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Perspectives

Advisor insights: Doing business in China

Views from Kenneth DeWoskin on Chinese market conditions, M&A, and more

From policy updates to cross-border M&A, US Chinese Services Group senior advisor Kenneth DeWoskin explores the key topics affecting organizations doing business in China and the unique dynamics of Chinese markets.

China: The outsize role of microdevices in the macro picture

Semiconductors are switches, they can also be on or off, and that is the essence of all digital systems. That meager description belies the fact that semiconductors are the absolutely critical heart of all current technology competition between countries and companies; in wired and wireless connectivity; consumer and industrial electronics; media and communication; land, sea, and air mobility devices; financial services and virtual currencies; military equipment; life sciences and health care; manufacturing 4.0; and data management. As one recent study wrote, “...the impact that semiconductors are having on world development exceeds that of the Industrial Revolution.”1

The first practical semiconductor was invented at Bell Labs in 1948. Ten years later, the field effect transistor (FET) and the integrated circuit were invented, the latter enabling a massive numbers of FETs to be “printed” in a small space. The use of the FET has become so ubiquitous that it is the most manufactured device in history. A recent estimate put the number of FETs manufactured since their invention at 13 sextillion (a sextillion is 1 followed by 21 zeroes).2

Semiconductors are at the core of intensifying global technology competition, and as such, control of semiconductor technology is front and center in the trade frictions between the United States and China. They are also a technology that has historically been accelerated by government and private-sector partnerships, not just in China, but in the United States, Japan, and Europe as well. The world-pacing level of semiconductor technology in the United States has been forged by six decades of effort by NASA, research universities, and countless private companies.

The technology competition that may determine the future wealth of nations is focused on increasing the density, speed, efficiency, reliability, and power consumption of semiconductor circuitry, embodied in integrated circuits and critical for 5G, artificial intelligence, new manufacturing, and virtually all advanced technologies.

That has placed semiconductor technology at the very heart of policies being forged to accelerate innovation and control intellectual property related to design and manufacture. This has been demonstrated repeatedly, most recently in a set of unique licensing requirements that the United States has imposed on the sale of key tools to China’s largest group of semiconductor fabricators—tools essential to advancing their capability to create leading-edge technology.3  As the media has reported, this constriction has been put in place in spite of a global shortage in semiconductor supply, underscoring how critical and urgent regulators consider it to be in shaping future competition.

China: The outsize role of microdevices in the macro picture

Endnotes

1 https://foreignpolicy-com.proxy.lib.umich.edu/2021/02/16/semiconductors-us-china-taiwan-technology-innovation-competition/?utm_source=PostUp&utm_medium=email&utm_campaign=30797&utm_term=China%20Brief%20OC&?tpcc=30797.
David Laws, “13 Sextillion & Counting: The Long & Winding Road to the Most Frequently Manufactured Human Artifact in History,” Computer History Museum, April 2, 2018, accessed May 5, 2020.
3 https://www.reuters.com/article/us-usa-china-smic-exclusive/exclusive-amid-shortage-u-s-suppliers-to-chinese-chip-giant-smic-struggle-to-get-export-licenses-idUSKBN2AW18B.
4 https://www.brookings.edu/techstream/lagging-but-motivated-the-state-of-chinas-semiconductor-industry.
5 https://www.mckinsey.com/industries/semiconductors/our-insights/semiconductors-in-china-brave-new-world-or-same-old-story.
6 https://foreignpolicy.com/2020/12/14/china-technology-sanctions-huawei-chips-semiconductors.
7 https://ictsd.iisd.org/bridges-news/bridges/news/us-announces-breakthrough-with-china-on-ita-talks.
8 The European Commission, The Expansion of the Information Technology Agreement: An Economic Assessment, 2016.
9 https://daxueconsulting.com/chinas-semiconductor-industry; https://www.globaltimes.cn/content/1198937.shtml.
10 https://www.csis.org/analysis/chinas-pursuit-semiconductor-independence; People’s Daily, “Core technology depends on one’s own efforts: President Xi,” April 19, 2018, http://en.people.cn/n3/2018/0419/c90000-9451186.html.
11 https://www.wsj.com/articles/chinas-next-target-u-s-microchip-hegemony-1501168303.
12 https://foreignpolicy.com/2020/12/14/china-technology-sanctions-huawei-chips-semiconductors.
13 https://www.globaltimes.cn/content/1195331.shtml.
14 https://www.brookings.edu/techstream/lagging-but-motivated-the-state-of-chinas-semiconductor-industry.
15 https://foreignpolicy.com/2020/12/14/china-technology-sanctions-huawei-chips-semiconductors.
16 Silvia Lindtner, Prototype Nations: China and the Contested Promise of Innovation, Princeton (2020).
17 Luo Guoping, Liu Peilin and Anniek Bao, “Beijing to Inexperienced Companies: Stay Out of
Chipmaking,” Caixin, October 21, 2020.
18 https://foreignpolicy.com/2020/12/14/china-technology-sanctions-huawei-chips-semiconductors.
19 https://foreignpolicy-com.proxy.lib.umich.edu/2021/02/16/semiconductors-us-china-taiwan-technology-innovation-competition/?utm_source=PostUp&utm_medium=email&utm_campaign=30797&utm_term=China%20Brief%20OC&?tpcc=30797.
20 https://www.bloomberg.com/news/newsletters/2020-10-24/bloomberg-new-economy-semiconductors-are-china-s-choke-point.
21 https://www.ft.com/content/e264fd41-7ee9-4fba-be3c-21446298efd9.
22 https://www.reuters.com/article/us-autos-tech-chips-focus/trumps-china-tech-war-backfires-on-automakers-as-chips-run-short-idUSKBN29K0GA.
23 https://www.institutmontaigne.org/en/publications/weak-links-chinas-drive-semiconductors?&extc=5X5ZbC4.
24 https://www.brookings.edu/research/us-china-relations-in-the-age-of-artificial-intelligence.
25 Eric Schmidt et al., “Asymmetric Competition: A Strategy for China & Technology,” Actionable Insights for American Leadership, China Strategy Group, fall 2020.
26 https://www.reuters.com/article/us-usa-semiconductors/automakers-medical-device-firms-ask-biden-for-u-s-chip-factory-subsidies-idUSKBN2AI153?il=0.

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