HomeTechUS-China Tech War: Without Advanced Chips, Can China’s Smartphone Industry Survive?

US-China Tech War: Without Advanced Chips, Can China’s Smartphone Industry Survive?

The global smartphone market has seen periods of turmoil in recent years, notably due to a shortage of chips that China must import to power its high-end handsets.

By Deanna Walker

China’s mobile phone industry is caught in the middle of a tech war that has seen the US and its allies ban exports of semiconductors used to power advanced smartphones. Illustration: Henry Wong

Tang Qi, a former phone dealer in Huaqiangbei, one of China’s largest smartphone gray markets in Shenzhen, has seen the ups and downs of the handset industry. But one thing is certain: The business has always hinged on semiconductor chips.

Now, with the golden years of globalization over, the country’s mobile phone industry is caught in the middle of a tech war that has seen the US and its allies ban exports of the semiconductors that power advanced smartphones. leave far away. Definitely

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From the turn of the century until 2010, Huaqiangbei – an electronics district of 1.45 km² (0.56 sq mi) in the center of Shenzhen – was the city’s most prosperous area. Before being shipped around the world, the latest mobile phones – genuine, smuggled or knock-offs – can usually be found there.

However, its fate shows what can happen when access to high-end semiconductor chips becomes more difficult and domestic innovation falters.

“Before 2004, there were no counterfeit phones in the market,” Tang said. “When MediaTek offered integrated chips with software in 2005, counterfeit mobile production became easier, counterfeiting and knock-offs began to flourish.”

Taiwan-based semiconductor design company MediaTek opened its technology to mainland China in 2003 amid heated relations across the Taiwan Strait. In 2007, it joined the Google-led Open Handset Alliance with over 80 global hardware manufacturers, software developers and telecom operators to develop the Android system.

Access to chip technology and operating systems created opportunities for Chinese manufacturers, many of whom already supplied components to big-name foreign brands such as Motorola and Nokia under original equipment manufacturer (OEM) agreements to make their own phones. provided. But the technology has also given rise to a booming counterfeit market.

According to Tang, small companies in Guangdong would buy MediaTek chips loaded with software, obtain other components, and ask a factory to assemble them.

“More than 80 percent of counterfeit mobile phones use MediaTek chips,” he said. “The only other things the phone needs to be labeled and look like Samsung or Sony are a battery and a cover.”

During the heyday of his business, Tang had 20 Computer Numerical Control (CNC) machines that made all kinds of covers for counterfeits and knock-offs day and night.

The Shenzhen Economic Daily reported that Huaqiangbei, once home to thousands of electronics companies, saw annual turnover top 120 billion yuan (US$17.4 billion) between 2009 and 2011.

In May 2010, the monthly rental price for a ground floor shop in Huaqiangbei could exceed 3,000 yuan per square meter – at a time when the city’s top luxury malls could only charge a few hundred yuan per square meter.

However, the counterfeit mobile phone business began to decline in 2012 as MediaTek’s chips could not match the technological prowess of the latest generation of smartphones, such as Apple’s iPhone and Samsung’s Galaxy.

“The chip, the core component of the latest generation of smartphones, became harder to copy, copycat businesses simply died because they could no longer copy high-end technology and sell it cheaply,” he said.

The global smartphone market has seen periods of turmoil in recent years, notably due to a shortage of chips that China must import to power its high-end handsets. There are also concerns that domestic component suppliers could lose orders with multinationals looking to break away from China amid heightened geopolitical tensions between Beijing and Washington.

The chips have emerged as a major battleground in the US-China tech war, as they power everything from electric vehicles to the space shuttle. The US is blocking China’s access to both semiconductor chips and the equipment used to make them, aligning with the Netherlands, Japan, South Korea and Taiwan to restrict exports to the mainland.

Last year, after experiencing stringent Covid-19 restrictions in mainland China, Apple revealed its intention to move parts of its manufacturing process out of China and into emerging markets such as India and Vietnam.

Apple’s prime contractor, Taiwan-based Foxconn, recently announced plans to build a huge new factory in Vietnam after investing US$500 million in its Indian subsidiary last year. Foxconn’s Zhengzhou factory in the central province of Henan is the world’s largest iPhone assembly site, employing 300,000 workers and accounting for 50 to 60 percent of Foxconn’s global iPhone assembly capacity.

Still, Tang remains optimistic.

“Transferring the industrial chain overseas is not as easy as imagined, and most of the deep-processed raw materials are re-exported from China,” Tang said.

“If the yield rate of high-end mobile phones produced in India and Vietnam is about 50 or 60 percent now, it will have to increase to 200 percent to reach the current yield rate of Chinese factories. It is a long process.” This is why Apple is currently unable to leave China for production of its latest iPhone series.”

The New York Times reported in September last year that Chinese companies with operations in India would still play a key role in Apple’s plans to make some iPhones in the country. In Chennai, India, subsidiaries of Chinese companies will supply chargers and other components for iPhones, the newspaper reported, citing people familiar with the situation.

Zeng Liaoyuan, an associate professor of information and communications engineering at the University of Electronic Science and Technology of China in Chengdu, said difficulties for Chinese manufacturers will come soon and last at least two decades, before China can successfully upgrade on its own. Can make chips.

“Negotiations have taken place [among academics] about changing the field of competition [with the US], However, in manufacturing, there is no area that chips can bypass,” Zeng said.

“Critical to the vast telecommunications industries and digital economy, China cannot afford to abandon the smartphone sector. Only by inspiring scientists, researchers and engineers to innovate, China will be able to understand chip-making technologies.”

A spokesman for a Chinese firm under US sanctions told the Post that Chinese companies will face an “innovate or die” situation amid fierce competition in the 5G generation. The company did not want to be identified due to the sensitivity of the matter.

5G networks have been deployed around the world at an amazing pace and all Chinese enterprises should cultivate and cultivate the soil for disruptive innovations, according to the company, adding that users will constantly be able to experience a full-scenario digital experience focused on mobile phones. Will be able to enjoy among other terminals.

John Kou, a veteran electronic engineer in his early 50s in Shenzhen, said China’s entire electronics sector would be affected if foreign high-end smartphone makers continue to diversify.

“Brands like Apple have really driven the upgrading of China’s electronics industry chain over the years,” he said. “They set high process requirements, be it electronic components or screen glass. To secure their orders, Chinese factories are incentivized to upgrade their production lines and train their workforce.

“If foreign brands move overseas, China’s domestic demand alone is not enough to generate support for the R&D and production of the next generation of high-end electronic products.”

Liu Kaiming, head of the Institute of Contemporary Observation in Guangdong, attributed China’s emergence as the world’s smartphone manufacturing hub to its complete supply chain, the existence of a large number of skilled workers and a huge domestic market.

“The maturity of the supply chain is the biggest advantage of Chinese mobile phone manufacturing, and leaving China to reset the supply chain is really a huge cost increase for brands,” said Liu, whose institute oversees supply chains across hundreds of OEM companies. is watching. in China for two decades.

However, geopolitical changes are affecting economic dynamics. Since mobile phones are important to the ecology of China’s electronics industry, China should try to minimize political differences and maintain friendly trade relations with most countries, Liu said.

“Southeast Asia is emerging as a new global manufacturing hub. China should use the established economic relations with Southeast Asian countries to jointly build a supply chain with complementary advantages, synergistic efficiency and mutual benefit, ” They said.

Liu said that as of today, 90 percent of Apple’s latest iPhones are still made in China, whether it is India or Vietnam, there is still no capacity to mass-produce new iPhones anywhere else.

But that could all change in three years’ time, with maybe 30 percent of such production shifting from China, he said.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please check out the SCMP app or visit SCMP’s Facebook and Twitter page.

Source: South China Morning Post

The views expressed in this article are the author’s own and do not necessarily reflect Coverpage’s editorial stance



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