After ZTE Supply Ban, China’s Chip-making Will Step Up

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According to Reuters, after the April 15 ban, ZTE Corp may soon be penalized by the Trump administration for 1.7 billion U.S. dollars.

The company suspended its main business in May and was in urgent need to restore the business. It has estimated that more than 3 billion U.S. dollars have been lost since its ban on business with U.S. suppliers on April 15.

Whether or not ZTE survives, the incident has highlighted the China’s weakness: as the world’s largest semiconductors consumer market, China produces only 10% of those chips. It’s the over-reliance of China on US-made chips results in the “passive and embarrassing” situation of China.

Also read: ZTE’s Collapse Reveals China’s Over-Reliance on U.S. Technologies

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The good news is that China intends to fight back by speeding up its domestic chip industry innovation. The “Made in China 2025” plan has promoted the development of the domestic chip industry. The plan calls for improving domestic manufacturing and R&D in various industries. In the mobile sector, the initiative will use domestically produced chips in at least 40% of smartphones in the domestic market by 2025.

In addition, the Central Government Procurement Center has issued a procurement proposal: the computer server powered by chips from domestic developers Loongson, Shenwei and Phytium chips, have been added into the Chinese government procurement plan from 2018 to 2019. This is the first time that China’s government procurement plan adds servers powered by a locally manufactured central processing unit (CPU).

Affected by the ZTE incident, it is believed that China will invest more funds in the chip-making area. It is reported that the Chinese government will announce a new nearly 50 billion U.S. dollar funding project aims at promoting the development of the domestic semiconductor industry. Now, investors can expect Chinese tech giants such as Tencent and Alibaba to enter the field. On May 27, Foxconn Industrial Internet Co., Ltd. announced the results of the IPO issuance and placing. Alibaba, Tencent and Baidu, three Internet giants were each assigned 21.778 million shares, the subscription amount of nearly 300 million yuan. Last month, after the occurrence of the ZTE incident, Alibaba wholly acquired Hangzhou C-Sky Microsystems Co., Ltd., which is a supplier of embedded CPU. In the future, I believe there will be more similar news.

Although the current plight of ZTE is being resolved, we cannot lose our vigilance and we should pay more attention to basic scientific research. In short, independent research and development of successful chip core technologies can be completely unconstrained by others.

 

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