China and the Semiconductor Industry: What to Expect Under the Biden Administration
In recent years, China has tried to gain more independence. It can safely be said that, In the last decade, China has developed new technology in every sector, and is now the second greatest global power. But something has just changed. During the last four years, Donald Trump has fought with China in several areas: trade, military but most importantly, in the science and technology sectors. Now that Donald Trump’s presidency is coming to an end, it is necessary to consider what implications this might have for the future. In this context, I wish to underscore an extremely relevant issue: the semiconductor industry. As a matter of fact, China is still at the top of the charts for countries that import semiconductors. This has been asserted by Wei Shaojun, president of the China Semiconductor Industry Association. He has also stated that this year, China has spent more on imported semiconductors than on imported petroleum (301 billion US dollars compared to 238). Now that President-elect Joe Biden is close to replacing former president Trump, it is necessary to try to interpret and foresee what is going to be China’s approach to this huge change in relation to semiconductors.
Currently, China uses about 50% of the world’s semiconductors. Just 30% of these are produced within China itself. The greatest part of the other chips are produced by the Taiwan Semiconductor Manufacturing Company (TSMC) which is currently the biggest in the world. The US has used semiconductors as an instrument of leverage multiple times against China. As a matter of fact, the US export regime, imposed by the Trump administration, has forbidden TMSC, which highly depends on US technology in order to develop its chip, to collaborate with China and Huawei.
This is a huge problem for China, which imports more than 300 billions of dollars’ worth of chips. In fact, in 2018 they spent 312 billion dollars and in 2019, 308 billion dollars on chips. It is safe to say that, as the graph shows, these figures are going to increase.
Figure 1 Consumption and production of China’s semiconductor industry from 1999 to 2018 (in billions of US dollars)
China’s Behavior
Clearly, this is not an easy situation for China: they consider semiconductors to be essential for their technology development and they are aware that they do not produce enough of them to satisfy their internal demand. According to China’s view, as stated during the fifth plenum, they are going to revolutionize their economy with “dual circulation”. This refers to China’s aim of no longer being the worldwide export champion it has been, but prioritizing instead the satisfaction of internal demand. Obviously, China and Xi will try their best to negotiate with the US in order to get some kind of advantage in this field. It’s safe to assume they will try to create semiconductors from scratch, so they will not have to depend on partners any longer.
Figure 2 The inner part of a semiconductor chip.
What Might Change Under Biden’s Presidency
Now that the world knows Joe Biden will succeed Donald Trump, it is possible to predict what might change regarding China and semiconductors.
According to the media, the next four years with Biden should be more “predictable” compared to the former presidency. Surely, it will not change as much as Beijing hopes; Biden is very likely to continue using a strong approach with China, especially on the most delicate issues: for example, the violation of human rights that Beijing continuously allows in the autonomous region of Xinjiang. The first goal for Beijing will be the removal of the duties imposed by the Trump administration, which are making things extremely complex for them. After this crucial step, China will try its best to re-open the debate around the US-China trade deals, and possibly to find a way to gain what Beijing aims at the most: independence.
Conclusion
What we can expect from the future debate with the USA and China is that at least there will be a debate. Biden will probably be more communicative and therefore things might change. What is yet to be seen is whether China will be able to obtain what it wants.
