For advanced sectors of the industry, legislation passed in the US and other Western markets has led to a ban on investment in China, the export of advanced technologies and services to China as well as the use of Chinese made electronic components in Western infrastructure. The aim of the legislation is to:
- Set back the development of China’s chip design and manufacture in order to prevent the technology ‘bleeding’ from commercial to military use. The US sees companies such as Huawei as an extension of the Chinese government.
- Reduce the vulnerability of Western infrastructure (communications, technology, energy, transport and financial) to hacking by Chinese intelligence services through purposefully designed ‘backdoors’ in electronics components.
The ban extends to the export of all proscribed advance technology products to China which contain US intellectual property. This has had significant impact on many other countries’ high-tech sectors which risk being shut out of a substantial market.
One company to be impacted by the export ban is Apple. US government restrictions which came into force in 2022 meant that it became unable to use the memory chips of China’s Yangtze Memory Technologies Co. (YMTC) in its smartphones, computers and iPads. Although there are more advanced chips in the market, YMTC’s were 20% cheaper than its competitors due to government subsidy. Apple had planned to use the chips in a Chinese-only version of its iPhone and then roll out their inclusion globally. However, this now no longer looks feasible, not least because of the ban on future input into the YMTC’s research and development programmes by US companies.
More directly affected is Dutch company ASML. It is the only supplier in the world of very sophisticated lithography machines for the semiconductor sector. The Dutch government announced in March 2023 that it was acquiescing to US demands that its allies fall into line with its export ban. Consequently, ASML will have to apply for licences to export its most advanced technologies and it is unclear whether it will be allowed to continue servicing the machinery it has already supplied to China.
Chinese-made products are also being banned in the West. Not only are many types of component manufactured by Huawei being prohibited or phased out of 5G networks, but video and surveillance equipment made by companies such as Hikvision, Dahua and Hytera are also being proscribed. This is not only because of the perceived security issues related to their use in sensitive government or public buildings, but also due to their deployment in Xinjiang Province in China and their alleged role in the oppression of the Uyghur community.
The result of these restrictions will mean that there is an increasing risk that high tech supply chains will become ‘bifurcated’. OEMs and their suppliers may end up building one supply chain to serve the Chinese market, with Chinese designed, developed and manufactured products and another to supply the rest of the world. This will mean significant cost implications which are likely to result in higher prices and disrupted supply in the West (at least until new semiconductor plants are built in Europe and North America) and poorer product choice in China and slower development of artificial development products by Chinese technology companies (including Alibaba). Whilst economically challenging for companies and economies right around the world, these measures are seen as necessary by Western security agencies which judge the strategic threat posed by China as the more urgent priority.
Author: Prof. John Manners-Bell
Source: Ti Insights