China and the difficult conquest of the world semiconductor market

In the electronic chip market, China is approaching Europe and the United States, which produce 10% and 12% of the world’s semiconductors, respectively. However, the Chinese state does not have a global heavyweight in this sector.

If China has become a global technology benchmark driven by local digital champions such as BATX (Baidu, Alibaba, Tencent and Xiaomi), it is, however, trying to gain a foothold in the semiconductor industry. It is true that the Middle Kingdom is approaching Europe and the United States, which produce 10 and 12% of the world’s semiconductors, respectively, but the Chinese state does not have a global giant in this area. And this at a time when the island of Taiwan, less than 200 km off the coast of China, is the cradle of TSMC, the world’s leading subcontractor for the production of electronic chips, which plans to invest 36 billion euros by 2022 alone.

In this context, Beijing is trying to react to return to the race. This is the ambition of the Made in China 2025 plan, launched in 2015. So far, China plans to produce 70% of its annual national consumption of electronic components, compared to 15% now. Semiconductors are also at the heart of the 14th Five-Year Plan until 2025. However, China’s ambitions are hampered by US sanctions, which punish many heavyweights in the Middle Kingdom.

Chinese foundries are not immune to Sino-US tensions, such as the Semiconductor Manufacturing International Corporation (SMIC), which the Trump administration blacklisted in 2020 without giving the company access to high-quality American technology. So SMIC would have “Four or five years behind TSMC technology, despite nearly two decades of investment”according to a note published in 2021 by the Brookings Institution under the very attractive title Lags behind, but motivated (Late, but motivated).

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Rare lands, luxurious joker of China

However, China is waking up and increasing huge investments to afford strategic independence for the production of these electronic components, which are present in almost all connected facilities. So, last year at least 28 projects of new semiconductor plants were launched into orbit. The sum of these military efforts: 26 billion dollars. But developing the technology needed to independently develop advanced chips takes time. Time is running out as the global semiconductor market is set to double by 2030 to $ 1 trillion.

However, Beijing has a joker, and last but not least: rare earths. They belong to a group of metals with exceptional properties that are used for the production of high-tech products. And China has a big draw, as it accounts for more than 60% of world production of rare earths. Ten years ago, this percentage was even 97%! Reserves also exist in Russia, the United States and even India, but are currently little or not in operation. And no wonder the extraction and processing of rare earths are particularly polluting, resulting in toxic waste. But China is indifferent, given the competitive advantage it can offer it in the global semiconductor market. And there is no doubt that Washington will be vigilant and try to put a needle in the wheels of Beijing, which for decades dreamed of capturing Taiwan …