China Begins Battle for Chip Independence in Dead Earnest – Political Observer

Beijing has signaled that it won't give up its "Made in China 2025" plan in the face of US pressure in the high-tech sphere, Sputnik political observer Dmitry Kosyrev said, shedding light on how the Chinese are going to overcome the threat of US sanctions.

Beijing must prevail in three battles, namely, against pollution, poverty and US trade restrictions, Sputnik political observer Dmitry Kosyrev points out, referring to Chinese President Xi Jinping's remarks during his inspection tour in China's central Hubei Province.

Xi highlighted that the Chinese should "maintain the new development philosophy, pursue progress while ensuring stability, focus on winning the three tough battles, and solve the problem of unbalanced and inadequate development."

While Beijing is quite efficiently solving the problems of air pollution and poverty, the recent tariff war unleashed on China by Washington poses a greater challenge for the country's development, according to the observer.

"It seems that [China's] leadership did not expect that the US will ban exports of its chips to China," Kosyrev noted. "After all, this is a blow to American manufacturers, which amounts to $230 billion per year. Who would have thought that Donald Trump will not feel sorry for owners and employees of corporations located in California, where these chips are being produced?"

On April 19, Heath Tarbert, assistant Treasury secretary for international markets and investment policy, announced that the Trump administration wants to invoke the International Emergency Economic Powers Act (IEEPA) to prohibit the Chinese from purchasing US high-tech companies. Simultaneously, the US Congress was mulling over the expansion of the Committee on Foreign Investment's (CFIUS) authorities to limit American partnerships with Chinese companies abroad to prevent the transfer of advanced technologies to China. Since March, the White House has been waging nothing short of a trade war with Beijing, threatening the Middle Kingdom to impose higher tariffs on $150 billion of Chinese imports. Beijing has adopted a series of tit-for-tat measures in response.

Earlier, on April 16, the US government banned the Chinese ZTE telecom corporation from purchasing American chips, punishing it for shipping equipment to Iran in violation of sanctions. According to The Economist, four-fifths of ZTE's products contain American parts, including the company's smartphones.

On May 3, the US delegation led by Treasury Secretary Steve Mnuchin arrived in China to discuss the ongoing trade frictions. However, according to Bloomberg, the Chinese made it clear that their technological development plan is not on the table. While the US is seeking to curtail China's rise, described in its "Made in China 2025" initiative, Beijing is signaling that it won't give its plan up.

"The more pressure the US puts on China, the more urgently the country has to develop its own high-tech products to reduce reliance on the US," Xu Jianwei, a senior economist for Greater China at Natixis SA in Hong Kong, told the media outlet.

Kosyrev underscored that now "the battle for chip independence has begun in dead earnest."

"Actually, almost Xi's entire trip was devoted to this topic. In particular, he delivered a speech in Wuhan, where the Chinese produce their own chips and the world's largest fiber company is located," he noted. "The head of state said the following: independence in key innovation technologies is a matter of survival. The country needs an opportunity to dominate in industrial development."

Kosyrev noted that in fact China has to master new manufacturing processes in various industries. However, according to the political observer, Beijing is not going to start from the scratch — it has enough specialists working in California's Silicon Valley.

"Making semiconductors is very complicated, involving more than 50 industries and 2,000 to 5,000 processes," The Global Times noted. "[However], China can learn more advanced technologies from more countries, such as the US, Japan and Israel. We can also exchange ideas with countries that are interested in chip technology to add Chinese characteristics to chip products."

The media outlet suggested that Chinese manufacturers should "observe the development cycle of the global chip industry objectively to find a strategy that meets the needs of the nation and the world economy."

The views expressed in this article are solely those of the contributor and do not necessarily reflect the official position of Sputnik.