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As Chinese Semiconductor Companies Look To Raise Money, What Does It Mean For The Chip War?

As Chinese Semiconductor Companies Look To Raise Money, What Does It Mean For The Chip War?

As Chinese Semiconductor Companies Look To Raise Money, What Does It Mean For The Chip War?

Chinese chipmaker Horizon is seeking to raise $700 million through C round funding after the five-year-old unicorn received $150 million in round A. The news comes at a time as China tries to become self-reliant and independent from western chipmakers because of the US’s various sanctions that have limited the supply of chips into the country. 

Emerging technologies play a critical role in modern-day geopolitics and whoever has resources to build these technologies, including the processing chips, are at an advantage over others. Thus, controlling the chip market in the 21st century might prove to be as crucial as controlling oil in the 20th century. 

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The article tries to analyse the geopolitical implications of the ‘chip war’ between the US and China and what would the effort made by Chinese semiconductor companies to raise money for advanced chipmaking mean for the overall situation. 

The US Is Trying To Stop Tech Advances By China

Until now, the US has had a monopoly over the chip market, and this gives it a tremendous geopolitical advantage over others. Even though manufacturing was done in different countries, intelligence and key components have been coming from the US.

In recent times, the US has used this to its advantage by declaring sanctions to limit the number of processing chips its rivals can have access to so that it can control their technological progress. 

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The ‘chip war’ resulting from this has seen the US ban Taiwan Semiconductor Manufacturing Company (TSMC) and other chipmakers from supplying China with any chip that uses American equipment. Last week, the US banned the state-owned Semiconductor Manufacturing International Corporation (SMIC) in Beijing from US suppliers’ buying critical components by mandating US exporters to apply for a license. 

These developments have put tremendous pressure on China and mainly Huawei, the Chinese smartphone company, whose production has been hampered as they are running out of processor chips to build their phones. This has become a pivotal issue in the geopolitical standoff between Washington and Beijing. 

These moves by the US are in line with other initiatives like its participation in the D10 – an alliance of ten democracies formed explicitly to explore alternatives to the 5G technology developed by Huawei. The US Department of Commerce has said that it is willing to give exporters licenses to any product that will not be used for Huawei’s 5G.

Thus, it appears that the US is determined to thwart any effort made by China or Chinese companies to develop advanced technologies. This helps them gain a better geopolitical advantage while forming tech-related alliances with other democracies. 

China’s Impetus To Grow

While the US and Western democracies resist China’s tech advances, the effort by Horizon and other semiconductor companies in China to raise funding is indicative of its intention to fight back. If it has to gain an actual geopolitical advantage, China needs to play a more relevant role than be a low-cost factory for chip manufacturing. In the past, China has proven that they can do it. 

“Right now, the Chinese chip industry is where the Chinese software industry was a decade ago,” said Abishur Prakash, geopolitical futurist in conversation with Analytics India Magazine. 

“At that time, nobody imagined Chinese software emerging and rivalling what the US had to offer. In the same light, as the US cuts off China from chips, Beijing is doubling down on building its domestic chipmaking capabilities,” he added.

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Even if the US is making a lot of tech allies and playing offensive, China is not likely to bog down. While only 16% of computer chips used in 2019 in China were produced domestically, China has a plan to ensure this number is 70% by 2025. Last month, FT even reported on Huawei’s plan to set up its own chip plant to get around the US sanctions. 

Hence, it might take time, but China has the power and the will to unshackle itself from Western dependency and create its own market. “Until then, the chip wars are really about the US stopping China’s rise with tech, and on the other hand, China trying to challenge US dominance through tech,” said Prakash.

Wrapping Up

While the chip manufacturing trade sanctions were put by Donald Trump, there are various speculations on how president-elect Joe Biden will deal with China. Experts think that Biden might go softer on China, but the tensions over technology likely won’t go away.

With the participation of the US in the likes of D10 and Global Partnership in Artificial Intelligence (GPAI), and the revival of the Quad using various tech and information sharing alliances, all of which exclude China, the US has taken a direction of creating a narrative of democratic alliances to counter China’s influence. 

A targeted approach with American allies, with the narrower aim of keeping the most advanced technology out of China’s hands, could follow. But this is much more complex than it appears. While allies like Taiwan sided with the US (for now) after TSMC and chip firms were banned from supplying China, South Korea deemed the move ‘unacceptable’ owing to the profits it makes from the sales and the help it gets from China to keep North Korea in check.

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