Spending Tens Of Billions Of Dollars Won't Help China Catch Up With Taiwan And South Korea In Semiconductors

There will need to be more than spending tens of billions of dollars on R&D to help Chinese chip manufacturers catch up with their Taiwanese and South Korean counterparts.

That is according to Allen Morrison and Stewart Black, global management professors and co-authors of "Enterprise China: Adopting a Competitive Strategy for Business Success."

The two professors commented in response to the news that Beijing is spending $143 billion to boost research and semiconductor manufacturing to counter concerted efforts by the U.S. and its close allies, Japan and EU, to contain its technological advance.

"Despite the potential to jump-start its domestic semiconductor industry, China has a steep hill to climb," they told International Business Times. "The hill's steepness is demonstrated by the fact that the government directly and through various funds has spent tens of billions of dollars over the last 20 years trying to reduce its external dependency on foreign semiconductors."

But it didn't work. China's chip manufacturers made some progress in advanced semiconductors (i.e., 7nm or less), but the country remained highly dependent on Taiwanese and South Korean imports. "In 2022, China was 100% externally dependent, with Taiwan supplying 90% of these chips, with the other 10% coming from South Korea," the professors observed. "In 2022, TSMC planned to roll out the most advanced 3 nm chips, followed by Samsung and Intel in 2023 — all manufactured outside China."

Moreover, the two professors argued that China is far enough behind Taiwan in the production of advanced chips, and additional funding to state or privately-owned enterprises can do very little to change the situation in the short run.

Misha Govshteyn, CEO of MacroFab, operator of the most prominent digital platform for electronics manufacturing, sees the consorted efforts of the U.S. and its allies already impacting the Chinese semiconductor industry. "The semiconductor regulations imposed by the Biden administration had a near-immediate effect and caused significant disruption to the Chinese semiconductor industry," he told IBT. "Aside from the embargo on the equipment used in fabricating most advanced chips, the most significant impact came from prohibiting U.S. personnel from working on such projects with customers in China. This affected not just the U.S. semiconductor equipment makers, but also any equipment suppliers worldwide who employed U.S. staff."

"Chinese chip companies like Leadyo are several generations behind TSMC, Samsung and Intel and are currently focused on making older technology, 8 nm, and 5 nm chips," Morrison and Black added. "And yet advanced chips will be necessary for China to reduce its external dependency and dominate its domestic market with indigenous Chinese firms in its other targeted industries (e.g., medical devices, aerospace, intelligent manufacturing, etc.) laid out in Made in China (MIC) 2025."

The consequences can be dire for China's global competitiveness. "Unless China deploys the most advanced chips in these industries, Chinese enterprises will not only fail to reduce their external dependency or dominate domestically," they explained. "But will also fail to win globally — the third pillar of its three-part commercial strategy."

Still, some cyber-attacks can help China gets what it needs. "These campaigns ran at large scale and scope and slowed only at the end of Obama's second term in office to avoid tension with the west," Govshteyn said. "Between continued tariffs and escalating semiconductor sanctions, there is little to hold China back from resuming their cyberattack campaigns."