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How China plans to lead the computer chip industry

Professor Patrick Fu

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Professor Hue works on next-generation computer chips

On a university campus on the outskirts of Hong Kong, a group of engineers are designing computer chips that they hope will be used in the next generation of Chinese smartphones.

Patrick Hue leaned against a chair in a campus cafe sporting a T-shirt at Stanford University. He is the lead engineer and professor overseeing the project.

His research team designs optical communication chips, which use light instead of electrical signals to transmit information needed in 5G mobile phones and other Internet-connected devices.

He tells me about the challenges that China faces in developing the world beating computer chip industry.

"I actually think the real designers will be as big bottles as the production. We don't have nearly as many research institutes and industrial designers training bases," he says.

His department is partly funded by Huawei, the Chinese communications and telecommunications giant at the center of the international political storm.

In May, the United States added Huawei to the list of companies that US firms cannot trade with unless they have a license, accusing them of security concerns.

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Many industry watchers fear that the US-China trade war risks exposing the global technology supply chain.

In particular, China relies on overseas companies for computer chips (or semiconductors), tiny devices used in everything from consumer electronics to military hardware.

"Politically everything can be used as bargaining power," says Mr Hu.

"If these companies and countries started abstaining from technology, then everyone would be hurt. It's not good from a technological standpoint, "says Gew.

China did not hide its desire to become self-sufficient in technology. The nation is both the world's largest importer and consumer of semiconductors.

It currently produces only 16% of the semiconductors fueling its technological boom.

But it plans to produce 40% of all semiconductors it uses by 2020 and 70% by 2025, an ambitious plan fueled by the US trade war.

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China's President Xi Jinping wants to end the country's dependence on foreign chip suppliers

In May 2018, Chinese President Xi Jinping met with the country's leading scientists and engineers, calling on specialists to work towards confidence in the production of core technologies.

That meeting came just a month after the US government banned US firms from selling components to ZTE, China's second-largest telecommunications network equipment maker.

The ban has stressed to Chinese leaders that the nation's technological boom is dependent on foreign technology.

In October this year, in its latest bid to help move the nation's technology sector away from US technology, the Chinese government created a £ 29bn fund to support the semiconductor industry.

"There is no doubt that China has engineers to make chips. The question is whether they can make them competitive, "asks Piero Scarufi, a Silicon Valley historian and artificial intelligence researcher working in the Silicon Valley.

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"Of course, Huawei can develop its own chips and operating systems and the government can make sure they are successful in China. But Huawei and other Chinese phone manufacturers are also successful in foreign markets, and that's a totally different question: Is Huawei "Are chips and operating systems as competitive as Qualcomm and Android? Probably not. At best, it will take years before they are."

Mr Scaruffy estimates that China could be even 10 years behind the leading manufacturers of top-end computer chips. Most of the chips made for electronics are manufactured by specialized foundries such as the Taiwan Semiconductor Manufacturing Company (TSMC). It manufactures more than 70% chips designed by third parties.

It is simple to provide the best machinery needed to make high value chips.

"To get started with equipment, its equipment with great precision. You have to print a lot of great features. The equipment needed to have this kind of technology is controlled by several companies around the world, ”says Mr Hu.

He believes Chinese technology is three to four generations behind companies like TSMC. China lacks experience in the high-food chip industry, he says. But he believes companies like Huawei are already competitive when it comes to designing chips.

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Huawei is blacklisted by the US government

Where does this leave the tech giant Huawei?

Mr Yue claims that Huawei is trying to replicate successful business models of firms like Samsung, which manufactures its own computer chips – rather than trying to follow in line with Beijing's industrial ambitions.

"You can almost see them as an integrated company with expertise on what Apple or Qualcomm have," says Mr Hu.

Lee Hangzhou is a lifelong employee of Huawei and president of the company's mobile phone business. He joined the company 23 years ago as a fresh graduate and watched it grow into an international tech giant. He argues that the goal of companies like Huawei is simply to meet the needs of consumers.

"We're open to using other chipsets at retailers. We buy a lot of Qualcomm chips every year. We're open to that. We use the best chipsets to satisfy our customers," he says at a technology conference in Macau, semi -Autonomous South Chinese city.

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China aims to supply 70% of its demand for chips by 2025

Growth in the semiconductor industry is usually driven by disruptive new technologies. In the late 2000s, the introduction of smartphones increased the demand for tiny integrated circuits that control everything from memory to Bluetooth and WiFi.

But today, China's ambition to dominate sectors such as artificial intelligence and 5G is expected to further boost demand for high-value chips.

Industry analysts such as Mr Scaruffy question China's ability to truly innovate. "Every Chinese city wants to build its own Silicon Valley. It tends to be more driven from above. Silicon Valley had a great advantage, which was far from political power, ”says Scarufi.

He believes that China's technological success lies in implementing technology, not in its creation.

"If your metric is how many people use smartphones to go shopping then China wins a lot of time. But if your metrics win a Nobel Prize then China loses badly. China has certainly been very successful in implementing technology in a way that dramatically changes society, "he says.

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