China's Domestic Microchip Plans

China's Domestic Microchip Plans

over 3 years ago2 mins

China’s been cooking up new plans to develop its domestic microchip industry and throw away all those unappetizing foreign imports 🇨🇳

What does this mean?

Microchips – otherwise known as semiconductors – are the fundamental building blocks of countless technologies, from smartphones to electric vehicles. And China – which uses more than 60% of the world’s supply – relies heavily on foreign imports to meet its needs. That’s what makes the increased restrictions America is imposing on China all the more problematic. Just this month, for example, the US will ban shipments of virtually all homegrown semiconductors to Huawei, one of China’s biggest technology companies.

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Knowing it can’t depend on Stateside suppliers anymore, China’s trying to bolster its domestic capabilities by increasing research and financing for the industry 💴 It’s all part of the country’s fourteenth consecutive 5-year economic plan, and comes on top of an existing $1.4 trillion pledge to support tech ventures – like artificial intelligence and 5G wireless networks – through 2025.

Why should I care?

Major Chinese chipmakers welcomed the news, with several of their share prices rising between 10 and 15%. As for international chipmakers, their stocks didn’t move much more than the overall market. But it might only be a matter of time: China spends $300 billion every year on foreign chips – more than it spends on oil imports 🛢 – and could single-handedly leave quite the dent in those firms' revenues.

Source: Bloomberg
Source: Bloomberg

A disruption to the flow of technology between China and the US isn’t necessarily in the former’s best interests: a decoupling of the world’s two biggest economies would, according to a study by Bloomberg, cut China’s growth rate to 3.5% in 2030, compared to 4.5% if things remain broadly unchanged ✂️ And if the US convinces key allies to steer clear of China as well, that drop could look even steeper…

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