Technology & Computer

China pushes to design its own chips, but still relies on foreign tech

GUANGZHOU, China — China’s technology giants have been pushing to develop their own semiconductors or chips, a move seen as progress toward China’s goal to become self-reliant in the critical technology.

In reality, China is still a long way off even if it’s one step closer to self-sufficiency, according to one expert, adding that the country is still heavily dependent on foreign technology and lagging in the so-called leading edge part of the chip market.

Semiconductors are key components in everything from smartphones to modern refrigerators to cars. They’ve also become a key focus of the broader technology battle between the U.S. and China.

The world’s second-largest economy has for years invested heavily into boosting its domestic chip industry, but it has struggled to catch up with rivals in the U.S. and other parts of Asia. Increasingly, semiconductors are seen as key to national security for many countries and a sign of technological prowess.

There’s been a slew of announcements from major Chinese technology companies this year regarding chips made in China.

In August, Baidu launched Kunlun 2, its second-generation artificial intelligence chip. This week, Alibaba released a chip designed for servers and cloud computing. Smartphone maker Oppo is also developing its own high-end processors for its handsets, the Nikkei reported on Wednesday.

This is a step in becoming more self-sufficient in semiconductors but a small one.

Peter Hanbury

partner, Bain & Company

While these companies are designing their own chips, they might still have to rely on foreign tools to do so. But when it comes to manufacturing and the broader supply chain, China’s internet giants are still heavily dependent on foreign companies.

“This is a step in becoming more self-sufficient in semiconductors but a small one,” Peter Hanbury, a partner at Bain & Company, told CNBC by email. “Specifically, these are examples of locally designed chips but a lot of the IP [intellectual property], manufacturing, equipment and materials are still sourced internationally.”

The reason these companies are designing their own chips is because they can create semiconductors for specific applications so as to differentiate from their competitors.

Foreign-dominated supply chain

A closer look at the specifics of the silicon being designed shows China’s reliance on foreign companies.

Take Alibaba’s new Yitian 710 chip. That is based on architecture from British semiconductor firm Arm. It will also be built upon the so-called 5-nanometer process, the most advanced chip technology at the moment.

Baidu’s Kunlun 2 chip is based on the 7-nanometer process. Oppo meanwhile is reportedly working on a 3-nanometer chip.

Geopolitical vulnerabilities

Read more about China from CNBC Pro

Supply chain concerns

Washington has looked to bring semiconductor manufacturing back to the U.S., seeing it as key for national security, given the supply chain is very concentrated in Asia.

But like-minded nations are also trying to work together to ensure their semiconductor supply chains are secure.

Leaders of the the United States, India, Japan and Australia, a group known as the Quad, announced plans in September to establish a semiconductor supply chain initiative aimed at identifying vulnerabilities and securing access to semiconductors and their vital components.

A lot of the recent discussion on semiconductor supply chains was sparked by a global chip shortage that has hit industries from autos to consumer electronics, and worried leaders about their countries’ ability to secure semiconductors when required.

So where is China now?

However, to put things in perspective, TSMC is already working on 3 nanometer technology. SMIC would have to master the manufacturing processes that TSMC has been doing for years before being able to catch up.

“So even moving quickly forward across these existing technologies would not be enough to catch up and reduce reliance at the leading edge because the leading edge is constantly moving forward,” Hanbury said.

“It’s like running a race to catch a really fast runner while that runner is quickly running away from you.”