Playing Into China’s Hands

A trade war couldn’t occur at a worse time for the rest of the tech industry.


The fallout over blacklisting Huawei in particular, and China in general, has set the tone for a nasty global race. But it is almost certain to produce a different result than the proponents of a trade war are expecting.

The idea behind tariffs and the blacklisting of Huawei is to starve China of vital technology. So far, the impact has been minimal. Reports from inside of China are equating these moves as China’s “Sputnik moment.” And despite the rhetoric on both sides, China has been preparing for this moment for some time. The South China Morning Post reported earlier this week that Huawei secretly has been developing its own operating system to rival Google’s Android.

The race has begun. Tariffs and trade restrictions only made it more obvious. Behind the scenes, China has been looking to decrease its reliance on imported chips and technology for years. It now has no choice but to make that happen. Whether China will emerge as a memory producer that can threaten the likes of SK Hynix and Samsung, or develop processors to challenge companies such as Arm and Intel, remains to be seen. And China’s ability to execute on any of this is still yet to be proven.

Nevertheless, there are several factors that have helped to flatten the playing field over the past 12 to 18 months. Those shifts will minimize the impact of any shortfalls in technology, and help to make China more self-sufficient, if not more globally competitive.

To begin with, the slowdown in benefits from scaling features has shifted everyone’s focus from scaling to architectures and microarchitectures. While there are still some benefits to be had at 5nm and 3nm, the manufacturing and design costs are exorbitant, and there may sufficient gains from new chip architectures to sidestep the move down to those nodes. SMIC, China’s largest fab, currently is working on a 7nm process. If the foundry can get that working, it may be sufficient to keep China competitive even with chips developed at the next couple of nodes, where power/performance improvements are expected to be in the 20% to 30% range.

But that may be of limited value over the long term. Some of the new AI/ML chips under development could see improvements of several orders of magnitude for specific tasks, particularly multiply/accumulate operations. The bigger challenges for China are in the memory arena, and the country’s domestic suppliers have stumbled repeatedly. Still, it’s one thing to stumble in a global marketplace. It’s quite another to produce memory chips for a captive home market, particularly if they can be heavily subsidized at first.

Even there, China has a cushion. It can establish interfaces and packaging approaches that are more standardized than what the rest of the industry has been able to achieve. The whole chiplet approach has bogged down due to a lack of standardized interfaces. If China is building all of its own chips, that should be much simpler to standardize internally. So while the economies of scale in memory or other components may not materialize enough to be competitive on a global scale, those may be sufficiently offset by the economics of chiplets in a package.

There’s another piece to this puzzle, as well. The rapid expansion of AI and edge computing has no precedent. These are green-field opportunities, and they are based on massive amounts of training data. China has been collecting more data than any country on the planet. Its understanding of possible use cases is unparalleled, and its ability to develop training data for AI systems provides a massive advantage over external rivals. It also has one of the most advanced implementations of 5G communications in the world, and it has enough open source code and internally developed IP to be a serious competitive threat on a global basis.

So a trade war and sanctions against a global powerhouse may sound like a major threat on paper, but the outcome could be quite different for China’s semiconductor industry.

Related Articles
The Arm-Huawei Disconnect
Setting the record straight on what’s really going on behind the scenes.
China’s Foundry Biz Takes Big Leap Forward
30 facilities planned, including 10/7nm processes, but trade war and economic factors could slow progress.
Impact Of U.S.-China Trade War
Experts look at the impact of the semi and materials sectors.
More Rare Earth Rumblings
Events in China and elsewhere are impacting the market for rare earths.
China Knowledge Center
Top articles/blogs related to the China semiconductor industry


Hybrid Electronics says:

They have the means and the motivation now.

Leave a Reply

(Note: This name will be displayed publicly)