The integrated circuit wars

US chip sanctions on China should be a wake-up call for India to quickly scale up and boost its capabilities in this critical arena

The integrated circuit or “silicon chip” war has just entered a new phase. The sanctions announced by US President Joe Biden’s administration seeks to deny China access to the leading-edge chips that the latter doesn’t have the capability to design and manufacture yet.

The sanctions not only prohibit the sale of the newest generations of chips to China but goes on to forbid any US firm or those dependent on US technology from selling or licensing software, equipment or technologies that China will need to build its capabilities in chips. Beyond that, it restricts US citizens and even those holding green cards from working for or with any Chinese entities in a large number of technology areas.

The sanctions also apply to US allies and their firms, given that they are dependent on US technology in one way or the other. This, therefore, makes it difficult for companies like TSMC of Taiwan or Samsung of South Korea from selling the latest generation of chips to China or even helping it in this area. China has always been a big customer for TSMC and Samsung.

This is a setback for Xi Jinping who had devised a plan that envisaged China leapfrogging the US in multiple technologies and taking a critical lead over the West. Without access to the latest generation of chips, its ambitions in Artificial Intelligence research as well as 5G and Blockchain will suffer a big setback.

It is not that China did not foresee an event such as this — but it probably thought it had a few more years to prepare and build up its own capabilities and capacities in the area. China has been pouring enormous sums of money in directed technology research to make itself less dependent on the West — or TSMC or Samsung for that matter, which are the leaders in cutting-edge chip fabrication.

While TSMC is the acknowledged leader in 3-nm processes, which are used to make the most cutting-edge and powerful chips currently, Samsung and Intel are building their own capacities. All three firms are also now working on 2nm processes. In contrast, Chinese chip fabrication capabilities are several generations behind. Even the latest breakthrough by China’s biggest chip fabrication firm, SMIC, is only in the 7 nm process and most of the chip fabrication facilities in the country are of a much older generation. What’s more, the US and its allies still lead in chip design, though Chinese firms have been trying to catch up for a long time.

The question is: Will this put China permanently behind in chips or can it play catch up? Much of China’s current tech capabilities were built by people who went to the US, studied in the best engineering colleges and worked with leading US or Western technology companies before coming back home to build up domestic technology companies. Many of these entrepreneurs are Chinese by birth but have since then acquired US citizenship. The sanctions will force them to choose sides. Also, many engineers in Chinese technology companies are dependent in critical areas on people with US citizenships or green cards. And much of China’s current capabilities are based on copying Western designs and technologies.

China has been pushing technology research in its universities and technology institutes for some time now, but it is still behind the US and European research in many areas. This does not mean they cannot catch up — just that the current sanctions will make it harder and increase the time required.

Most European countries and Australia as well as Japan and Korea are largely backing the US, though they are also building their own capabilities. Many like Japan and various European countries, which were content depending on Taiwan for fabrication of chips, are now rushing to build their own capacities — just to reduce their dependence on the US, South Korea and Taiwan for chip fabrication.

For a major economy, India has lagged far behind in this critical area. We are taking baby steps in chip manufacturing and the plans unveiled so far by the Vedanta-Foxconn partnership are at the low-end of the chip technology spectrum. Our journey will start with 28 nm chipsets, according to the latest reports. Nor have we managed to get any of the top global chip companies to set up shop in the country.

Prime Minister Narendra Modi has made domestic chip capabilities a priority and the government has taken a number of concrete steps ranging from the production-linked incentive scheme to helping firms set up plants in India to license 28-nm fabrication technologies from abroad. But while those are good steps, they will not be enough for India’s ambitions.

The next step for the country may be to look at moving up the chip value chain by either buying fully or taking a significant stake in independent chip design and foundry firms around the world that may be available for sale. But that will require active private sector participation. So far, India’s biggest businessmen are focused more on building technology capabilities in green energy rather than in chip-making. Unless the government persuades them to bet big on the chip arena, it is unlikely that our vulnerability will come down anytime soon.

The writer is former editor of Business Today and Businessworld, and founder of Prosaic View, an editorial consultancy