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Decoding China's Escalation of the Chip War – The Diplomat

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In the ongoing technological tussle between the United States and China over the semiconductor industry, the US has caused massive disruption to the semiconductor supply chain. The main objective is clear: make sure that when the world moves forward, China is left behind. of Washington October 2022 Export control restrictions crippled the purchasing and production capabilities of Chinese firms such as Yangtze Memory Technologies Corp. Semiconductor Manufacturing International Corporation, and HiSilicon. Following suit, US allies including major chip makers such as Japan, Taiwan and the Netherlands unauthorisedly banned Exporting their technology to Chinese firms.

Now China has introduced its first retaliatory measure, changing the nature of the chip war. government of china have banned The largest US memory chipmaker, Micron Technologies, from selling its products to “critical national infrastructure operators” in China. This step followed the conclusion of A. seven week check up Launched by the Cyberspace Administration of China (CAC) in March. CAC report cited “Significant Security Risks to China’s Critical Information Infrastructure Supply Chain from Micron’s Products”.

China’s retaliation came against the backdrop of two incidents. First, recently finished G-7 summit Pledged to de-risk and diversify critical technology supply chains in Hiroshima, reflecting the risks posed by China. Second, it followed the announcement by Micron that it would invest $3.6 billion in Japan.

Micron ban effectively revives Sino-US tensions over technology, despite US President Joe Biden predictions An imminent thaw in relations with China. This can be seen as a sign highlighting the prominence of Beijing’s domestic market, which the US and its allies cannot easily sidestep.

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The reasoning behind China’s tit for tat

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China’s domestic chip production overall is only 16 percent of the world’s semiconductor industry. According to Dynamic Random-Access Memory (DRAM) and nand chips, part of china Global production accounts for 21 percent and 15 percent, respectively. As the United States intensified measures to reduce the supply of chips to China, Beijing ramped up its efforts to make its own memory chips and build up indigenous capabilities in chip production.

Just ahead of setting up an investigation into Micron’s products in March 2023, Chinese policymakers approved a plan To inject $1.9 billion into Yangtze Memory Technologies Corp (YMTC), China’s biggest memory chipmaker. With this funding, YMTC hopes to recover from the Washington blow and move closer to competitors such as Samsung and SK Hynix. According to Shenzhen Special Zone Daily, Powave Electronic Technology Co., a high-tech storage packaging and testing firm based in Shenzhen, has already manufacturing memory chips and solid-state drives (SSDs) on a larger scale.

Decoding China’s changing strategies in the semiconductor sector through massive state-sponsored programs big fund, and Council of State Document No. 8 of 2020, It is clear that Chinese ambitions to reduce dependence on the United States and its allies have been on the rise since 2019 Huawei and ZTE banned in telecommunication sector.

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winners and losers

In mitigating the effects of the US chip war on China, one of China’s important strategies is to increase the dependence of foreign countries on China’s chip market. Chinese manufacturers are the top places for any chipmaker to do business. The apparent ouster of a foreign firm from the Chinese market in the memory chip segment works in Beijing’s favor for two reasons. One, Beijing’s retaliatory response gives Chinese regulators a sense of exclusivity in handling the attitudes of chip vendors and manufacturers, encouraging firms not to act against China’s interests. Two, eliminating foreign vendors from the domestic market will create space for emerging domestic giants in the memory chip segment. While manufacturers such as SK Hynix and Samsung are highly dependent on markets such as China, the Chinese domestic market is large enough to accommodate emerging domestic chip firms.

Micron is a major DRAM and NAND chip leader, and counts China as its Third largest market. Micron’s competitors in the Chinese market are South Korean giants Samsung and SK Hynix. Micron could easily be replaced by South Korean chip makers, making it an easy target for Chinese authorities.

In fact, the impact of Micron’s withdrawal from the Chinese market is likely to be limited. of China 2016 National Security Act Defines “critical national infrastructure”—the areas from which Micron products are now banned—as technology systems in sectors including telecommunications, transportation, defense, etc. Since most of Micron’s customers are consumer electronics companies in China such as Lenovo, Xiaomi, Inspur Electronics, etc., it is more likely to harm US interests in the supply chain rather than the Chinese.

Furthermore, banning operators connected to critical infrastructure could severely hurt Micron’s revenue. Political risks such as spillover effects and lack of confidence in Micron products will affect the choices and attitudes of other buyers, causing them to diversify their vendors, and possibly move to domestic chip makers in addition to major South Korean competitors.

a Chinese media platform, easyway, informed of That decision will greatly benefit Chinese memory makers that compete directly with Micron, such as Ingenic, CXMT, YMTC and GigaDevice. Thus, the ban is expected to drive the replacement process in the domestic memory chip sector.

The detailed intricacies of chip warfare

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China’s current strategy to achieve self-sufficiency is focused on memory and legacy chips, as it is heavily dependent on Dutch chipmaker ASML for its lithography equipment to produce high-end chips. Thus, China’s tendency to escalate the chip war will be limited to the few areas in which Chinese chip makers are becoming increasingly self-sufficient. The swift offensive, however, facilitated by China’s authoritarian regime, is indicative of the wider scope of the emerging technology rift – not just between the Sino-US but also with other chip makers. It is clear that Chinese actions may not, in the short term, be as retaliatory as US transgressions, but it remains to be seen how further the United States’ responses will shape the chip supply chain puzzle.

Although Chinese regulators have lifted the ban on Micron “A Personal Affair” And stressed that China is committed to “opening up” its market, a move that largely provides a glimpse into the evolving Chinese position in the tech war. The recent Chinese strategy undoubtedly jolts Washington’s dominant position in the technological war and signals that the United States does not freeze and thaw relations unilaterally.