The U.S. and China have been tit-for-tat in the ongoing trade war between the two countries, but Chinese chipmakers are now saying it’ll be impossible to meet China’s national targets without access to American technology, reports Nikkei Asian Review.
In a bid to boost its domestic market—and conveniently wean itself from foreign dependence—Beijing has set ambitious goals to domestically source 40 percent of all chips used by Chinese industry by 2020, and raise that to 70 percent by 2025. However, industry leaders are skeptical these lofty goals can be reached without U.S. tech.
According to Nikkei’s report, the self-sufficiency rate among Chinese chipmakers was just 15 percent in 2018. Sources cited in the report, speaking on condition of anonymity, also stated the gap between China’s nascent market and the U.S.’s more mature market is just too big to overcome in such a short time. “If we lose access to U.S. software or can no longer receive updates, our chip development will run into a dead end,” a leading Chinese artificial intelligence chipmaker reportedly told Nikkei.
Part of the problem is that the global supply chain is—as the name implies—extremely interconnected. Another is that many Chinese companies still prefer imported chips over those made at home. That’s due to limited production, which makes Chinese chips cost more, and the fact that many businesses—especially those that require stable systems like banks—simply trust U.S. chipmakers more because they’ve been around longer. “Even if Huawei’s chips function as well as Qualcomm chips, we feel Qualcomm is a safer bet because of its decades-long experience in chipmaking,” a Chinese executive for a firm specializing in banking software told Nikkei.
Even though Beijing has made a show of supporting domestic chipmakers in military and government projects, the U.S. crackdown on Chinese tech, especially Huawei, has clearly taken its toll. Nikkei reports revenue is expected to grow 17.9 percent this year to about $42.9 billion, but it’s also the first time since 2014 that the rate has fallen under 20 percent.
Right now, missing its targets probably isn’t the tippity-top priority for Beijing—but it is more salt in the wound. Since the Trump administration blacklisted Huawei in May, citing concerns the company was too close to China’s government, tensions have escalated. U.S. tech giants have cut ties with Huawei, including Intel, Broadcom, Qualcomm, Xilinx, and Infineon. Meanwhile, Google has said it will provide Huawei software and security updates for a limited 90-day period. For its part, the Chinese government has threatened to tighten its grip on rare earth metals, and it has created an ‘unreliable entity list’ of foreign companies in retaliation for the Huawei ban. Most recently, the Trump administration reportedly is considering requiring all 5G telecom equipment installed in the U.S. to be manufactured outside China.
It’s hard to predict just how far-reaching the fallout from the U.S. and China’s chilly tech relations will be. In the short-term, however, you can bet it’s already causing headaches for companies on both sides of the Pacific. Apple is mulling moving 15 to 30 percent of production outside of China, while Huawei’s had to cancel the launch of its new MateBook laptop. Even FedEx is pissed—it’s suing the U.S. government over the Huawei restrictions, as it can’t verify the content of every single package it handles.