Washington sent Beijing a signal last week when it announced a ban on US exports of key components to Chinese telecoms equipment maker ZTE. China didn’t need the message — they got it years ago. And, despite still being dependent on US imports, it looks like that will change faster than anyone expected.
As Chinese President Xi Jinping commented Wednesday during a visit to the three Gorges Dam that “China must rely on its own efforts” to innovate, the country was putting its money where his mouth is.
On Thursday it was reported that China’s state-backed semiconductor “big fund” was near to closing a US$19 billion investment round for a second fund to boost local chip makers. The news comes amid reports that the ban slapped on ZTE has prompted China’s leaders to speed up their efforts to become self-sufficient in semiconductor manufacturing.
China’s investment in chips is estimated by Credit Suisse to already total about US$140 billion.
That is according to a report in Nikkei Asian Review on Wednesday that detailed the reasons why the current leaders in the sector, Intel, Samsung and TSMC, may be given a run for their money. More than just competing with the top dogs, China’s upstarts are aiming to topple them.
“It’s totally different from decades ago when China suffered through a frustrating experience to build semiconductors out of nowhere,” Mark Li, an analyst at Bernstein Research was quoted as saying. “This time, it’s a totally different story as the country has all the right ingredients, including a massive market and strong local makers of smartphones, TVs, PCs, and automobiles … . It could be just a matter of time for them to bear fruit.”
The first disruption could come as soon as next year, according to Nikkei, targeting the markets for NAND flash and DRAM memory chips. The NAND market is controlled by a select group, including Samsung, Toshiba, Intel and Western Digital. DRAMs are controlled by an even smaller group, which coupled with strong demand has driven up prices.
China is not afraid to change that landscape.
“The road could be bumpy, but we need to have our domestic memory chips for sure, and we wouldn’t care at first whether we could make a profit or whether we cause a price crash in the market.”
Alibaba co-founder Jack Ma echoed this, speaking in Japan this week, taking some swipes at America for its recent actions against Chinese tech firms.
“America was the early mover and China, we need a lot of things. 100 percent of the market for chips is controlled by Americans,” Bloomberg quoted him as telling students and entrepreneurs at Tokyo’s Waseda University. “And suddenly if they stop selling — what that means, you understand. And that’s why China, Japan, and any country, you need core technologies.”