove home to Beijing its costly vulnerability to foreign sources for advanced microchips.
The Trump administration’s efforts may actually spur China to ramp up efforts to develop its domestic industry as it strives to fulfill Xi’s vision, said Jian-Hong Lin, an analyst at research firm TrendForce.
China will be even more determined “to realize self-reliance in semiconductor technology,” he said.
The “Made in China 2025” plan calls for domestic producers to supply 70 percent of the country’s chip demand. China now consumes nearly 60 percent of the world’s semiconductors but supplies only about 16 percent, according to PWC. The country spends more than $200 billion a year on foreign-made semiconductors, which in 2015 surpassed crude oil as the country’s biggest import. Experts say increasingly high technological hurdles and a meager talent pool are hindering the effort to catch up with dominant U.S., Japanese, South Korean and Taiwanese manufacturers.
They say Chinese chipmakers are five years behind their U.S. and Asian rivals when it comes to leading edge chip technology, and have made no progress in recent years. Those advanced chips are highly complex to make because of their increasingly tiny “nodes,” measured in nanometers, that make them faster and more power-efficient.
And even as Chinese researchers and chipmakers strive to catch up, the technology is evolving, with new materials transforming the future landscape of the electronics industry.
Larry Kudlow, Trump’s economic adviser, is among those due to join the meetings in Beijing. He has acknowledged it would take time to persuade China to let U.S. companies compete in the Chinese market without being forced to surrender their technological know-how.
Still, Beijing is backing up its towering ambitions in the semiconductor sector with money and tax breaks. The government set up the National Integrated Circuit Industry Investment Fund in 2014, seeded with $22 billion in capital to invest in chip companies. A second round of fundraising for as much as 200 billion yuan is underway, Chinese media report.