Despite U.S. sanctions, China is building up its chipmaking capabilities at breakneck speed by importing manufacturing equipment at a record pace. “China’s imports of semiconductor equipment have surged to record highs,” the UK daily Financial Times reported Friday as China increases naval and military buildup around Taiwan.
Beijing is upgrading its chip manufacturing capabilities as it restricts the U.S. from procuring raw material needed for cutting-edge microchips. Last month, China banned the export of critical minerals used in high-performance chips, particularly those needed in the production of defense systems. “China set export restrictions on two minerals the U.S. says are critical to the production of semiconductors, missile systems and solar cells,” The Wall Street Journal reported July 4.
The Financial Times reported:
China’s imports of semiconductor equipment have surged to record highs ahead of the implementation of export curbs by US allies.Chinese customs data shows the country’s chip production tool imports in June and July totalled nearly $5bn, up 70 per cent from $2.9bn in the same period last year.Most of the imports came from the Netherlands and Japan, two countries that have imposed export restrictions on chipmaking equipment as they work with the US to slow China’s technological advancement. (…)While it is not clear how much of the increase in imports relates to tools that will be covered by restrictions, the purchases suggest China wants to avoid any disruption to its plans to expand chip production.
China is also building up its military with the aim of annexing Taiwan, by far the world’s biggest chipmaker. As UK weekly The Economist notes, “Taiwan produces over 60% of the world’s semiconductors and over 90% of the most advanced ones.” Most of this high-end manufacturing is done by a single company, the Taiwan Semiconductor Manufacturing Corporation (TSMC).
A Ukraine-style invasion of Taiwan could disrupt the U.S. economy and military, which heavily depends on the import of chip components from the island nation. In today’s digital economy, chips are key building blocks of almost all devices. High-end chips power a wide-range of military systems in modern-day warfare, including battlefield communications, air defense, missiles, artillery systems, and aircraft.
The Chinese move is part of a bigger strategy to insulate its chipmaking sector and close the technology gap with the U.S., which Beijing seeks to surpass as the world’s foremost economic and military power. While the U.S, semiconductor supply chain remains scattered across Asia and Europe, China is working on a plan make itself self-sufficient in the sector.
DC-based policy journal The Diplomat reported in September 2020:
China has enhanced its drive to build up a domestic semiconductor capacity in recent years, most notably through its “Made in China 2025” policy together with steps more specifically targeted at the semiconductor industry, such as Guidelines to Promote National Integrated Circuit Industry, often referred to as the National Integrated Circuit Plan. Broad goals for the semiconductor sector include producing 70 percent of domestic needs within China by 2025, and reaching parity with international leading edge technology in all segments of the industry by 2030.
President Donald Trump understood the U.S.’s vulnerability in the semiconductor sector. Despite criticism from the mainstream media, he made it front and center of his China policy. The Australian think tank Lowy Institute noted in a 2021 paper:
Export control policy in the semiconductor sector – an industry that supplies the world’s computer, smartphone, appliances and medical equipment industry with electronic chips – was at the forefront of Donald Trump’s tech war against China. The addition of China’s top chipmakers, such as Huawei and the Semiconductor Manufacturing International Corporation (SMIC), to the US Department of Commerce’s “entity list” between 2019 and 2020 brought an abrupt stop to the two countries’ technological cooperation.
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