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Trade war

China rushes to absorb Arm's tech before tensions with US rise

Cultivation of chip industry is pillar of Beijing's manufacturing sector update

Samsung's chip plant in China. The country's demand for semiconductors is soaring, making it an attractive place for chipmakers to set up shop.

TAIPEI/HONG KONG -- British chip designer Arm Holdings' move to cede control of Chinese operations to a local joint venture is part of Beijing's efforts to quickly acquire advanced semiconductor technologies while keeping its guard up against interference by the U.S.

Nikkei learned Tuesday that the local joint venture took over licensing and royalties operations with Chinese partners by the end of April. Chinese investors like the state-owned Bank of China and search engine operator Baidu own 51% of the joint venture, giving Beijing access to Arm technology. The British chip designer controls the remaining 49%.

Arm, whose chips are used in an overwhelming share of the world's mobile devices like smartphones, established the joint venture last September in the Guangdong Province city of Shenzhen, originally to support local clients.

"China is absorbing technology so that it can avoid pressure to restrict government support for local companies from the U.S. and others," a chip industry insider said.

Chip production is a centerpiece of Beijing's "Made in China 2025" campaign to update the manufacturing sector since it holds the key to leadership in cutting-edge fields like automated production, artificial intelligence and the "internet of things." 

The U.S. is the party most concerned with China's strategy. American authorities prevented Tsinghua Unigroup from buying Micron Technology in 2015 and investing in Western Digital the next year.

The U.S. has only ramped up efforts to inhibit the growth of China's high-tech industries since President Donald Trump took office as a bargaining chip to reduce its trade deficit with Beijing.

The White House is considering slapping steep tariffs on Chinese industrial robots and other products as a response to the country's intellectual property infringements. In April, it banned Chinese smartphone maker ZTE from doing business with U.S. companies for illegally shipping communications devices containing American components to Iran.

Beijing is rushing to secure cutting-edge technology to head off U.S intervention. A source said documents related to Arm's joint venture contain special terms that bar the sale of shares to Americans and anyone with ties to the Committee on Foreign Investment in the U.S., a government watchdog agency.

The joint venture is aiming for an initial public offering in 2021 or 2022. The review process usually takes several years, but Chinese authorities may make an exception to speed the process. A core subsidiary of Taiwan's Hon Hai Precision Industry, known as Foxconn, recently set a review record of just 36 days.

Demand for semiconductors has soared in China thanks to growth in the information technology industry, making the country an attractive market for global chipmakers. South Korea's Samsung Electronics and America's Intel are among the major names to open large fabrication facilities in China.

China is determined to cultivate its own chip manufacturing industry, with local governments providing financial aid and other support. Local governments are also taking stakes in semiconductor projects like a new plant in Fujian Province from Taiwan's United Microelectronics, the world's third-largest contract chipmaker, that began mass production in October.

Trump's top trade advisers, including Treasury Secretary Steven Mnuchin, will visit China this Thursday and Friday to discuss trade issues. But their strategy will be put to the test as China aims to localize companies like Arm in response to Washington's measures.

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