More than a decade into Beijing’s push for
self sufficiency, Chinese firms are producing fewer, lower-performing
chips than their foreign competitors.
·
A.I.
Boom, Chip Shortage:
o Chinese A.I. leaders from Tencent, Alibaba, and Zhipu AI
expressed optimism about global competitiveness.
o However, lack of sufficient
high-performance semiconductors remains a major constraint.
·
Lag
in Advanced Chip Production:
o Chinese firms produce only a small
fraction of the advanced chips made by foreign competitors.
o Huawei may need nearly two more years to match
current offerings from Nvidia.
o China is expected to produce only about 2%
as many advanced A.I. chips as foreign firms this year.
·
Impact
of U.S. Export Controls:
o Multiple U.S. administrations
imposed export restrictions to limit China’s access to advanced chips
and chipmaking tools.
o The Dutch company ASML has been barred from selling its most
advanced lithography machines to China.
o Restrictions aim to curb China’s economic
and military technological advancement.
·
Heavy
State Investment:
o China has spent over $150 billion in the
past decade to build a self-sufficient semiconductor supply chain.
o Major firms, including Huawei and Alibaba,
launched chip design operations.
o Dozens of fabrication plants are under
construction.
·
Memory
Chip Gap:
o Production gap is especially severe in
memory chips essential for A.I. computations.
o South Korean firms Samsung Electronics and SK Hynix dominate this sector.
o Taiwan Semiconductor Manufacturing
Company leads
globally in advanced chip production.
o Foreign companies will produce roughly 70
times more memory capacity than Chinese firms this year.
·
Policy
Origins and Strategic Shift:
o In 2014, China imported 90% of its
semiconductors.
o Following U.S. actions against firms like ZTE and Huawei, Beijing accelerated its
self-reliance strategy.
o The State Council set a goal to localize
the entire semiconductor supply chain by 2030.
·
Huawei’s
Central Role:
o Pivoted from telecom infrastructure toward
chips and A.I. hardware.
o Developed chips comparable to some older
Nvidia models, though earlier versions relied on foreign manufacturing inputs.
·
Domestic
Workarounds:
o China is building “intelligent computing
clusters” (state-backed data centers).
o Companies link multiple lower-performance
chips to approximate advanced processing power.
o Domestic champion Semiconductor Manufacturing International
Corporation
struggles with production volume and defect rates.
·
Cloud
Dependence and Financial Strain:
o Firms rely on cloud providers like Alibaba
and Amazon for remote access to advanced computing.
o Start-ups such as Zhipu
and Minimax are spending heavily on cloud services, often exceeding revenue.
·
Overall
Outlook:
o China has made notable progress in chip
design and ecosystem development.
o Yet, without access to advanced
manufacturing tools and sufficient production scale, a significant performance
and volume gap with global leaders remains.
o The push for semiconductor
self-sufficiency continues, but achieving parity in advanced chips will take
time and sustained investment.
At
a conference at Tsinghua University in Beijing in January, a group of the most influential
executives and founders working in artificial intelligence in China gathered to
discuss the state of their industry. The mood was bullish. One of the companies
in the room, which included people from Tencent, Alibaba and Zhipu AI, could soon lead the world, they agreed.
But
one thing was holding them back: They needed more superfast semiconductors.
This
year, Chinese chip makers are likely to produce a small fraction of the number of
advanced chips made by foreign firms. Huawei, the telecommunications and electronics
company leading China’s chip charge, has said it will need almost another two years
to make chips that can perform as well as the current offerings from Nvidia of Silicon
Valley.
“Even
the national champion is fighting an uphill battle,” said Xiaomeng Lu, a director
with Eurasia Group, a political consultancy and research group in Washington.
Still,
while Chinese chip companies make fewer, slower chips — in large part because U.S.
policies have prevented them from importing key tools — there is no shortage of
momentum in the country’s A.I. industry.
While
Washington’s export controls have slowed China’s chip development, they have added
fuel to Beijing’s decade-long push to make strategic technologies like semiconductors
and A.I. entirely at home.
Government
and private money has been pouring into the development
of Chinese artificial intelligence. Chinese tech stocks have made huge gains — Alibaba
soared more than 94 percent last year. A stream of Chinese A.I. start-ups are going
public. Last month, two of China’s most promising A.I. companies raised more than
$1 billion in Hong Kong listings.
The
gap between the money flowing into China’s A.I. sector and the reality that Chinese
companies produce fewer chips than the country needs underlines
the urgency of Beijing’s self-sufficiency efforts, and how much the Chinese A.I.
industry still depends on foreign chips.
In
December, President Trump extended China a lifeline when he allowed Nvidia to sell
some of its advanced chips to Chinese companies, reversing years of U.S. policy.
But whether China will get broad access to those chips remains an open question
ahead of Mr. Trump’s planned visit to Beijing next month.
The Memory Chip Lag
The
Chinese government’s push to make cutting-edge chips at home began more than a decade
ago. And it has spent more than $150 billion on the drive.
China’s
biggest tech companies, including Huawei, Alibaba and the TikTok parent company
ByteDance, have started chip design businesses. Chip makers, many working with Huawei,
are building dozens of factories and have hired top engineers from Taiwan and South
Korea.
But
the task of catching up has gotten progressively more difficult. While Chinese companies
have been building their own supply chain for chip making, officials in Washington
have tried to hold them back. Three presidential administrations have used export
controls to keep Chinese companies from buying advanced chips and the tools to make
them, over concerns the technology could fuel China’s economic and military power.
The
restrictions have kept Chinese companies from buying equipment made by the Dutch
company ASML that performs a crucial step in the chip making process. The lack of
access to these machines, which are the size of school buses, is one reason Chinese
companies are making chips that lag the performance of the top of the line from
Nvidia.
Those
are the kinds of chips that power artificial intelligence systems. Chinese companies
will most likely make just 2 percent as many A.I. chips as foreign firms do this
year, said Tim Fist, a director at the Institute for Progress, a think tank in Washington.
The
production gap between Chinese and foreign manufacturers is especially big for memory
chips, which are essential for the large calculations done by A.I.
Companies
outside China will make 70 times as much memory storage capacity this year as Chinese
chip makers will, Mr. Fist said.
The
leading makers of memory chips are the South Korean conglomerates Samsung and SK
Hynix. Taiwan Semiconductor Manufacturing Company, the world’s biggest chip producer,
dominates production of the most advanced chips.
Huawei’s Pivot
In
2014, China was the world’s largest market for semiconductors. But 90 percent of
the chips its companies used were made outside the country.
Concerned
about that dependency, the State Council, China’s top governing body, approved a
plan to spend billions and made a vow: China would be making every part of its semiconductor
supply chain at home by 2030.
Policymakers
had reason to be concerned about the risks that foreign technology posed to Chinese
infrastructure. Earlier that year, documents provided by the former National Security
Agency contractor Edward J. Snowden had disclosed that the U.S. government had monitored
the communications of top executives at Huawei.
Then
in 2017, President Trump fined the Chinese telecommunications giant ZTE for allegedly
violating U.S. sanctions on Iran, crippling its business overnight. Although ZTE
does not manufacture chips, the action gave China another lesson in its need for
self reliance.
Next
came Huawei. The first Trump administration embarked on a global campaign to get
countries to stop using Huawei’s equipment in their telecommunications infrastructure.
Huawei responded by offloading that business line and getting in step with Beijing’s
self-sufficiency program.
“Huawei
was unique in its capabilities and its alignment with China’s national goals,” said
Kyle Chan, a fellow at the Brookings Institution who studies Chinese industrial
policy. “Huawei’s experience was a microcosm of China’s broader experience: suddenly
being cut off and now scrambling to build its own.”
Beijing
also pushed foreign companies to turn over technology as a price of admission to
the China market. Qualcomm, a San Diego tech giant, entered into a joint venture
with Huaxintong Semiconductor in 2016. The Chinese government
provided land and financing, and Qualcomm offered the technology and about $140
million in initial funding.
During
this time, Huawei became one of China’s most popular smartphone makers. And it started
working closely with chip factories to make chips for smartphones and A.I. systems.
Huawei
has come out with a line of chips that are comparable to some of Nvidia’s older
models. But analysts said those chips contained key components that foreign rivals
like TSMC and Samsung had made.
Clouds and Clusters
The
inability to get essential tools from ASML has been a major chokehold for Chinese
chip makers. Since U.S. officials led an effort to lobby the Dutch government to
block shipments to China, no Chinese company has been able to buy ASML’s most advanced
tools.
Instead,
Chinese chip makers have recruited engineers with experience using those machines
at TSMC, the world’s top chip maker. And now, Chinese start-ups are trying to make
their own chip manufacturing equipment.
A.I.
systems require an immense amount of computing power to learn. China’s A.I. companies
are trying to get the computing power they need by strapping together numerous less
powerful chips. Huawei has taken such an approach, and the Chinese government has
built what it calls “intelligent computing clusters” that are essentially state-run
data centers.
But
those clusters need a lot of chips. Experts and people who work in the industry
say China’s most advanced chip maker, Semiconductor Manufacturing International
Company, which does some work for Huawei, has struggled to produce enough chips.
The chips it does produce are prone to defects and use more electricity than cutting-edge
foreign ones. SMIC did not respond to a request for comment.
“Manufacturing
volume is going to be an issue,” said Kendra Schaefer, a partner at Trivium China,
a research and advisory firm.
Nonetheless,
multiple Chinese A.I. researchers have reported breakthroughs in finding new ways
to link chips together for maximum efficiency. Zhipu said
last month that it had built its latest model entirely using Huawei’s chips and
software.
So
far, the efficiency gains have been limited and have not helped Chinese companies
escape the fact that A.I. demands huge quantities of chips.
Another
way China’s A.I. companies are getting the computing power they need is by paying
cloud providers like Alibaba and Amazon for remote access to massive data centers stocked with powerful chips.
But
the strategy is expensive.
Documents
filed by Zhipu and Minimax, another Chinese A.I. start-up,
with the Hong Kong Stock Exchange last month show that the two companies are spending
a lot more buying cloud services than they are earning in revenue.