With each day that passes, it becomes clearer that the Chinese are making a push to dominate the world’s semiconductor industry. Semiconductors are the brains of computers and so many other devices that we rely on every day, so these chips are vital in determining who wins and who loses in the global economy.
The Chinese have a very clear strategy. On the one hand, they are putting the screws to Qualcomm, the leading designer of semiconductors for hand-held devices. Qualcomm, based in San Diego, has made a huge amount of money in China because Chinese phones are based on its chips. But the Chinese government has leaned on Qualcomm, first by fining it $975 million for violating an anti-monopoly law and forcing it to reduce the licensing fees it charges Chinese smartphone makers for its chips. Now according to the New York Times, the Chinese are essentially forcing Qualcomm into a joint venture with Semiconductor Manufacturing International Corporation, or SMIC, which is China’s largest maker of chips. The goal of this new project is for Qualcomm to help SMIC learn how to make even more advanced chips. Qualcomm may be smart enough to play the game without giving away any of its trade secrets but it is a high-risk game. The Chinese could learn enough to compete directly against Qualcomm and other U.S. semiconductor makers.
At the same time, the government of Xi Jinping is stepping up its support of domestic chip production to lessen its dependence on foreigners. It plans to invest as much as $161 billion over 10 years to develop chips, about as much as Intel spends per decade on facilities and R&D, according to Bloomberg Business Week.
So here we have an example of a state-run strategy, supported at the very highest levels of the government, to create an indigenous Chinese semiconductor industry that will compete against American companies and American scientists and workers.
Will we respond? When we feared Japanese inroads in the late 1980s, the Bush Administration created Sematech, in Austin, Texas, to act as a government-industry consortium to foster new research. It worked. The Japanese were beaten back in that field. Now Sematech is in Albany, New York, and is concentrating on nanotechnology, which is important in driving down the size of circuits on semiconductors. But is it enough? Is there an American strategy to respond to the Chinese challenge? I suspect the answer is, “not really.” We don’t believe in government-industry cooperation. That’s called picking winners and losers or else it’s called “industrial policy.”
I believe we have to adapt our thinking in response to the emergence of clear state-led Chinese initiatives. Our precious philosophies from the 1930s need to be updated and brought into the 21st century.
