China wants to make its own chips, but can't do without foreign tech; here's why....

 China wants to make its own chips, but can't do without foreign tech; here's why....

With the global chip shortage slowing down production across industries, China has decided to take matters into its own hands and develop its own semiconductors. But even as several Chinese tech giants are making progress in the field, experts suggest that complete technological self-reliance is still a dream.

Semiconductor chips are used in everything from computer processors, laptops, mobile phones, automobiles, TVs, electronics and even home appliances. The manufacturing of semiconductor is a highly complicated and polluting process that needs resources and technical aptitude.

China began to invest in its nascent semiconductor manufacturing industry nearly a decade ago, to bring it on par with global leaders Taiwan, the US and South Korea. With semiconductor chips quickly becoming an important strategic resource, the country does not want to be solely dependent on its rivals. But even though China has progressed leaps and bounds, it is still years away from semiconductor biggies like Taiwan Semiconductor Manufacturing Company (TSMC), Intel, AMD, and others.

Self-sufficiency a far cry

Chinese companies like Baidu launched Kunlun 2, the second-generation artificial intelligence chip; Alibaba released a chip designed for servers and cloud computing; and smartphone maker Oppo is also developing its own high-end processors for its handsets, the Nikkei reported on October 20.

But these companies still need to rely on foreign tools and equipment to manufacture their chips. This dependence on foreign tools makes China’s dream of self-reliance in semiconductors a distant reality.

“This is a step in becoming more self-sufficient in semiconductors but a small one,” Peter Hanbury, a partner at Bain & Company, told CNBC by email. “Specifically, these are examples of locally-designed chips but a lot of the IP [intellectual property], manufacturing, equipment and materials are still sourced internationally.”

Also read: Apple launches faster chips, MacBook Pro laptops, Airpods at October event

The broader semiconductor supply chain is much harder to achieve. The necessary tools for the process are often bought from Dutch company ASML, the only company in the world that makes the machine that chip manufacturers need to make the most advanced chips.

The actual manufacture of semiconductors has to be done by industry leaders like Intel and TSMC, while local companies focus on design instead.

“The semiconductor ecosystem is large and complex, so building self-sufficiency is very difficult across such a broad range of technologies and capabilities,” Hanbury said.

“In general, the most challenging area to build self-sufficiency will be the leading edge. Here, the challenge is you need both investment dollars, but you also need to overcome the massive requirements around technical expertise and accumulated experience.”

India also in the race

China is not the only country looking to manufacture its own chips. India has similar goals and the Centre is already in talks with Taiwan to set up an indigenous semiconductor assembly plant worth $7.5 billion, with the Indian government paying for at least half the amount, reported Bloomberg.

The recent semiconductor shortage has underscored the importance of scaling up chip manufacturing processes and decentralising the industry.