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Let’s cut to the chase: with or without a sanctions juggernaut, China simply won’t be expelled from the global semiconductor market.
The real amount of chip supply that Huawei has in stock for its smartphone business may be an open question.
But the most important point is that in the next few years – remember, Made in China 2025 remains in effect – the Chinese will be manufacturing the necessary equipment to produce 5-nanometer chips as good as, or even better than, what’s being made in Taiwan, South Korea and Japan.
Conversations with IT experts from Russia, ASEAN and Huawei reveal the basic contours of the road map ahead.
They explain that what could be described as a limitation of quantum physics is preventing a steady move from 5-nanometer to 3-nanometer chips. This means that the next breakthroughs may come from other semiconductor materials and techniques.
China, in this aspect, is practically at the same level of research as Taiwan, South Korea and Japan.
Additionally, there is no knowledge gap or communication problem between Chinese and Taiwanese engineers. And the predominant modus operandi remains the revolving door.
China’s breakthroughs involve a crucial switch from silicon to carbon. Chinese research is totally invested in the switch and is nearly ready to transpose lab work into industrial production.
In parallel, the Chinese are updating the US-privileged photo-lithography procedure to get nanometer chips to a new, non-photo-lithography procedure capable of producing smaller and cheaper chips.
As much as Chinese companies will be buying every possible stage of chip-manufacturing business in sight, at whatever the cost, this will proceed in parallel to top US semiconductor firms like Qualcomm going no holds barred to skirt sanctions and continue to supply chips to Huawei.
That’s already the case with Intel and AMD.
For its part, Huawei is investing heavily in a very close R&D relationship with the Russians, recruiting some of their best tech talent from a pool that’s famously strong in math, physics and rigorous design work.
An example is Huawei’s purchasing of Russian face recognition company Vocord in 2019. Some of the best tech brainpower in South Korea, meanwhile, happens to be Russian. Huawei has also established a “5G ecosystem innovation center” in Thailand, the first of its type in ASEAN.
In the medium term, Huawei’s strategy for its top-notch smartphones – which use 7-nanometer chips – will be to hand over the business to other Chinese players such as Xiaomi, OPPO and VIVO, collect patent fees and wait for the inevitable Chinese chip breakthrough while continuing production of 5G equipment, for which it has sufficient chips.
Huawei’s Harmony OS is considered by these IT experts to be a more efficient system than Android. And it runs on less-demanding chips.
With the expansion of 5G, most of the work on smartphones can be handled by cloud servers. By the end of 2020, at least 300 cities across China will be covered by 5G.
Huawei will be concentrating on the production of desktop computers and digital displays. These desktops will come with a Chinese processor, the Kunpeng 920, and will be run by a Chinese Unified Operating System (UOS).
UOS is a Linux system developed by China’s Union Tech and commissioned by Beijing to – here’s the clincher – replace Microsoft Windows. These desktops will not be sold to the general public and will be equipping China’s provincial and national administrations.
It’s no wonder a steady rumor in IT circles is that the best bet ahead would be to put money in a Chinese chip investment fund, with the expectation of collecting big time when major tech breakthroughs happen before 2025.
Indispensable tech core
Whatever the trials and tribulations of the chip war, the inescapable trend ahead puts China as the indispensable tech core of East Asia, linking ASEAN, Northeast Asia and Eastern Siberia to both Koreas.
This is the hard node of the incoming Regional Comprehensive Economic Partnership (RCEP), the biggest free trade deal in the world which is expected to be signed by the end of 2021.
India has opted for self-exclusion from RCEP, which in geo-economic terms condemns it to a peripheral role as an economic power. Compare it with South Korea, which is boosting its integration with ASEAN and Northeast Asia.
East Asia’s tech core will be at the heart of a global production chain integrating the very best in science and technology concept development and the very best production specialists scattered around all nodes of the global supply chain.
That’s a natural consequence, among other factors, of East Asia’s patent applications at a multiple of 3.46 times the US rate.
And that brings us to the very special Samsung case. Samsung is increasing its R&D drive to bypass US-branded technologies as soon as possible.
When South Korea’s President Moon Jae-in turbocharges his appeal for the official end of the Korean War, that should be seen in tandem with Samsung eventually reaching a wide-ranging tech cooperation deal with Huawei.
This pincer movement graphically spells out South Korean independence from the American bear hug.
It has not escaped the Beijing leadership’s attention that the emergence of South Korea as a stronger geopolitical and geo-economic actor in East Asia must be inextricably linked to China’s access to its next generation of chips.
So a crucial geopolitical and geo-economic process to watch in the next few years is how Beijing progressively attracts Seoul to its area of influence as a sort of high-tech tributary power while banking on the future of what would be a Korean Federation.
This is something that has been discussed every year, at the highest level, at the Eastern Economic Forum in Vladivostok.
Wang Huiyao of the Beijing-based Center for China and Globalization notes that China and South Korea already have a free trade agreement and “will start the second phase of negotiations to establish a new mechanism for China-South Korea economic cooperation, which is developing fast.”
The next – immensely difficult – step will be to set up a China-Japan free trade mechanism. And then a closer, interconnected China-Japan-South Korea mechanism. RCEP is just the first step. It will be a long sail all the way to 2049. But everyone knows which way the wind is blowin’.