The ban by the Donald Trump administration on exports of chips for use in electronic hardware has come as a wake-up call to Chinese policymakers and gadget makers that, under the facade of the nation’s progress in telecom technologies and manufacturing, giants such as ZTE have a weak underbelly.
These Chinese firms still rely on chips and integrated circuits made elsewhere, despite their stranglehold on such products as soft switches, servers and network protocol systems.
The US Commerce Department on Monday banned American companies from selling key components, including chips, to the Shenzhen-based ZTE Corporation.
The ban augurs ill for the networking and telecom behemoth, as ZTE may have nowhere else to go to procure chips and processors for its servers, base stations and multimedia subsystems.
“At present, the company is assessing the full range of potential implications that this event has on the company and is communicating with relevant parties proactively in order to respond accordingly,” ZTE said in a brief statement.
The ban is an escalation of penalties meted out by Washington since 2016 for a raft of alleged breaches by ZTE, including shipping sanctioned telecommunications equipment to Iran and North Korea.
Beijing has called the move a “curt” step in the tit-for-tat trade row with the Trump administration, and vowed to spur development of indigenous chips and other semiconductor technologies.
“The key issue is that while globalization offers a more convenient and cheaper solution, it has also bred ‘laziness,’” Global Times said in an op-ed. “If importing chips is easier and more cost-effective than sourcing domestically made alternatives, the market will opt for overseas products, and that’s how we’ve become so reliant on foreign technologies.”
So exactly how dependent are these Chinese information-technology companies on imported components?
A 2017 annual report on China’s integrated circuits revealed that in output of microprocessor units for servers, personal computers and smartphones, display drivers for high/ultra-definition displays, dynamic random-access memories, NAND flash memories, field-programmable gate arrays, erasable programmable logic devices, and digital signal processors among others, the share of Chinese products stood at zero that year.
The share of made-in-China microcontroller units, display processors, image processors and NOR flash memories ranged from 2-5%, most of which were of course low-end chips sold at a fraction of the prices of imports.
China spends a whopping US$200 billion a year importing chips according to data from the Chinese Ministry of Commerce, and for sure the domestic semiconductor and chip industry would accrue huge potential if that money could be spent on research and development for home-made products.
Washington has started to reckon on means to counter China’s rise, and restraints on high-tech exports give the Trump administration a ready-to-hand method.
Meanwhile, the Chinese Ministry of Industry and Information Technology has insisted that as the world’s largest telecommunications market, “it makes sense for the country to offer up a slice of our market in exchange for technology.”
Beijing has long requested foreign chip makers to set up fabrication plants and joint ventures with domestic firms. But technology transfer is held back now that Washington has put up more barriers and red tape that has led to a total chip embargo targeting a leading Chinese company.
Observers say the United States’ use of its chips as sticks to browbeat ZTE and other Chinese firms means the market-for-technology approach is now a dead end.
Chinese firms may face lock-out if Washington seals off 5G networks
Like the Pheonix raising from the ashes. A lesson well learned. You trust the Americans at your own peril.
When the empire stopped INTEL from selling its CPU modules to china’s supercomputer program, the chinese designed and fabricated their own CPUs that are hyper faster than INTEL’s snail crawlers. Today the Taihu Light supercomputer runs at 93 petaflops (that’s 93 million billion floating point operations per second). The empire’s current fastest supercomputer runs at a fraction of Taihu Light speed.
Huawei’s flagship phones run on its own Kirin 960 series of SoCs (System-On-Chip) with a NP (Neural processor) to boot. It is not dependent on those snail SoCs from Qualcomm.
Nope, ZTE will not be wiped off the surface of this world. As Global Times mentioned it is now high time ZTE pull up its own socks and start fabricating those chips themselves. There are plenty of wafer fabs in china, taiwan, south korea, singapore and japan who is more than willing to fill in the void. ICs that went into core switches, base stations, level switches and other telecommunications hardware are all fabricated based on open platform technologies such as the venerated TCP/IP protocol. This is not rocket science.
At the worst, ZTE may suffer some deferred deliveries and some delay in its projects. It is not life threatening. Indeed, the "school yard bully" will get his comeuppance when these companies are no longer dependent on the empire for their sourcing requirements. I guess by then, he will cry wolf even louder.
Economic sanctions and the likes are weapons to be used sparringly with clear objectives. But the way the Americans have been breathing heavily down the necks of other countries with capriciously meted sanctions, extortionate fines and embargoes are encouraging countries to move away and build their own alternative systems. It is hastening America’s isolation. Russia is one example of a country that has worked rather successfully to minimise America’s punitive measures. The dollar, SWIFT, American bonds, equities and more will, in time, become poisoned chalice because of the associated risks.
It is just a matter of time that China will have its own semiconductor industry to be reckoned with and what happens to ZTE probably will hasten the process.
The Chinese government should have a very firm and harsh response to this threat to the China’s national security !
Crippling a Chinese tech giant with almost 80.000 workers is not a small thing. If this ban is kept more than a couple of months the company is doomed.
I hope that you are right. ZTE it’s a too big to fall company.
Only last fortnight US was calling fr China to buy more chips from it to reduce th trade deficit. Now sanctions to stymie the competition. US is an unreliable trading partner
The fear and trepidation in face of Made in China 2025 exhibited by the US government and MSM is just dishonest and pathetic. Microsoft, Intel and other pioneers of the semiconductor industries, have been relegated to the second class citizenship while the Wall Street licks up the free succor at the FED window.
A truly nightmarish scenario would be a sudden and unexpected event that sees China reunited with Taiwan and take over its world class semiconductor foundry business as China’s own.
The very IC chips banned by the US for export is mostly likely fabricated in Taiwan foundries and packaged and tested in subcontractors in China.
President Trump is justifiably angry with the deficit and the de-industrialization of the US, but he looking at the wrong places for the enemy and solution.
China can’t be stopped raising!
This has been in the cards for a long time. It is normal US modus operandi. China should have prepared for this but decided to invest in low yielding US Treasury Bonds and thereby indirectly supporting the US war machine. China must GET OUT of the US Treasury Bonds. Take the $1 trillion and build chip factories, build agriculture projects, import soy beans from Brazil, and increase the number of production lines of commercial air planes.
The US has been working to create problems for Russia and China for a very long time. The US has supported separatists/Jihadists/terrorists attacking China. We see this clearly in the US support of the Uighurs, who has several organisations in the US, demanding independence for “East Turkestan”. For China Uighur terrorism is a problem.
CIA and Mossad have for a long time been involved in operations in Baluchistan to destabilize Iran, create problems for China and destabilize Pakistan, a US friend for decades. US is also involved in various operations to destabilize Iran to get a regime change. Iran is a friend of China and supplier with huge potential.
All the above it is not secrets, and President Xi must be aware of all this and more. Invest in Asia here is the future growth, not in the bankrupt USA, who will struggle for generations, to pay back the all the money wasted on foreign war. China must teach the US a lesson, so President Trump keep his election promises; “America First”. All the money wasted on the last Syrian strike could have built many inner-city schools and helped a lot of homeless US Veterans.
Yes, the US is very unreliable. US can never be trusted. President Trump is running America like he run the Trump organization. First the contractors finish the agreed project, then Trump want to renegotiate the price. It is alleged the porn star Stormy Daniels, is the only one that has been paid in full by Mr. Trump.
In foreign policy issues, President Trump changes his mind more often than he changes his underwear.
they could severely limit rare earths
No mention of why the penalty was inacted on ZTE makes this a one sided story
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