The Rise of Chinese Chips: The Dilemma of Western Chips and the Reshaping of the Global Semiconductor Industry

The Rise of Chinese Chips: The Dilemma of Western Chips and the Reshaping of the Global Semiconductor IndustryIn 2019, chips, seemingly small electronic components yet possessing immense power, became the focal point of competition. The United States, leveraging its long-accumulated technological advantage, attempted to erect an insurmountable technological barrier, barring China from the high-end chip sector

The Rise of Chinese Chips: The Dilemma of Western Chips and the Reshaping of the Global Semiconductor Industry

In 2019, chips, seemingly small electronic components yet possessing immense power, became the focal point of competition. The United States, leveraging its long-accumulated technological advantage, attempted to erect an insurmountable technological barrier, barring China from the high-end chip sector. However, now the US is left baffled: If you don't import, who will buy our chips?

With national policy support, China has unwaveringly embarked on a path of independent innovation. Countless researchers toil day and night, relentlessly pushing through one technological bottleneck after another. Their sweat and effort have watered the seeds of hope, which are steadily blossoming in the chip sector. After years of tireless work, China has made significant strides in several areas of chip development, including design, manufacturing, and packaging testing.

The Rise of Chinese Chips: From Following and Imitating to Leading with Innovation

At that time, China relied on imports for 90% of its chips. Faced with such a dire situation, the domestic scientific and industrial communities did not falter. Now, China can set its own chip standards, no longer completely dependent on foreign technology. From initial following and imitation, China is gradually building a self-reliant chip industry system, now leading with its own innovations.

The scale of the high-end chip industry is expanding, and the performance and reliability of domestic chips are steadily improving. In areas like smartphones, appliances, and automotive electronics, more and more Chinese brands are utilizing self-developed chips, reducing reliance on imported chips.

The Made in China 2025 plan outlines a goal of achieving a 70% self-sufficiency rate for chips by 2025. While this target is undeniably challenging, the confidence in achieving it is growing steadily with the rapid development of the domestic chip industry.

Central Enterprises Leading the Way: Expanding Applications for Domestic Chips

In the wave of China's technological self-reliance, central enterprises are playing a leading role, spearheading the adoption of domestic chips. Over the next five years, central enterprises plan to invest over 3 trillion yuan in equipment upgrades, a significant portion of which will be allocated to the procurement and application of domestic chips. With continued investment, the scope and scale of domestic chip applications are rapidly expanding.

Huawei HiSilicon, SMIC, and other domestic chip companies have made remarkable technological advancements, laying a solid foundation for the widespread adoption of domestic chips. In various key areas, such as navigation systems and high-precision machine tools, domestic chips have achieved breakthrough progress. The chips for the Beidou Navigation System have achieved complete independence, and control chips required for high-precision machine tools are gradually being replaced with domestic counterparts. These achievements not only enhance China's technological capability but also provide strong guarantees for national security and economic development.

Favorable Application of Chips in the Automotive Industry: Data from the first five months of 2024 shows that four central enterprises (China Electronics Technology Group, China Electronics Corporation, China Resources Group, and China Railway Rolling Stock Corporation) have performed remarkably in automotive chip sales, collectively selling 235 million chips. Simultaneously, three central automotive enterprises (FAW, Dongfeng, and Changan) have actively responded to the call for domesticization, using a combined total of 132 million domestic automotive chips. These numbers reflect the comprehensive improvements in performance, reliability, and cost of domestic chips and signal the growing confidence of the domestic automotive industry in domestic chips.

Impact of the Rise of Domestic Chips on Western Chip Suppliers

Central enterprises, the pillars of the national economy, have long been major chip buyers. In recent years, with the rise of domestic chips, central enterprises have reduced their reliance on imported chips, significantly impacting western chip suppliers. Statistics show that China has reduced imports by over 800 billion chips, with a value approaching hundreds of billions of dollars. This is not merely a matter of numbers but reflects the overall upgrade of China's technology supply chain.

The rise of domestic chips has also driven the development of the entire industrial chain. From chip design and manufacturing to packaging and testing, a complete industrial ecosystem is taking shape. Numerous small and medium-sized enterprises have found their niche within this ecosystem, injecting new vitality into the industry's diversification and innovation. Universities and research institutions have also joined this technological revolution, nurturing talent, advancing fundamental research, and laying a foundation for the sustainable development of the industry.

The decision of central enterprises to use domestically produced chips is not just a commercial choice but a strategic move, reflecting China's determination to achieve self-reliance in key technologies. By reducing reliance on imported chips, China not only enhances the security of its industrial chain but also elevates its standing in international technological competition.

The Dilemma of Western Chips: Oversupply and Market Contraction

The development of domestically produced chips is reshaping the global semiconductor industry landscape. Western chip suppliers are facing pressure from shrinking market share and are forced to re-evaluate their global strategies. Western chip giants, once dominant players, are now facing serious challenges. Intel, a leader in the semiconductor industry, recently reported a decline in revenue, with the most shocking news being a transition to net losses. Qualcomm, similarly caught in a predicament, has lost orders from its significant customer Huawei, resulting in an annual revenue loss of approximately $560 million. These figures reflect the deep-rooted problems facing the Western chip industry.

Western-produced chips are facing an obstructed sales path. India, a rising market, was once held with high hopes, but the reality is that India is unable to absorb the excess capacity of Western chips. Ironically, India itself is actively promoting the development of its domestic chip industry, which will undoubtedly further squeeze the market space for Western chips.

Oversupply and market contraction have become dual challenges that Western chip manufacturers must confront. A significant inventory of existing chips cannot be sold smoothly and is accumulating in warehouses. Looking ahead, these manufacturers are perplexed about whether to expand high-end chip production. Expanding production capacity requires massive investments, which could ultimately lead to an inability to absorb the resulting output, placing enormous financial pressure on companies.

Hegemony Has No Way Out: America Faces Multiple Challenges

As the global chip industry landscape undergoes a dramatic transformation, the United States, the leader of the Western world, is also experiencing challenges on multiple fronts. Its long-established hegemonic position is waning, and its international reputation is declining. The United States, once considered a "beacon of hope," is now witnessing a weakening of its influence on the international stage.

The outbreak of the Ukraine war has further exacerbated America's economic difficulties. Continuous military spending and aid to Ukraine have added to the already burdensome US economy. Inflation rates remain stubbornly high, and the cost of living for ordinary citizens continues to rise, but the government seems unable to provide effective solutions.

Accumulated domestic social issues continue to strain the US government. Problems such as racial tensions, gun violence, and drug abuse have persisted for a long time, without any effective resolution. These issues not only affect social stability but also consume vast social resources.

Global cooperation is gradually becoming the dominant trend, and the US, long accustomed to maintaining a hegemonic position, is facing unprecedented challenges. This unipolar world order no longer aligns with the needs of the present world.

Conclusion

With the rise of emerging countries and the redistribution of power globally, a more diversified and balanced international order is taking shape. In this new era, mutual benefit, win-win cooperation, and shared development will become the main theme of international relations. The United States needs to re-examine its role and adapt to this changing world. Otherwise, it will be left behind by the tide of time.

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