Explainer | China’s hi-tech self-sufficiency quest faces 3 barriers – but 1 potential huge pay-off
- China wants to boost its tech self-reliance, while the United States and its Western allies are blocking Chinese firms from accessing advanced chips
- The US, Japan and the Netherlands have banned advanced chip-making equipment sales to China
China wants to develop the world’s most advanced technology on its own as Western countries step up legal blockades aimed at cutting it out of the world technology trade.
Beijing has unveiled a wide range of policies to boost tech self-reliance over the past decade, providing state funding to keep pace with the United States.
The US and its Western allies are blocking Chinese firms from accessing advanced chips, which would choke Beijing’s efforts to develop semiconductor and artificial intelligence (AI). They are also banning Chinese telecoms companies from entering their 5G markets.
But to reach self-sufficiency, China must overcome three big barriers, analysts said, which will lead to one big pay-off if they can.
1. Lack of investment
Curbs on hi-tech investments both within and outside China will probably limit the “kind of information sharing that is crucial to the rapid development of hi-tech manufacturing sectors”, Moody’s Investors Research said in mid-July.
A limited Chinese presence overseas will reduce any odds of China having a voice in global tech standards, they added.
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The whole process, it said, could lead to “funding shortfalls”.
Reaching mass production with a high yield rate will require “significant time, manpower, and capital investment”, the Australia-China Relations Institute at the University of Technology Sydney found in a June study.
And that scenario hinges on China even having the necessary equipment, the institute added.
2. Less know-how compared to Western allies
To level up, China will need continued access to foreign capital, markets and expertise, the Heritage Foundation think tank said in March.
Even if China succeeds in creating an advanced AI chip-design firm, Chinese foundries cannot fabricate the chips without advanced foreign equipment and chemicals
“Even if China succeeds in creating an advanced AI chip-design firm, Chinese foundries cannot fabricate the chips without advanced foreign equipment and chemicals,” the Centre for Strategic and International Studies said in a March study.
Development of semiconductors, robotics and jet engines for the aviation industry depend “heavily on imported technical know-how and core technologies”, Moody’s Investors Service said.
And the controls by Japan, the Netherlands and the US “present major obstacles”, it added.
3. Inefficiencies in China’s state sector
Decisions in China to invest in the hi-tech sector through state-owned enterprises are “likely to lead to resources misallocation and overcapacity issues”, Moody’s Investors Service said.
US tech curbs on China to ‘travel towards tightening’ despite pleas for calm
The government has already provided subsidies and opened investment funds to pursue self-sufficiency.
But Moody’s said Chinese companies may become annoyed at China’s “generally unpredictable policy environment”, while private firms might hesitate to make investments.
And 1 pay-off: companies will thrive if China reaches self-sufficiency
A boost in the number of domestic suppliers could protect the domestic tech industry from any impact of geopolitical tensions and “lead to a more sustainable economic growth model”, Moody’s Investors Service said.
“Given that China now imports more semiconductors than it does oil in value, reducing its dependence on imports would have a significant economic impact,” it said.
“If successfully executed, [self-sufficiency] could create huge market opportunities throughout the value chain for Chinese companies.”
