An American ban defangs a nascent Chinese chip champion

JINJIANG, A COASTAL city in Fujian province, is known for its thriving $15bn shoe industry. Since the announcement in 2015 of a national plan to dominate ten promising industries, known as “Made in China 2025”, the city has marched into semiconductors. By 2025 it aims to build a local chip industry that will be as valuable as its footwear one. Among its new stars is Fujian Jinhua Integrated Circuit, a maker of dynamic random access memory (DRAM) chips, the commodity semiconductors snapped into smartphones, laptops and servers.

The chipmaker, set up in 2016, is finishing off a $5.7bn factory in Jinjiang. It may need to delay the ribbon-cutting. On October 29th America’s Department of Commerce put a swingeing export restriction on Jinhua by barring American firms from selling it components. It said the state-owned firm posed a “significant risk” to American national security, and could “threaten the long-term economic viability” of its supply chain for military parts. America fears Chinese state ambitions to compete globally in new technologies, often through unfair or illegal means. But the economic rationale for its ban seems worryingly broad and could be applied to many other firms. China hit back that America was misusing export controls.

The grievances against Jinhua are clear. On top of local-government investment, it has received money from a multi-billion-yuan fund that is backed by a state body. In 2017 Micron, an American competitor, sued it and a Taiwanese partner for trade-secret theft.

Micron says Jinhua stole its memory-chip designs with the help of engineers poached from United Microelectronics Corp (UMC), a Taiwanese chipmaker with which Jinhua co-operated in 2016 to develop technology for its factory. The case continues in America. The pair has reacted by accusing Micron of infringing UMC’S patents, and asked that a Fujian court hearing the case bar Micron shipments of the concerned products to China, which it did.

Micron said the ban would affect a mere 1% of its total revenue. But the signal from the Chinese side was clear, says Randy Abrams at Credit Suisse, a bank: “If you go after our champions, we can make things difficult for you.” Regulators also opened a price-fixing probe into Micron and two other leading DRAM chipmakers, Samsung and SK Hynix of South Korea.

But the American ban on Jinhua is more bruising than the Chinese one. The firm will be starved of essential manufacturing-technology supplies for its factory, for now a low-volume trial line. High-volume production is still a year away, reckons Mr Abrams. Other suppliers may fall in line with America. UMC said it would halt all research co-operation with Jinhua.

After America slapped an export ban in April on ZTE, China’s second-largest telecoms firm, Xi Jinping, China’s leader, urged technological self-reliance (the ban was lifted in July). Crippling another of the emblems of “Made in China 2025” will probably mean doubling down on his goal.

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