USA vs. China – The unproductive edges.

The first battle is lost but the war has just begun.

• China is having a very hard time in its struggle to become technologically independent but in the long run, it is in a far stronger position than many give it credit for.
• Deep down I am pretty sure that China knows that in CMOS semiconductor manufacturing the battle is lost, but that it is not stopping it from making a big effort to do what it can.
• To this end, China has appointed Liu He, a high-ranking CCP member who has had a hand in shaping the economy, to work out ways of becoming independent from US technology.
• This is a very difficult task and as a result, the focus appears to be on doing what it can around the periphery of the main event in semiconductors which is CMOS manufacturing.
• CMOS is the mainstream where one finds scale and cost reduction but there are other types of chemical substrates from which specialised semiconductors are made that have very specific uses.
• These include substrates like gallium arsenide, gallium nitride and so on which do not require cutting-edge semiconductor equipment to manufacture as it is the specific properties of the substrate from which they are made which gives them their value.
• Hence, this is a viable area for the Chinese to seek independence as the current sanctions that have been placed on its technology industry do not currently block this part of the industry.
• The problem is that this is only a small part of the industry and the real action in terms of supporting technological development lies in CMOS manufacturing at the leading edge.
• This is why China is also attempting to replicate ASML’s extreme ultraviolet (EUV) lithography machines (crucial for cutting edge semiconductor manufacturing) but I think that it has no chance whatsoever of coming close to what ASML can do.
• This is because at a 5nm line width (7nm Intel), the precision with which one has to manufacture the machine that prints these lines beggars belief.
• One of the areas where China has had and continues to have great difficulty is in precision manufacturing and even today, Chinese factory owners will bemoan the fact that if they need precision machines, they have to import them.
• Consequently, I think China has no chance of catching up in semiconductor lithography meaning that the battle against the US in CMOS manufacturing is lost.
• However, there is much more to this technology war than just semiconductors because at some point, silicon will need to give way to something else and when this happens, all of China’s disadvantages will drop away.
• This is because, in other areas such as AI, autonomous driving, and quantum computing, it is a completely different story.
• I think that this due to the fact that the Chinese were in a position to begin development of these technologies at the same time as everyone else meaning that they have been competing on a level playing field.
• Hence, it comes as no surprise that in these technologies, the Chinese are demonstrably as good as their US counterparts and in some areas of AI, better.
• It is here that the real battle will be fought which is why I suspect that despite the rhetoric, most of China’s efforts will be in this direction.
• The net result is likely to be a return to dual standards where those in the middle will be forced to adopt one or the other.
• This will lead to a fragmentation of the Internet as a digital wall is built with the USA and probably Europe on one side and China and some emerging market countries on the other.
• The net result is that the opportunity for everyone will be much lower as the economics of networks clearly work best when all devices and systems can communicate with each other.
• The first battle in the technology war may be lost for China but the real fight is only just beginning.