Alibaba urged by China to develop its own chips to encourage self-reliance and fuel global unease

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Alibaba is being urged by China’s ruling Communist Party to take on the delicate and expensive business of developing its own processor chips in order to turn China into a stand-alone “technology superpower” – a business unlike anything that has been the largest e-commerce business. The world’s company has done before.

The three-year-old T-Head chip unit introduced its third processor, the Yitian 710, for Alibaba’s cloud computing business in October. Alibaba says it has no plans to sell the chip to outsiders for the time being.

Other rookie chip developers, including Tencent, the game and social media giant and smartphone brand Xiaomi, are pledging billions of dollars in line with official computer, clean energy and other technology development plans that will bring China’s prosperity and build global influence.

Processor chips are playing an increasingly important role in products from smartphones and cars to medical devices and household appliances. Bottlenecks due to the coronavirus pandemic are disrupting global production and adding to concerns about supplies.

Chips are a top priority in the ruling Communist Party’s marathon campaign to end China’s reliance on technology from the US, Japan and other suppliers that Beijing sees as potential economic and strategic rivals. If this succeeds, business and political leaders warn that it could slow down innovation, disrupt world trade and make the world poorer.

“Self-employment is the foundation of the Chinese nation,” said President Xi Jinping in a speech published in March. He called on China to become a “technology superpower” to ensure “national economic security”.

“We must strive to become the most important science center in the world and the stronghold of innovation,” said Xi.

Beijing could chase after a costly disappointment. Even with huge official investments, businesspeople and analysts say that chipmakers and other companies will compete if they break away from global providers of advanced components and technologies – a goal no other country is pursuing.

“It’s hard to imagine a single country rebuilding all of this and having the best of technology,” said Peter Hanbury, who follows the industry for Bain & Co.

Beijing’s campaign is adding to tensions with Washington and Europe, who see China as strategic competitors and complain that it is stealing technology. They restrict access to tools needed to improve industries.

If the world were to decouple or split into markets with incompatible standards and products, parts made in the US or Europe might not work in Chinese computers or cars. Smartphone manufacturers that have a single dominant global operating system and two network standards may need to create unique versions for different markets. That could slow down development.

Washington and Beijing must “prevent the world from being separated,” UN Secretary General Antonio Guterres told The Associated Press in September.

China’s factories assemble the world’s smartphones and tablet computers, but require components from the United States, Europe, Japan, Taiwan, and South Korea. Chips are China’s largest import, ahead of crude oil, with more than $ 300 billion (approximately Rs 22.47.804 billion) last year.

The official urgency increased after Huawei Technologies Ltd., China’s first global technology brand, lost access to US chips and other technology in 2018 due to the sanctions imposed by the White House.

This paralyzed the telecommunications equipment manufacturer’s ambition to be a leader in next-generation smartphones. American officials say Huawei is a security risk and could help Chinese espionage, an allegation the company denies.

According to industry analysts, Huawei and some Chinese competitors are close to Intel, Qualcomm, South Korea’s Samsung Electronics and the UK’s arm in developing bleeding edge logic chips for smartphones.

But when it comes to making them, foundries like the state-run SMIC in Shanghai are up to a decade behind industry leaders like TSMC or Taiwan Semiconductor Manufacturing Corporation, which makes chips for Apple and other global brands.

Even companies that can develop chips like Alibaba will likely need Taiwanese or other overseas foundries to make them. Alibaba’s Yitian 710 requires precision that no Chinese foundry can match. The company didn’t want to say which foreign manufacturer it will use.

“My country still has a big gap in chip technology,” said industry analyst Liu Chuntian of the Zero Power Intelligence Group.

China accounts for 23% of the world’s chip production capacity, but only 7.6% of sales.

Packing millions of transistors onto a fingernail-sized sliver of silicon requires roughly 1,500 steps, microscopic precision, and mysterious technologies owned by a handful of US, European, Japanese, and other vendors.

These include the KLA Corporation in California for high-precision measurements and the Japanese TEL for machines for applying coatings with a thickness of just a few molecules. Many have restrictions on “dual-use” technologies that can be used in weapons.

China is “lagging significantly behind” in tools, materials and production technology, the Semiconductor Industry Association said in a report this year.

Washington and Europe, citing security concerns, are blocking access to the most advanced tools Chinese chipmakers need to compete with world leaders in precision and efficiency.

Without this, China will fall further behind, said Bain’s Hanbury.

“The TSMC horse sprints away and the Chinese horse is stopped,” he said. “You can’t move forward.”

Washington increased pressure on Huawei last year by banning global foundries from using American technology to make its chips. US vendors can sell chips to the company, but not for next-generation “5G” smartphones.

For its part, the European Union announced it would scrutinize foreign investments after complaints emerged that China had undermined Europe’s technology leadership by buying key assets like German robotics maker Kuka.

Alibaba’s Yitian 710 is based on the architecture of the British arm and underscores China’s continued need for foreign know-how. Alibaba said it will continue to work closely with longtime overseas vendors Intel, Arm, Nvidia and Advanced Micro Devices.

T-Head’s first chip, the Hanguang 800, was announced for artificial intelligence in 2019. The second, the XuanTie 910, is intended for self-driving cars and other functions.

In November, Tencent, operator of the messaging service WeChat, announced its first three chips for artificial intelligence, cloud computing and video.

Beijing says it will spend $ 150 billion to develop its chip industry from 2014 to 2030, but even that is only a fraction of what world leaders are investing. TSMC plans to spend $ 100 billion (approximately 7,49,278 billion rupees) on research and production over the next three years.

China is trying to gain experience by hiring engineers from TSMC and other Taiwanese manufacturers. Taiwan, which has claimed Beijing as part of its territory and threatened attack, responded with restrictions on the job posting.

Beijing encourages smartphone and other manufacturers to use suppliers within China even if they cost more, but officials deny that China wants to break away from global industry.

“We will never go back in history trying to disengage,” Xi said in a video-linked speech at a November meeting of Asia-Pacific leaders in Malaysia.

The latest conflict concerns photolithography, which uses ultraviolet light to etch circuits on the order of nanometers or billionths of a meter in silicon.

ASML is the leader in the Netherlands, making machines that can etch transistors as little as 5 nanometers apart. That would pack 2 million into an inch wide space.

China’s SMIC is around a third as accurate at 14 nanometers. Taiwan’s TSMC is preparing to increase its precision to 2 nanometers.

SMIC wants to upgrade by purchasing the latest machine from ASML, but the Dutch government has yet to agree.

“We’ll wait for your decision,” an ASML spokeswoman, Monica Mols, said in an email.

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