China’s ambitious plan with the “Made in China 2025” program, launched in 2015, is running into serious obstacles. The main goal of the program is to make the country self-sufficient and thus less dependent on imports from abroad. The race for Chinese growth is more focused on technology and the semiconductor industry. However, U.S. blockades on China sharpened since the Trump era, European Union sanctions on telecom companies and similar measures replicated in other countries hit the chip industry hard.
At a meeting in early September, Chinese leader Xi Jinping stressed that “we should focus on key issues” and these include technological breakthroughs in the semiconductor industry. He called on senior Party officials to push the country forward, invoking the “new national system,” a phrase that has been reiterated in Xi’s speeches since 2019.
Xi said at a regime summit with politicians including Premier Li Keqiang, “The government should play a more active role in orchestrating this process.”
China’s advance in this area is a major concern for Xi, who has for years been promoting prominent figures from other industries, such as aerospace and the military, to lead the “Made in China 2025” plan.
The Chinese leader carried out “a clean-up” of top executives leading key companies from the domestic industry but also promoted financial aid to start-ups and electronics factories.
However, the semiconductor industry has a large and interconnected supply chain on a global scale. Countries are more developed and have technological advances built the foundations for each link in the supply chain separately, and do not cover all links. The United States has expertise in design, and Taiwan and South Korea in assembly, so they do not bring the whole industry together and the other links are needed to complete production. China’s plan to achieve self-sufficiency is very ambitious and will require large inflows of cash as well as years of research.
Moreover, this new “national system” for technological and industrial growth promoted by Xi has large gaps, and in part, these are caused by the rampant corruption that permeates all government structures.
A Chinese entrepreneur, president of China Jinjiang Sanwu Microelectronics, published an article on Chinese social networks about the most relevant problems for development and if they are not solved, would generate a setback. This setback would be so serious that it would dismantle much of the progress achieved so far.
2 Weaknesses in China’s chip industry
According to the article by the president of China Jinjiang Sanwu Microelectronics, Zhong Lin, the great technological progress could be coming to an end and he described some of the most important weaknesses that could put an end to the Chinese chip industry.
One of the weaknesses that endangers the industry ecosystem is the case of NuoLing Technology. This start-up began in 2019, received investments of 200 million yuan ($27.87 million) and was led by people trained in academic studies abroad and experience in the semiconductor industry. This company was expected to be like China Qualcomm, the cell phone processor giant. However, one of the company’s top directors decided to leave the company and return to the United States. In an industry where high specialization is needed, the departure of any experienced senior executive puts the entire company at risk. China does not have enough skilled professionals to meet the demand.
The case of NuoLing Technology is not unique. Many of China’s microchip companies are relatively new, with little experience, and frequently go through changes or mergers with other start-ups. Several of these mergers follow the resignation of directors or the departure of the founding CEO. With this comes restructuring, debt and new financing for projects with a “pseudo-demand,” meaning that they are new products that do not yet have a solid presence in the market.
Another problem is the pace of expansion, and growth and mergers of companies. Millionaire investment rounds are made for the development of new chips, however, the lack of adequate projection leads to losses greater than the initial investments.
Restrictions on China’s dream of self-sufficiency
One of the biggest challenges facing China is the restrictions of one of its most important competitors: The United States.
Recently, President Joe Biden banned subsidized companies from building technology development facilities in China.
This measure was implemented under the CHIPS and Science Act, a U.S. government-driven project to grow the semiconductor industry at home.
In addition, the government will partially finance companies that wish to relocate their facilities to the United States, such as Intel.
Another blow to the industry is the ban on exports of chips from well-known international brands to China.
The U.S. government asked Nvidia to stop exporting all of its artificial intelligence chips to the Asian country. The well-known company AMD also received warnings to halt trade.
The Chinese regime needs the AI chips for its facial recognition systems in smartphones and other technologies applied to the military industry.
Despite Xi’s emphasis on China achieving a huge technological breakthrough in a few years, the domestic semiconductor industry is lagging behind and facing unexpected obstacles, will Xi be able to fulfill the dream of Chinese self-sufficiency by 2025?