China Own Semiconductor Industry Might Hurt U.S. Firms

Semiconductor Industry
A close-up of a microcontroller is pictured at an exhibition (Photo: Reuters / Andreas Gebert)

China is developing its own semiconductor industry amid its escalating technology wars with the United States which threatens to close the American chip supply chain to Chinese companies such as Huawei.

Experts believe that the second largest economy in the world is at least a decade away from the United States semiconductor technology, but the development of its own chip industry could hurt the profits of American companies.

The sullen relationship between China and the United States worsened after the latter placed the Chinese tech giant in a ban from purchasing key components from American firms. The executive order signed by United States President Donald Trump required American firms to obtain permission from the government to sell their products to Chinese companies including Huawei.

Huawei, just like other telecommunications equipment makers, relies on some key components from American firms. It also relies on the software from Google and Microsoft. The Trump administration provided a 90-day window for the companies to prepare for the worst.

The recent pressure placed on Chinese firms caused the Chinese government to prioritize on the development of its own semiconductor industry. Gu Wenjun, the analyst at China-based semiconductor research firm ICWise, confirmed that the Huawei incident has indeed stimulated the development of China's domestic chip industry.

The Chinese government plans to boost the production of higher-value products in its Made in China 2025 plan. One of the areas of focus of the government is on the development of semiconductors. The plan includes producing 40% of the semiconductors of the country in 2020 and 70% by 2025. China plans to invest tens of billions of dollars to develop its own chip industry.

The Center for Strategic and International Studies reported that China, currently, produces 16 percent of the total semiconductor used in the country and half of it is produced by Chinese firms.

China remains dependent on foreign technology which is largely came from the United States. In May, China announced its plan to provide tax breaks to local semiconductor companies and software developers. The Chinese government's assistance aided China's tech companies in the development of their own semiconductor needs. Huawei has developed its own series of processors, Kirin, used its smartphones.

The company has developed its own 5G modem that allows it to connect to the newest version of the mobile internet. Huawei, through its subsidiary HiSilicon, has its own chips and is prepared for the next move of the United States.

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