Posts Tagged ‘Heritage Foundation’

China’s Chip Industry Is Doomed

Monday, September 19th, 2022

This is a story that’s been bubbling on for a while, but it looks like the U.S. government is about to slam down export restrictions on chipmaking equipment.

The administration of US President Joe Biden next month is to broaden curbs on US exports to China of semiconductors used for artificial intelligence and chipmaking tools, several people familiar with the matter said.

The US Department of Commerce intends to publish new regulations based on restrictions communicated in letters earlier this year to three US companies — KLA Corp, Lam Research Corp and Applied Materials Inc, the people said, speaking on the condition of anonymity.

Every wafer fabrication plant in the world uses equipment from one of those three companies. Applied Materials and LAM Research (along with Tokyo Electron) have their fingers in almost all areas of chipmaking equipment (PVD, CVD, Etch, etc.), while KLA (formerly KLA-Tencor) dominates the wafer inspection equipment segment. Add ASML in the Netherlands, and those five absolutely dominate the semiconductor equipment market.

The letters, which the companies publicly acknowledged, forbade them from exporting chipmaking equipment to Chinese factories that produce advanced semiconductors with sub-14 nanometer processes unless the sellers obtain commerce department licenses.

This is where things get tricky. SMIC claims they can do 7nm, but everyone outside China doubts they can do it reliably, repeatably and profitably. SMIC announced they’re about to start manufacturing 14nm, and that they can probably do. Practically, they’re the only semiconductor manufacturer in China that can do sub-14nm, as just about everyone at the top of the next biggest semiconductor manufacturer, Tsinghua Unigroup, just got arrested in July.

There’s even talk that they’re actually zeroing in on FinFET technology specifically, though they may also ban sales of older chipmaking equipment as well.

Without a continued stream of machines, spare parts and technical know-how from those five semiconductor giants, China’s semiconductor industry is doomed. China’s domestic semiconductor equipment industry is essentially garbage, and they’re so far behind in so many areas that they can’t even steal their way to parity. The knowledge gulf is just too vast.

Min-Hua Chiang at the Heritage Foundation notes just how badly China’s domestic semiconductor industry is screwed.

According to World Trade Organization statistics, China’s trade deficit in integrated circuits and electronic components (including Hong Kong’s trade deficit) has almost doubled from the equivalent of $135 billion in 2010 to $240 billion in 2020.

The growing trade deficit in integrated circuits reveals one crucial fact: Achieving technological self-reliance is still a faraway Chinese dream. To keep its exports growing, China has no other way but to keep importing advanced chips to assemble into consumer goods with high-tech intensity (e.g., smartphones, tablets, and the like).

Although China (including Hong Kong) is also the largest exporter of semiconductor chips in the world, less than 7% of chips produced in China were made by Chinese semiconductor companies in 2021.

More than 90% of chips produced in China are made by foreign firms. In other words, China’s exports of semiconductor chips are overwhelmingly dominated by foreign companies.

Its inferior level of technology is the main reason for China’s chip reliance on foreign firms. While Chinese firms are stuck with advancing toward 7nm chips, the Taiwan Semiconductor Manufacturing Co. and Samsung are progressing towards mass production of 3nm chips this year. Intel plans to take over TSMC’s leading role in semiconductor technology by 2025.

The competition among a few tech giants in the U.S., Taiwan, and South Korea is clear, and the Chinese firms are not likely to jump into the global technology competition in the semiconductor industry anytime soon.

The U.S. restrictions on exporting chipmaking equipment to China’s largest semiconductor firm, Semiconductor Manufacturing International Corp., have not only deterred China’s technological advancement, but also exposed the fundamental mismanagement problems inside China’s semiconductor industry.

Xi might not have noticed his industry’s poor performance had China been able to continue to produce chips with foreign equipment.

Some parts about the Tsinghua scandal snipped.

Several Taiwanese executives leaving China’s semiconductor industry last year is another major setback in the development of China’s semiconductor industry.

China not only spent tremendously on building chip plants and purchasing expansive equipment, but also on recruiting talent from overseas. Over the past few years, China recruited more than 3,000 skilled workers from Taiwan to work in China’s semiconductor industry.

China amassed enormous capital, talent, and foreign equipment, but the problem is with governance. Xi’s absolute authority encouraged a rush into China’s semiconductor industry. Moreover, the extraordinary integration of the public and private sectors in China has twisted industrial development toward short-term profit-making, instead of long-term accumulation of manufacturing strength and technological improvement.

Xi’s “wolf warrior” diplomacy has further overshadowed the outlook of its semiconductor industry. China’s success relies on close partnerships with various suppliers and customers in different countries across the globe. Alienating them on the geopolitical front only undermines those relationships.

The U.S. ban on exporting chipmaking machines to China was the straw that broke the Chinese semiconductor industry’s back.

On top of that, the CHIPS and Science Act just signed into law bans semiconductor companies receiving U.S. government subsidies from investing in China for the next 10 years. There are major loopholes in that prohibition, but if Congress can manage to keep the administration’s feet to the fire—including by tightening the legal restrictions—it could have a major impact on China’s tech development.

In addition, the U.S. has extended the export restriction to 14 nm chipmaking machines to the Semiconductor Manufacturing International Corp. and other foreign chipmakers in China. A specific electronics design automation software for making advanced chips is also banned from exportation to China.

Without foreign investment and inputs, China is only likely to deepen its reliance on importing advanced chips from overseas.

Peter Zeihan notes (correctly) that China’s semiconductor industry has been singularly unable to fab advanced chips on their own.

Not to mention that fraud still abounds. Chinese CPU semiconductor startup Quillion Technology closed up shop three months after raising $89 million.

$89 million is probably enough to get you to tape-out for a fabless semiconductor house designing a smaller chip (or maybe even a low-power ARM-based CPUs for embedded markets), but it’s a woefully small sum for a real cutting-edge CPU company, and laughable if they intended to be an integrated design manufacturer fabbing their own chips, where building even a trailing edge fab starts in the billions.

More on that topic:

Takeaways:

  • “Money seems to have a strong corruptive power over CCP officials that they can’t resist. Like China’s real estate industry, China’s semiconductor industry is also plagued with corruption, over-construction, and highly leveraged capital maneuvers.”
  • She goes over the history of the Chinese “Big Fund” for semiconductors I covered here, and later talks about the indictments.
  • “The state-run Semiconductor Investment Fund was used more as an instrument to speculate in stocks than an institution for conducting basic R&D. The government-backed fund, aka the “Big Fund,” has investments in 2,793 entities within three layers of ownership.” Very few of them have the word “semiconductor” in their names. (Like I said before, shell games all the way down.)
  • From 1984 to 1990, the Ministry of Electronics Industry delegated the management of the vast majority of state-owned electronics enterprises to local provincial and municipal governments. While these state-owned enterprises (SOEs) obtained more autonomy, something strange happened. These companies imported outdated integrated circuit production lines that had no commercial value. The wasteful projects cost money, but people used the opportunities to take foreign trips, receive kickbacks, and send their children abroad. And this happened on a large scale.

    Pretty much classic ChiCom behavior.

  • China’s high-tech industry, like its financial industry, is dominated by powerful CCP families, and the Jiang Zemin family is one of them. In 1999, Jiang Zemin gave his oldest son, Jiang Mianheng, the reins of China’s “autonomous chip development.” As vice president of the Chinese Academy of Sciences (CAS) and president of the Shanghai branch for many years, the junior Jiang has long held the turf of China’s science and technology sector. He is also personally involved in the semiconductor business. His Shanghai Lianhe investment has holdings of Shanghai Zhaoxin Semiconductor Company.

  • Classic story:

    Chen Jin, a former junior test engineer at Motorola, joined Shanghai Jiaotong University in 2001 after returning to China.
    He was given the responsibility to develop the “Hanxin” chip, an important part of the state-run high-tech development program known as the “863 Program.” In just three years, Chen obtained 100 million in R&D funding and applied for 12 national patents. On Feb. 26, 2003, Chen’s team officially released the “Hanxin 1” chip. The Shanghai Municipal Government, the Ministry of Information Industry, and the Chinese Academy of Sciences all backed his work. The expert panel declared the “Hanxin 1” and its related design and application development platform as being the first of its kind in China and achieving an important milestone in the history of China’s chip development. Subsequently, Hanxin 2, 3, 4 and 5 chips were launched, all of which were claimed to have reached an advanced level globally. The Hanxin series of chips even entered the General Equipment Procurement Department of the Chinese military. However, 3 years later, on Jan. 17, 2006, “Hanxin 1” was revealed to be completely fake. Chen downloaded a Motorola chip source code through a former Motorola colleague. Then he secretly bought a batch of Motorola dsp56800 series chips, paid a peasant to scrape the original Motorola logo with sandpaper, and asked a local Shanghai print shop to print the “Hanxin” logo on it.

  • China correctly identified semiconductors and semiconductor equipment as key technologies for truly becoming the world’s preeminent technological manufacturing giant. Unfortunately for them (and fortunately for us), the CCP’s endemic culture of corruption and their top-down command economy are antithetical to the onrush of capitalist technological innovation that powers Moore’s Law.

    DeMint Out at Heritage Foundation

    Wednesday, May 3rd, 2017

    We now have confirmation of the rumors that were flying all weekend: Jim DeMint is out as head of the Heritage Foundation:

    The Heritage Foundation’s Board of Trustees, by a unanimous vote, has asked for and received the resignation of Jim DeMint as president and CEO of the organization. The Board elected Heritage Founder Ed Feulner as president and CEO while we conduct a thorough search for his successor.

    After a comprehensive and independent review of the entire Heritage organization, the Board determined there were significant and worsening management issues that led to a breakdown of internal communications and cooperation. While the organization has seen many successes, Jim DeMint and a handful of his closest advisers failed to resolve these problems.

    This was a difficult and necessary decision for the Board to take. As trustees, we have governance and oversight responsibilities for this organization and our 500,000 members. We were compelled to take action.

    Founder Ed Feulner will be reclaiming his old job, thought at 75 it remains to be seen how much gas he has left in the tank.

    Many believe that DeMint was ousted for reasons of organization and approach rather than ideology:

    DeMint isn’t being forced out because of his politics. The firebrand will be extinguished because of complaints about his leadership, several sources confirmed to the Washington Examiner.

    When DeMint left Congress for Heritage in 2013, it seems that he never left the Senate behind. “The reason why the board got upset with him was his mismanagement,” a source with knowledge of the situation explained. “DeMint and his people just tried running the place like a Senate office rather than a think tank. It didn’t work.”

    While few fault the South Carolina conservative for mixing it up with Capitol Hill, his critics complain that the former senator didn’t secure a proper policy footing before throwing political punches. That supposed disconnect manifested itself in the apparent disconnect between Heritage and Heritage Action, the organization’s 501(c)4 lobbying arm.

    “The board just wants Action to keep doing its job,” the source explained. “But that means they need to be backed up by the think tank side of things.”

    Ahead of a massive grassroots army, Heritage Action can easily blow up legislation they find ideologically unacceptable. But after the dust settles, those conservative politicos complain that their corresponding wonks haven’t equipped them with a policy substitute to offer lawmakers.

    Others pinned DeMint’s ouster on Mike Needham, CEO of Heritage Action for America, the organization’s political arm, and DeMint’s apparent coziness to the Trump administration. That Atlantic piece says Needham wanted to take over from DeMint. This Washington Examiner piece says no, he was just trying to restore Heritage, having seen it go off the rails. It also paints Heritage as an organization in (cue Scott Adams persuasion word) chaos:

    Just as Capitol Hill prepares to tackle healthcare reform, the biggest conservative voice in politics is choking on itself. Already DeMint’s influence seemed like it was waning. The Policy Services and Outreach Department (which DeMint founded and which regularly competed with Heritage Action for influence) curiously stood up congressional staffers for a meeting and inexplicably deleted its Twitter account.

    Finally, here DeMint defends his tenure. It’s a bit pro forma.

    This is all a shame, and a rather surprising outcome given that DeMint stepped down from the Senate to take the reigns at Heritage.

    Heritage was a real powerhouse in the 1980s, providing much of the intellectual underpinning of the Reagan revolution. Their various Mandate for Leadership documents provided blueprints for much of Reagan’s reforms.

    I rejoined Heritage as a supporter when DeMint in hopes that he could wake a sleeping giant. But I let my membership lapse because I never saw notable signs of action out here beyond the beltway.

    Hopefully whoever takes over Heritage next can restore it to some of its former glory.

    LinkSwarm for July 19, 2013

    Friday, July 19th, 2013

    Detroit went bankrupt. One stranger was acquitted for shooting another stranger. Which do you think the media spent more time covering?

  • “Progressive politicians, wonks, and activists can only blame big corporations and other liberal bogeymen for so long. The truth is that corrupt machine politics in a one-party system devoted to the blue social model wrecked an entire city and thousands of lives beyond repair. The sooner blues come to terms with this reality, the greater chance other cities will have of avoiding Detroit’s fate.”
  • The IRS scandal now leads to the chief counsel, one of only two Obama appointees at the agency.
  • The Democratic Party is a machine for inciting grievances in order to consolidate its power.”
  • The Wall Street Journal makes the case for dismantling ObamaCare piece by piece.
  • Republican Insiders are very, very upset that Jim DeMint is exposing them for the RINOs they are.
  • My precious snowflake is extremely gifted. He’s also 29 and unemployed because so many jobs are unworthy of his Promethean talents. Matt Walsh: SMACKDOWN.
  • The Democratic Party is a machine for inciting grievances in order to consolidate its power.”
  • Charles Barkley on the Zimmerman trial: “Just looking at the evidence I agreed with the verdict.”
  • A few facts about Marissa Alexander that may not be apparent from a two panel picture comparison with George Zimmerman.
  • “Reason for termination: Disabled veteran.”
  • “Negative perceptions of young black men are rooted in hard data on who commits crimes.”
  • Near empty New York hospital losing $3 million a week. Naturally, unions are demanding it stay open. (Hat tip: Dwight.)
  • Charles Murray on American exceptionalism.
  • Marco Rubio was riding high. Then he became a shill for amnesty, and now his life is all sad trombones. I haven’t seen a serious national political aspirant fall so far since Gary Hart went boating.
  • Today’s serial Democratic Party groper who felt-up at least six women and who the state party forced their members to cover up for comes to you from California.
  • DeMint Leaves Senate to Head Heritage Foundation

    Thursday, December 6th, 2012

    Sen. Jim DeMint has announced that he’s stepping down from the Senate to head the Heritage Foundation. DeMint’s official statement is here.

    It’s big news when a Senator steps down to head a think tank, especially the granddaddy of all conservative think tanks, where founder Ed Feulner is stepping down at age 71.

    It will be tough to lose DeMint from the Senate, where he’s done so much to further the cause of limited government and recruited stalwart conservatives like Ted Cruz and Rand Paul to join him. But hopefully he can awaken a sleeping giant at Heritage, an enormously important institution before and during the Reagan Revolution, but almost invisible in the Internet era.

    Erick Erickson likes the move. “Jim DeMint’s power in the conservative movement just grew exponentially. A man who was going to retire in four years anyway, will now be leading the conservative movement from its base of operations for years to come.”

    Edited to Add: Ted Cruz joins the chorus of congratulations.