Get more with myNEWS

A personalised news feed of stories that matter to you

Learn more

US President Joe Biden signed the Chips and Science Act into law in August. Photo: TNS

Economy China Economy

Global Impact: US-China tech war weighs on Xi Jinping’s legacy ahead of 20th party congress

Global Impact is a fortnightly curated newsletter featuring a news topic originating in China with a significant macro impact for our newsreaders around the world
In this edition, we look at how China’s technological progress has been stalled, especially after US President Joe Biden signed the Chips and Science Act into law

China’s 20th Party Congress

Matt Haldane

Published: 8:30pm, 3 Oct 2022

Why you can trust SCMP

As President Xi Jinping approaches his all-but-assured third term as general secretary of the Communist Party, to be confirmed at this month’s 20th party congress, a number of major national challenges loom in the background, not least of which is the US-China tech war, which has frustrated the government in its pursuit of technological self-reliance.

This has been a cornerstone of the government under Xi, who has called for more development of pivotal technologies such as artificial intelligence, 5G and blockchain, and for more spending on basic research and improving capabilities in making home-grown chips.

In a meeting earlier last month, Xi urged Chinese researchers to be more aggressive in terms of innovation.

“We need to focus on research and development of key technologies with first-mover advantages and basic cutting-edge technologies that lead future development,” the meeting concluded.

01:36

AI chip maker ordered by US government to halt exports to China

Trying to leapfrog the market by developing frontier technologies was always a tall order. In the face of US sanctions and a slowing economy, though, that hard work has only got harder.

On paper, there have been some impressive gains. Baidu launched a quantum computer that consumers could access via a smartphone app. Construction is underway on the largest pulsed-power plant in the world, leading one engineer to predict that China could achieve nuclear fusion energy by 2028. China is even funding civilian hypersonic transport.

Yet, in terms of practical technological advances in the economy today, the gains have been more modest. This is most obvious in the case of semiconductors.

Semiconductor Manufacturing International Corporation (SMIC) gained attention in July when researchers said China’s largest chip manufacturer achieved the ability to make 7-nanometre chips.

Yet, it is barred by US sanctions from buying the most cutting-edge equipment that is used to make these types of chips, so it was likely using older technology, and there is no sign that it is able to produce them at scale.

There are signs that Beijing is growing impatient with the pace of development in the semiconductor industry. In August, it opened corruption probes against six executives at the China Integrated Circuit Industry Investment Fund, the country’s biggest chip fund.

China’s continued dependence on overseas technology has become more conspicuous in recent months. The China Semiconductor Industry Association has complained of a “hostile” environment created by the US Chips and Science Act, which is meant to pump nearly US$53 billion into the American semiconductor industry for more domestic production.

Pouring salt on the wound is a provision that prohibits beneficiaries of the new law from building advanced factories in China for 10 years.

The fight over chips also has knock-on effects in other industries considered strategically important. This was most recently seen with artificial intelligence (AI), which has come to heavily rely on advanced graphics processing units from Nvidia for machine learning.

01:57

Biden signs US$280 billion act to boost high-tech manufacturing and research

When the US barred Nvidia from selling its powerful A100 and H100 chips to China, the domestic AI industry reeled. As one industry insider pointed out, Nvidia chips are hard to replace when it comes to AI.

In August, chip exports from China plummeted by nearly a quarter, the biggest monthly drop since records began in 1997.

Left to their own devices, companies would prefer to keep selling into China without limits. Nvidia CEO Jensen Huang said he remains confident in the China market despite the new sanctions. ASML, the Dutch firm with a global monopoly on the extreme ultraviolet lithography machines that SMIC is barred from buying, also said it plans to further expand in China.

China’s overall trade volumes have remained largely stable, but increasing tensions with the US have raised the spectre of technological decoupling. Xi has sought to position China as the responsible actor and recently pledged at a government forum to protect global supply chains.

But overseas tech companies such as Apple and its manufacturer Foxconn would prefer to diversify supply chains away from China to hedge against geopolitical risks.

One area where China may really be taking a lead, however, is in its bid to use blockchain to erode the US dollar’s dominance as the global reserve currency. In a 40-day trial of a blockchain digital currency settlement system – referred to as mBridge – mainland China, Hong Kong, Thailand and the United Arab Emirates handled more than 160 cross-border transactions totalling more than 150 million yuan (US$21 million).

While Beijing would like the yuan to play a more international role, its strict capital controls have largely hindered that pursuit. Blockchain and a digital yuan could help change that.

Li Yan, deputy director of the Institute of World Political Studies at the China Institutes of Contemporary International Relations, wrote in a commentary last month that the ban on Russian banks from the Swift financial messaging system showed the risks that China faces in the current international financial system. He also said China should monitor the involvement of international tech giants such as Elon Musk in Russia’s war on Ukraine.

As a gauge of Xi’s success, China’s progress in developing emergent technologies is just part of the story. While the party congress may not hold any answers for how these efforts will evolve in the coming years, at least one thing is sure to remain the same: the man heading the charge.

60 second catch-up

China’s Xi Jinping back in the public spotlight – in person and in policy

Countdown to China’s Communist Party congress enters final stages with release of delegate list

Infographic: The Politburo

Infographic: The 19th Central Committee

‘Painful lessons’: call for China’s Communist Party to avoid ‘strategic mistakes’

‘No retreat’ for China’s hardline diplomats after 20th party congress

Explainer: What you need to know about China’s 20th Communist Party congress

Infographic: Faces to watch

Infographic: Friends in high places

Deep Dives

Beijing forges ahead with all-in chip effort, brushing aside setbacks

China lacks the software, equipment and capabilities for advanced chips, a weakness laid bare by the tech war between Washington and Beijing

In the face of political calls for self-sufficiency, it is hard to avoid waste, fraud and bubbles amid a continuous flow of state funds, experts say

In July 2018, Xiao Yaqing, then chairman of China’s state-owned assets watchdog, visited the Beijing office of Tsinghua Unigroup, a day after the state-backed semiconductor conglomerate announced another big takeover deal – the US$2.6 billion acquisition of French chip maker Linxens.

Xiao, who two years later would head China’s Ministry of Industry and Information Technology, discussed with Unigroup’s then-chairman Zhao Weiguo how the country’s state and corporate sectors could work together in semiconductor development, according to a press release issued at the time.

01:57

China condemns new US law aimed at boosting domestic semiconductor manufacturing

Tech war: Why the US Nvidia chip ban is a direct threat to Beijing’s artificial intelligence ambitions

US export restrictions on Nvidia data centre GPUs could hit China’s most powerful artificial intelligence systems, which rely on such chips

Industry insiders expect companies to stockpile Nvidia chips before the ban takes effect next year, while carmaker Xpeng says it has years of reserves

ByteDance’s enterprise cloud service, Volcengine, has cut the training period for an image-recognition, artificial intelligence (AI) model from 5 days to 3 days; Alibaba Cloud’s Sinian computing platform has beat a Google-held record by recognising 1.078 million images per second in offline scenarios; and China’s largest server maker Inspur’s NF5488A5 model has been hailed as a world-class product in medical image segmentation, speech recognition and natural language processing.

But none of these achievements by China’s most powerful technology players would be possible without the powerful graphic processing units provided by Nvidia Corp, the Santa Clara-based GPU giant that has played a pivotal role in powering China’s progress in AI, data analysis and computing power.

Tech war: China chip start-ups clamour to tout AI chip breakthroughs after Nvidia sales ban, prompting analyst scepticism

Chongqing-based Xiangdixian Computing Technology has unveiled Tianjun No. 1, a GPU with 12-nanometre node technology

Analysts say that Chinese chip companies still lag far behind Nvidia, which has a near monopoly on GPUs used to train AI models

Chinese semiconductor start-ups are rushing to claim breakthroughs in artificial intelligence (AI) chips after the US restricted the export of advanced chips from Nvidia Corp and Advanced Micro Devices (AMD) to China, prompting scepticism from many industry analysts.

Chongqing-based Xiangdixian Computing Technology, which designs microprocessors, this week unveiled Tianjun No. 1, a graphics processing unit (GPU) with 12-nanometre node technology. The company claimed it has “reached an internationally advanced level” and will “effectively fill the gap in the domestic market”, according to an official post on its WeChat account on Wednesday.

Tech war: record number of Chinese chip firms going out of business in sign of Beijing’s sputtering self-sufficiency drive

As many as 3,470 firms – including those that use the Chinese word for ‘chip’ in their brands or operations – deregistered between January and August

That number surpassed the 3,420 such firms that closed in 2021 and the 1,397 that went defunct in 2020

A record number of semiconductor-related Chinese corporate entities have ceased to exist in the first eight months of the year, according to the latest data from a domestic business registry service, signalling the sputtering state of the country’s chip self-sufficiency drive.

As many as 3,470 companies – including entities that use the Chinese word for “chip” in their registered names, brands or operations – deregistered in the January-to-August period, according to statistics from business database platform Qichacha. That number surpassed the 3,420 such firms that closed in 2021 and the 1,397 that went defunct in 2020.

02:55

US Senate passes Chips and Science Act to compete with China’s semiconductor industry

China’s central bank declares victory in cryptocurrency crackdown ahead of the Communist Party’s national congress

The People’s Bank of China touted its success in curbing onshore transactions of bitcoin in a WeChat post on Monday

Beijing sees cryptocurrencies and NFTs as a threat to financial stability and completely banned related activities last year

China’s central bank declared victory in cracking down transaction of virtual assets as part of the effort of maintaining financial stability on Monday, as preparations for the 20th Communist Party’s national congress enter their final stages.

The People’s Bank of China (PBOC), which regards cryptocurrencies as a potential threat to financial security and capital controls, is grappling with some of the most challenging economic conditions in the country in years, as growth has slowed to its lowest pace since the beginning of the pandemic under Beijing’s unwavering zero-Covid policy.

‘Even more dependent’: China factories remain key to global supply chain

Coronavirus-related restrictions and lockdowns have disrupted global supply chains over the last two years as many of them begin in China

The US has long pushed for a so-called decoupling from China over fears of an over-reliance, but many find it hard to move away from ‘the world’s factory’

“There is no need to think of quitting China,” fabric exporter Raymond Xie was finally able to tell his clients earlier this month.

Like other veteran Chinese exporters, Xie’s “heart was torn with anxiety” after his factory operations at the start of the year were hit by coronavirus-induced supply chain disruptions.

06:54

Is cryptocurrency too risky for China?

China makes up 84 per cent of blockchain applications worldwide, state official says, but only a fifth are approved

An official at China’s industry regulator did not give a timeline for the figure, but he touted blockchain’s advantage in service integration

The comments show Beijing’s continued commitment to blockchain technology despite a strict ban on cryptocurrencies

China has the most blockchain patent applications of any country, accounting for 84 per cent of the world’s total, a government official said, signalling Beijing’s continued commitment to the technology despite years of crackdowns and a ban on cryptocurrency.

Wang Jianwei, deputy director of the Ministry of Industry and Information Technology’s information technology development office, disclosed the figure on Tuesday without specifying the time frame. He added that blockchain “accelerates integration with the economy, services for people’s livelihoods, smart cities and administrative services”.

02:27

Cryptocurrency volatility highlighted by China’s recent crackdown and Elon Musk comments

Shenzhen aims to be China’s artificial intelligence hub with new guidelines

The Shenzhen government has passed China’s first local regulation dedicated to boosting AI development, to go into effect in November

The regulation encourages government agencies to be early AI adopters and establishes a related ethics committee to draw up safety guidelines

Shenzhen has released the country’s first-ever local regulation dedicated to boosting the development of artificial intelligence (AI), as the city steps up efforts to supercharge its hi-tech sector.

The regulation, which takes effect in November, seeks to promote the AI industry by encouraging government agencies to be the early adopters of related technologies and enhancing financial support to AI research in the city. In particular, the Shenzhen government will set up public data sharing rules and open certain types of data to businesses and institutions working in the industry.

Understand China’s leadership reshuffle with Global Impact newsletter. View all 20th party congress issues here.

Global Impact is a fortnightly curated newsletter featuring a news topic originating in China with a significant macro impact for our newsreaders around the world.