Chinese chips not a threat to U.S. security

Lack of technological breakthroughs, smaller market share limits competitiveness'

China's semiconductor industry, which still lags behind its foreign counterparts in technological breakthroughs, should not be seen as a threat to U.S. national security, Chinese industry representatives told the Global Times on Sunday.

Although the domestic semiconductor industry has been developing rapidly in recent years, China has a smaller market share than the top five foreign suppliers combined, including U.S.-based Qualcomm and Intel, said Chen Feng, vice president of Chinese fabless semiconductor maker Rockchip.

Chen is currently in Las Vegas at the CES 2017, where Samsung unveiled its latest Chromebook, reportedly powered by a Rockchip chipsets.

"U.S. semiconductor companies still have an advantageous position, so claiming that Chinese firms pose a threat to U.S. national security is nonsense," he told the Global Times on Sunday.

On Friday (U.S. time), the U.S. government released a report on ensuring long-term leadership in semiconductors from the President's Council of Advisors on Science and Technology (PCAST).

According to the report, the U.S. semiconductor sector faces challenges in innovation, competitiveness and integrity. The report also noted "that Chinese policies are distorting markets in ways that undermine innovation, subtract from U.S. market share, and put U.S. national security at risk."

The U.S. government has concerns over the development of Chinese semiconductors, which may reshape the industry's outlook and affect profits at U.S. firms, Xu Xiaohai, senior analyst in the semiconductor industry research division at CCID Consulting, told the Global Times Sunday.

U.S. authorities intervened in the potential merger and acquisition (M&A) of Chinese semiconductor Fujian Grand Chip Investment Fund and German firm Aixtron by telling German authorities that the purchase would be used for military purposes, Reuters reported in October 2016, citing the Handelsblatt newspaper.

The potential $732 million-deal has been put on ice since then.

In its report, PCAST argued that Chinese subsidies for strengthening domestic production encourage foreign firms to relocate to the country.

Further, higher market concentration in China, "can increase national-security risks for the U.S. and other countries."

"The development of the domestic semiconductor industry comes from upgrading China's overall electronic information industry. The downstream industry, China's end-terminal device [computers or smartphones] assembly industry is mature, but its technical content and profit level is low. Yet the upstream integrated circuit industry has more technology and much higher profit level," Xu said.

Foreign companies still hold a large share of the global semiconductor market, according to IC Insights. The five top chip suppliers - Intel, Samsung, Qualcomm, Broadcom and SK Hynix - held 41 percent of the market in 2016, according to a research bulletin published on December 6, 2016.

While China's electronics market grows, the demand for finished semiconductors is also increasing rapidly, said a report presented by the Semiconductor Industry Association to the U.S.-China Economic and Security Review Commission in April 2016.

China accounts for 20 percent of global personal computer consumption, 29 percent of global smartphone consumption and 17 percent of tablet computer consumption, while the country's demand for semiconductors totals nearly 27 percent of the global demand, according to the report.

The PCAST report suggests that the U.S. government could enforce trade and investment rules as one response to challenges posed by Chinese semiconductors.

"In the Internet era, there are more and more open platforms for developers, such as Google's open developer platform, and companies need more communication to push the whole industry ahead," Chen said, noting that blocking access to the market is not a smart option.

Facing challenges

China's semiconductor companies should continue to improve the competitiveness of their core technology, not only by attracting and training high-level talent, but more importantly, through innovations to merge into the global technology and industry development.

There is still a big technology gap between the top Chinese semiconductor company and the leading international firms, according to Xu.

Semiconductor Manufacturing International Corp which has the most advanced manufacturing technology in the Chinese mainland, released their 28-nanometer technology for mass production in 2016, while Intel, Samsung and Taiwan Semiconductor Manufacturing Co have already release 14/16 nm technology, a two-generation gap.

In addition, when it comes to M&As, Chinese companies should pay more attention to international practices and rules, instead of just offering a higher price, which may spark concerns about "hostile takeovers," Xu noted.

"Stepping up efforts to respect others intellectual property rights (IPRs) and protect their own IPRs is equally important," he said.