US ban may spur China’s push for chip self-sufficiency

By Li Qiaoyi Source:Global Times Published: 2018/4/18 22:08:40

Illustration: Luo Xuan/GT


In a fresh crackdown on China amid growing trade tensions, the US on Monday announced a ban on the sale of components to Chinese telecom equipment maker ZTE Corp. This is more than a provocative reminder of the Trump trade bluff that serves neither side's interests; it's likely to prompt even greater indigenous efforts to develop China's semiconductor design and fabrication capacity.

The US Commerce Department imposed a seven-year "denial of export privileges" against ZTE, which means US technology companies will be blocked from selling components to ZTE in the years to come. This will be the same period when the Chinese telecommunications company is seen as joining with Huawei Technologies Co to lead the global charge to fifth-generation (5G) networks.

The export ban claims that ZTE violated a previous settlement of charges over its illegal shipments of telecommunications equipment to Iran and North Korea. It seems more likely that the ban, coming as trade tariff fears are being lobbed between the world's two largest economies, was prompted by dubious motives.

The crackdown on ZTE, whose operations in the US have previously been considered a rare case of a strong market presence for a China-based technology company, will inevitably deal a blow to the Chinese telecom major. Reuters reported on Monday that ZTE relies on US companies for about 25 percent to 30 percent of the components used in its equipment from smartphones to gear to build telecommunications networks.

Among the US suppliers to ZTE are chipmakers Qualcomm Inc and Intel Corp and optical component makers Acacia Communications Inc and Lumentum Holdings Inc, according to Bloomberg.

Compounding the situation, UK telecommunications companies have been warned by the UK's cybersecurity regulator not to use network equipment or services from ZTE, citing national security risks, the Financial Times (FT) reported.

"The UK telecommunications network already contains a significant amount of equipment supplied by Huawei," said the FT report.

In yet another spiteful step, the US Federal Communications Commission on Tuesday voted unanimously to push ahead with a plan aimed at blocking federally subsidized telecommunications carriers from buying Chinese telecom gear.

The US and the UK seem to be working in unison to obstruct China's 5G development roadmap that aims for global dominance in the 5G era.

The US, in particular, believes that a targeted crackdown on a key vulnerability in China's technological capabilities might force China to bow to its threats. That would allow the US to retain its world technology dominance.

This vision is so compelling that the US may be turning a blind eye to the fact that its own interests are also at stake. Shares of US optical component makers including Acacia Communications and Lumentum Holdings plunged on Monday.

This vision should prompt China to invest even more in its indigenous chip push. The country has made a lot of progress in building its own chipset strength, with domestic chip producers making a splash with their own products.

For instance, State-owned technology conglomerate Tsinghua Unigroup will soon mass produce prototype 3D-NAND chip products at its wafer plant in Wuhan, Central China's Hubei Province, Qi Lian, co-president of Tsinghua Unigroup and CEO of Unigroup's new memory subsidiary, said at an event in Beijing on March 1.

The memory subsidiary, only set up last year, made its public debut at the event. It's part of Unigroup's urgent effort to build itself into a chip power.

In a sign that China had prepared itself for a blow to its semiconductor sector from the US, the Ministry of Finance announced at the end of March that it had introduced tax incentives for domestic chipmakers. Qualified companies will be exempt from corporate income taxes for up to five years and then pay only half of the current 25 percent rate through years six to 10. That kind of tax break will undoubtedly be a catalyst for developing domestic chip capabilities.

Nevertheless, the fact that the products of China's chipmakers account for a small portion of chipsets used in devices and network solutions means that their achievements to date are still far from enough. And while it's relatively easy to push for greater usage of domestic chips in handsets and optical telecommunications systems, it's harder or even impossible for domestic chipmakers to break into the field of chips meant for 5G base stations, which represents a higher barrier to entry.

Beyond the current policy packages, China should consider investing a lot more in developing its own chip strength. This would mean not just funds for businesses with an expertise in this area, but great incentives for truly innovative chipmakers. If China can employ all available means to catapult domestic chipmakers into genuine global majors, the US will only end up hurting itself with its trade bluff. 

The author is a reporter with the Global Times.


blog comments powered by Disqus