Home / Tech / News / Will a new Chip Czar guarantee China's success? It’s a moon shot

Will a new Chip Czar guarantee China's success? It’s a moon shot

Chinese Vice Premier Liu He has headed China’s technology reform since at least 2018 while his position within leader Xi Jinping’s inner circle — he has been chief negotiator in US-China trade talks — ensures his recommendations get heard.
Chinese Vice Premier Liu He has headed China’s technology reform since at least 2018 while his position within leader Xi Jinping’s inner circle — he has been chief negotiator in US-China trade talks — ensures his recommendations get heard. (REUTERS)

Vice Premier Liu He is an obvious and worthy choice to spearhead the development of future semiconductor technologies. The leapfrog strategy has merit, but history does Beijing no favors when it comes to semiconductor advancement.

China’s decision to anoint a chip czar is the latest step to advance its semiconductor industry. It won’t be a magic solution for all the challenges the nation faces in catching up to the US, Taiwan, and South Korea.

Vice Premier Liu He is an obvious and worthy choice to spearhead the development of future semiconductor technologies. He’s headed China’s technology reform since at least 2018 while his position within leader Xi Jinping’s inner circle — he has been chief negotiator in US-China trade talks — ensures his recommendations get heard.

Liu is not an engineer. The Harvard-educated career bureaucrat is more of an expert in economics and industrial policy. These aren’t terrible skills to have, but it means the 69-year old will have to rely on experts when it comes to decisions in his remit: semiconductor materials, equipment and processes. Having acute judgment as to where he should guide financial and human resources will make all the difference.

Beijing’s track record on chips, so far, doesn’t inspire confidence. Having set a goal in 2015 of sourcing 70% of its needs locally by 2025, the nation has managed to raise it from 10% to a mere 16%, and likely will struggle to hit 20% by that deadline. Semiconductor Manufacturing International Corp., the nation’s flagbearer in manufacturing, is still around six years behind global leaders Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics Corp. And those rivals aren’t sitting still. TSMC is set to invest $100 billion over the next three years to extend its outright dominance, while Samsung and Intel Corp. have announced bold spending plans to keep up.

SMIC can barely squeeze a dime out of its $9 billion worth of property and equipment. In fact, over the past three years, it made as much money from interest as it did from producing chips. 

Since 2014, China has invested a total of $51 billion into two separate national funds to help its domestic semiconductor players catch-up to overseas rivals. But instead of building towering chip giants, these policies have dug great money pits, including Tsinghua Unigroup Co., the commercial arm of the famous university of the same name and alma mater of Xi himself. The company has been burning through cash and sits on piles of debt to the point that bondholders ought to feel happy to recover 31% of their money.

The poor financial performance of SMIC and Unigroup indicates there’s a very thin local market for the technology and factories China has sunk all its money into. Beijing may try to push, prod, or compel the nation’s leading companies to buy from these also-rans. That’s worked to some extent to encourage sectors such as autos or aerospace. But Huawei Technologies Co., Lenovo Group Ltd., Alibaba Group Holding Ltd., and their ilk are more likely to be held back by buying the current range of Chinese chips, which are far from state of the art. And that kind of consumption isn’t likely to spur the semiconductor industry to advance into world-beater status.

That’s not to say Liu’s plight is hopeless. Rather than merely catch-up, his chip strategy will be to explore areas rivals have yet to master in the hope that China can colonize these technologies before anyone has a foothold. It’s the kind of moonshot approach that the People’s Republic already practices. China last week released the first images taken on Mars as part of its Tianwen-1 interplanetary mission. That success, according to Beijing-based consultancy Trivium, “validates the focus on pursuing leapfrog development”: focusing on next-generation technologies where no country has a clear advantage.

Beijing is right to trumpet this success in space, and the results ought to boost morale within its struggling chip sector. There’s no evidence yet that this leapfrog strategy can translate into semiconductors. But with a vice-premier at the microchip helm, China is leaving itself no more excuses to fail.

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