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‘De-Americanise’: How China is remaking its chip business

Last October, construction plans for a hulking semiconductor factory owned by a major state-backed company in central China fell into disarray. The Biden administration had escalated the trade war over technology, severing China’s access to the Western tools and skilled workers it needed to build the most advanced semiconductors.

Some employees with U.S. citizenship departed the company. Three U.S. equipment suppliers almost immediately halted their shipments and services, and Europe and Japan are expected to do the same soon.

The facility belonged to Yangtze Memory Technologies Corp., or YMTC, a memory chip company that Xi Jinping, China’s president, has extolled as a flag-bearer in China’s race toward self-reliance. Now, the chipmaker and its peers are hurriedly overhauling supply chains and rewriting business plans.

Nearly seven months later, the U.S. trade barriers have accelerated China’s push for a more independent chip sector. Western technology and money have pulled out, but state funding is flooding in to cultivate homegrown alternatives to produce less advanced but still lucrative semiconductors. And China has not given up on making high-end chips: Manufacturers are attempting to work with older parts from abroad not blocked by the U.S. sanctions, as well as less advanced equipment at home.

The tough U.S. restrictions stemmed from alarm over what officials in Washington viewed as the threat posed by China’s use of its technology companies to upgrade its military arsenal. Jake Sullivan, the national security adviser, recently characterised the sentiment as part of a “new consensus” in Washington that decades of economic integration with China was not wholly successful, adding that the new controls were “carefully tailored” to go after China’s most cutting-edge semiconductors.

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