ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailMenu BurgerPositive ArrowIcon PrintIcon SearchSite TitleTitle ChevronIcon Twitter
Comment

China's tech companies answer Xi's Yangtze River call to arms

President's drive for self-sufficiency highlights folly of Trump strategy

Chinese President Xi Jinping, second from right, visits the Three Gorges Dam, the world's largest hydropower project, on the Yangtze River near Yichang in central China's Hubei Province. (April 24, 2018, Ju Peng/Xinhua via AP)   © AP

When the annals of how the U.S. lost its early 21st century technology battle with China come to be written, a chapter may be devoted to a visit by President Xi Jinping to the Yangtze River.

As if channeling the spirit of an ancient civilization last year, Xi stood atop the Three Gorges dam -- a potent symbol of China's progress -- and proclaimed that when it came to technology China had no choice but to blaze its own trail.

"In the past, we tightened our belts, gritted our teeth and built the two bombs [atomic and hydrogen] and a satellite," Xi said. "In the next step of tackling technology, we must cast aside illusions and rely on ourselves."

His words are even more relevant today than when he uttered them. Chinese companies are taking to heart his message, redoubling their determination to develop their own computer chips, software and several other key technologies so as to reduce reliance on an unpredictable and vengeful U.S.

The event that prompted Xi to climb on top of the dam was a temporary ban by Washington on sales of semiconductors to ZTE, a Chinese telecoms company. The issue of today is a similar ban against Huawei, China's most prominent technology corporation.

Although President Donald Trump announced last weekend that the Huawei ban will be partially lifted, the message sent to Chinese companies is already abundantly clear. Importing high-tech products from American suppliers carries huge political risks.

"Trump's softening stance on Huawei is an important lifeline for the company," said Dan Wang, technology analyst at Gavekal Dragonomics, a research firm. "Nonetheless, Huawei will try to design out U.S. components and continue to build its own capabilities. It can't allow its survival to be contingent on U.S. political actions."

His analysis echoes earlier voices from the front line. Jack Ma, the billionaire founder of tech giant Alibaba Group Holding, called upon Chinese companies in the aftermath of the ZTE case last year to pour greater efforts into developing their own kit.

"If we do not master the core technologies, we will be building roofs on other people's walls and planting vegetables in other people's yards," Ma said at the time.

Such sentiments carry the promise of real pain for USA Inc. A dismal dynamic is in prospect: The American tech giants that rely on the Chinese market may find their business migrating to competitors, eroding earnings from which they must finance new generations of products.

Such a scenario is possible because several U.S. giants are utterly dependent on China. Qualcomm, the chipmaker, derives 65% of its revenue from the country while Micron Technology gets 57.2% and Qorvo gets 55%. Broadcom and Texas Instruments are in a similar boat.

Although corporate names such as these seem unassailable today, history shows that fortunes can turn on a dime. It was not so long ago that Motorola, Lucent, Kodak and Sun Microsystems were also the guardians of formidable reputations.

China, meanwhile, is funneling serious money into nurturing its own tech giant-killers, especially in the area of semiconductors -- where Beijing knows its industry is weakest in relation to U.S. competitors.

Of some $300 billion committed to help deliver Made in China 2025, a master plan for Chinese tech dominance, some $150 billion is earmarked to upgrade China's capacity in semiconductors. Although it takes more than money to create state-of-the-art chips, some of the capacity set to come on stream in China represents a step change from its antecedents.

Yangtze Memory Technologies, for instance, is a $24 billion production complex in the central city of Wuhan that is set to mass-produce China's first homegrown 64-layer 3D NAND flash chips, the current global industry standard, by the end of this year. Chinese planners hope that Yangtze will be able to compete with Samsung and Micron Technology.

The promise of China's market may well be bright enough to lure other cutting-edge investments. Over time, a critical mass may emerge, allowing more Chinese companies to challenge for the global lead -- as they do already in the fields of artificial intelligence, 5G telecoms, the internet of things, self-driving cars, battery technology, ultra-high voltage transmission and others.

When that moment is reached -- perhaps several years hence -- commentators may look back to 2018 and 2019 and realize what a blunder the Trump White House made with its on-again, off-again bans directed at ZTE, Huawei and others. Such policies achieved little, but they alienated a generation of Chinese tech bosses toward U.S. suppliers.

By contrast, Xi's exhortation to "rely on ourselves" became a beacon that Chinese companies strove to follow.

James Kynge is editor of Tech Scroll Asia, a newsletter on technology in Asia that combines the best reporting from Nikkei and the Financial Times. He is also the FT's Global China editor, writing about China's growing footprint in the world, and won the Wincott Foundation award for the U.K.'s Financial Journalist of the Year in 2016. His prizewinning book, "China Shakes the World," was translated into 19 languages.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends June 30th

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media