context: The Biden administration effectively cut off the supply of chips and the technology for manufacturing them in 2022. The decision penalises third nations who might otherwise compete as suppliers in the PRC market. The US block on supply is widely publicised as a seriously damaging, if not fatal, blow to Beijing's drive to world-leading technological standing, with long-range implications for its national rejuvenation under General Secretary Xi. This author offers solutions
Lu Feng 路风, economics professor at Peking University (not to be confused with another professor Lu Feng 卢峰), stresses that while the US has a strong technological advantage in the semiconductor industry, China is the largest consumer market for semiconductor products.
- Lu suggests applying Michael Porter's five-force theory model, with a focus on the power of buyers (demand) in the market
- while the US may be able to suppress PRC tech firms in the short term, it will also hurt their own firms in the long term, as the PRC market is a major source of revenue for US tech firms
- Beijing should be aware of the US's intention to decouple from China and take appropriate measures to mitigate the impact of its actions
Beijing should build an industrial foundation for ICs by focusing on independent manufacturing. This would involve
- de-Americanising the production line and replacing all foreign equipment and materials with domestic ones
- starting with fully independent manufacturing at 28 nanometers and gradually building up to more advanced processes
- form an independent industrial base with interaction between the different links of the industry chain, bolstering the industrial foundation of PRC ICs
Take capacity development as a strategic goal rather than solely focusing on technical indicators
- achieve full self-manufacturing in order to build an industrial foundation for IC
- PRC firms in the industrial chain could form supply and demand connections with each other, allowing domestic tech to be applied
- this would make China's IC industry able to withstand US suppression
- effectively denying US tech firms access to PRC demand that has supported their development
- mainly relying on the power of market competition to promote the development of the industry
Lu also states that China has not yet made up its mind on policy, possibly due to a lack of comprehensive strategy or implementation capacity.