China to Decouple From US Chips?

Now move on to China-related stories. Chinese officials directed the country's largest telecom carriers earlier this year to phase out foreign chips by 2027. Specifically, these are chips that are key to China's networks, according to the Wall Street Journal today, citing people familiar with the situation. The Wall Street Journal report says that China's Ministry of Industry and Information Technology ordered state-owned mobile operators to inspect their networks for non-Chinese semiconductors and map out timelines to replace them. This is the very first time such specific deadlines were imposed, and the move would impact U.S. chip giants Intel and Advanced Micro Devices, or AMD. China was in fact Intel's largest market last year and was responsible for more than 27 percent of Intel's total revenue. So I had a lot of questions after seeing this news, and to try to get some of them answered, I spoke to an expert on the subject. Here is Robert Atkinson, president of the Information Technology and Innovation Foundation. So China is telling the nation's largest telecom carriers to phase out foreign processors. I mean, why are they doing this? Well, they're really doing it for two reasons. One reason is they do not want to be dependent upon foreign semiconductors for their digital economy, their advanced economy. They just don't want to buy from us anymore because they're afraid perhaps that we might cut them off if there were a war in Taiwan or some other kinds of conflict. So they want independence from us. The second reason is that they're desperate to grow their semiconductor industry, and the Intels and the Samsungs of the world will get less sales. The Western companies will get weaker. The Chinese companies will get stronger. Okay, so these processors are being used in telecom. What purpose do these processors serve? Well, all telecom equipment. So for example, when you make a cell phone call, your call goes to essentially a base station or a tower, and then it goes into switches and moves all the voice around. Those are all fundamentally powered by semiconductors. Now what's interesting about that is the semiconductor you have in your smartphone and I have in my laptop here are pretty advanced, and they're getting more and more advanced. You don't need the same level of sophistication in cell phone towers and switches and the like, and the Chinese are able to make those kinds of semiconductors. Yeah, that's what I'm getting at here. So this is entirely possible, it seems like to me, that if they wanted to do this, they could, right? Oh, technologically, this isn't a challenge for them, no. I mean, they might suffer slightly degree, you know, maybe the performance isn't 100% compared to what they would get with American or Korean chips, Taiwanese chips, but it's pretty close. They'll have an adequate, perfectly well-performing telecom system using Chinese chips versus foreign chips. Would you say this move by China is defensive in nature more or offensive in nature? It's both. It's initially defensive in nature because they, well, it's really multiple things. First of all, it's sending a message to the US government, particularly the Biden administration, which has imposed semiconductor export controls on China. And it's telling them, if you do that, we're going to go all the way, and we're just going to say that the Chinese companies can't buy anything. How do you like that? And so they're really sending a message to the Biden administration that has pushed a lot of their agenda on this notion of security. Well, we want to we don't trust the Chinese chips and things like that. Well, they're turning the tables on us. Well, we don't trust your chips either. All right, just final question. How worried, if at all, should the US be at what China is doing here and what can the US do? Well, we should be really worried. The Chinese are really smart because they only bite a little bit of the apple at a time. Oh, well, this is only the telecom sector. It's not that big. But what the Chinese government does is they keep taking more and more bites out of the apple. Finally, one day we'll wake up and all that's left is the apple core. And we're like, wait, what were we doing? Why were we asleep? The US government should be very, very concerned. One thing the government could do would be to limit the exports of Chinese chips. Because the Chinese are selling a lot of chips at the more mature nodes. What's it called? The more legacy chips that aren't as complicated. But those are massively subsidized and they're really driving the ability of the Chinese to innovate. We could say we're not going to import those chips. How do you like that? OK, well, I hope the US does something. But thank you very much for your time today, Robert. My pleasure. Thank you.