Sat, Oct 31, 2020 – 5:50 AM

BEIJING’S goal of building a self-reliant technology industry has been elevated to become a strategic pillar, part of the latest five-year plan setting out top national priorities. This means that China is redoubling efforts to wean itself off foreign companies, with the result likely to be a cohort of domestic giants and a slow freeze-out of overseas competitors.

Just as the US government starts looking to rein in, or even break up, big-technology companies in the belief they have too much power, China is going in the opposite direction. We should expect to see more money, more policy favouritism, and more attention from party cadres aimed at ensuring the establishment of big successful chip and software firms.

The Fifth Plenum of the Chinese Communist Party’s 19th Central Committee wrapped up Thursday by tasking the nation to, among other things, develop self-reliance and build its technological power. The result will be a more insular approach to industry and trade as Beijing strengthens a robust domestic market for those up-and-coming heroes to ply their wares.

Foreign companies, notably in semiconductors, software or materials, which still believe China is a viable long-term business are kidding themselves. Only those supplying crucial products and services not available locally will have any shot at sustained market access, and even then, only until a domestic alternative comes along.

Intel Corp, Nvidia Corp and Microsoft Corp should take note. Apple Inc and Alphabet Inc ought to be wary.

Meanwhile, suppliers of the equipment, chemicals and software used to design and build chips should enjoy eating at the trough now, because the good times will not last, if Beijing can help it.

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The likes of ASML Holding, Tokyo Electron and Synopsys might see some growth years because Chinese companies lean on them to supply the core ingredients of a semiconductor industry, if the US administration does not get in their way to further stymie China’s advancement.

But they would be foolish to not understand that local rivals, backed by Beijing, are doing everything possible to replicate their products. Over the past decade, the government has done a lot to improve intellectual property enforcement and secure economic rights over technological innovation. Nonetheless, it would be a brave Chinese prosecutor or judge who sides with a big Western company over a local upstart in any case of alleged IP theft.

I believe we have yet to see the next era of national champions emerge. Alibaba Group Holding and Tencent Holdings have been the backbone of China’s Internet development. Beijing would want to see their equivalents in semiconductors come forth.

Huawei Technologies fits the role, a fact that Washington recognises by attempting to impede the Shenzhen company’s chip division HiSilicon. Semiconductor Manufacturing International Corp will also play a part, but after two decades, it has still failed to match rivals like Taiwan Semiconductor Manufacturing Co (TSMC) or United Microelectronics Corp. Then there is a collection of state-backed chipmakers such as those in the orbit of the esteemed Tsinghua University.

Yet the Alibaba of chips may not yet be born.

It could be bubbling away in a small Shenzhen office, helmed by former HiSilicon execs determined not to give up their semiconductor dreams despite Washington’s pressure. Or the topic of Zoom calls among locked-down postgrads finishing up their American degrees and planning to return home. Or in the bank balance of a Taiwanese engineer, enticed by the promise of vast riches, after a decade of toiling away at TSMC.

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Whoever the next big Chinese tech giant is, you can be sure that Beijing has the money and determination to make sure it succeeds – at all costs. BLOOMBERG

READ MORE: A blueprint to turn China into tech superpower?





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