Date : 06/11/2023

Relevance:: GS Paper 2- International Relations - Impact of Policies on India

Keywords:Tech race, Made in India, AI, Quantum computing, CHIP Act, 5G, Semiconductor mission

Context-

• In September 2022, the US National Security Advisor, Jake Sullivan, announced a significant shift in US policy regarding technological leadership over China. This policy change marked a transition from merely staying a few generations ahead in key technologies to striving for as substantial a lead as possible, particularly in computing-related technologies. The United States identified three key technology families that would shape the next decade: microelectronics, quantum information systems, and artificial intelligence.
• The rationale behind this policy shift was rooted in national security concerns, emphasizing the need to maintain an edge over potential adversaries. As a result, the US embarked on efforts to limit China's progress in these technological areas, reshaping the global geopolitical landscape.

Technology Race Between the US and China

• Historically, innovation and technological advancements have played pivotal roles in warfare and global power dynamics.
• China has traditionally resisted American big-data companies such as Facebook and Google to operate within its jurisdiction. However, both countries still have significant dealings on the technology side.
• The steps by the U.S.A. against Huawei mark the first real prohibitory action by a Western government. This has been done on the ground that China’s equipment is designed to aid snooping.
• For over a decade, the US and China have engaged in a fierce race to develop artificial intelligence (AI) and other emerging technologies to gain a competitive advantage, with implications for their power, wealth, status, and influence.
• In April 2017, the US initiated Project Maven to enhance AI capabilities for target identification and surveillance, underscoring the role of advanced AI chips in military applications. In contrast, China acknowledged the strategic importance of AI in warfare, with significant subsidies allocated to its semiconductor industry in 2014. The "Made in China 2025" plan, launched in 2015, set the goal of achieving semiconductor self-sufficiency by 2025.

US Efforts to Slow Down Chinese Chip Industry

• Recognizing that technological advancements will shape national security, the US has made preserving its technological edge a top priority.
• While the Trump administration adopted an aggressive trade war and sanctions policy against China, the Biden administration has moderated these approaches and sought areas of cooperation. However, the US remains committed to limiting technology flow to China, specifically semiconductors.
• The CHIPS Act, signed by President Biden in August 2022, aims to invest $52 billion in restoring US leadership in semiconductor manufacturing and research and reducing reliance on foreign-produced chips.
• In addition to these measures, the US has imposed sweeping export control regulations, making it challenging for China to obtain advanced chips and chip manufacturing equipment. These export controls extend to AI and semiconductor technologies, 5G and below, artificial intelligence, high-performance computing, and cloud items.
• The policy also restricts chip exports with a process node smaller than 16 nanometers, effectively preventing China from acquiring cutting-edge chip manufacturing capabilities.

US Partners Impose Technology Controls on China

• The US export control policy on AI and semiconductor technologies was initially implemented unilaterally. However, the US engaged with key allies to establish a coordinated approach. In January 2023, the US, Japan, and the Netherlands reached a landmark agreement on semiconductor technology export controls to China.
• Subsequently, the Dutch government imposed export restrictions on its most advanced semiconductor machinery, including extreme ultraviolet lithography systems (EUV).
• The Japanese government followed suit in March 2023, imposing export controls on 23 types of semiconductor manufacturing equipment, including Deep Ultraviolet (DUV) Immersion Lithography systems.
• The Netherlands further strengthened export restrictions on semiconductor equipment in June 2023, impacting companies like ASML, a Dutch firm that supplies key equipment to chip makers. Japan joined the US in restricting exports of equipment for sub-14 nanometer chips.

China's Expanding Capabilities and Challenges

• China has become a significant player in the global semiconductor industry, owing to its involvement in the globalized supply chain. Integrated circuit chips are integral to mobile communication devices, and China's role in the supply chain is evident in products like the iPhone.
• While the design originates in the US, production occurs in Taiwan, packaging takes place in Southeast Asia, and assembly comprises components from Japan, South Korea, Europe, and China.
• China's ambitions in the semiconductor industry have been substantial, with investments from the China Integrated Circuit Industry Investment Fund (the 'Big Fund'). The Chinese government announced plans to raise approximately $41 billion in funding for its semiconductor initiatives.
• To counter US-led efforts to restrict advanced chip technology access, China is focusing on manufacturing cutting-edge processors and expanding its capabilities, Huawei unveiled the Mate 60 Pro with an advanced 7-nanometer processor, highlighting China's determination to continue innovation despite export controls.
• Legacy chips, often considered outdated, are essential for various advanced applications, from microwave-integrated circuits to electric vehicles. China's dominance in this area would give it leverage over critical sectors, including energy infrastructure, the automotive industry, and consumer electronics.
• While China has made strides in equipment for chip assembly and testing, it faces challenges in fabricating advanced manufacturing nodes, particularly in developing EUV lithography technology. This advanced technology is vital for chips with process nodes below 5 nanometers.

Opportunities and Challenges for India

• India's capabilities in large-scale semiconductor manufacturing are limited. Previous semiconductor policies in 2007 and 2013 failed to make significant progress due to delays and inadequate financial support.
• In March 2022, the Indian government launched the India Semiconductor Mission (ISM) with an ambitious vision to establish a semiconductor and display design and innovation ecosystem. ISM allocates INR 76,000 crore to support companies investing in semiconductors, display manufacturing, and the design ecosystem.
• However, to achieve semiconductor self-reliance, India faces several challenges. These include inter-ministerial coordination, infrastructure provision, and funding for policy implementation.
• Additionally, addressing the issue of foreign firms owning intellectual property underlying chip designs is critical.
• Talent development and infrastructure concerns, especially land availability, must be addressed to build a robust semiconductor ecosystem.

Conclusion

In conclusion, the US-China tech race has far-reaching implications, not only for these two global superpowers but also for countries like India aspiring to achieve semiconductor self-reliance. As technology continues to define the 21st-century geopolitical landscape, the strategic decisions and actions taken by nations in the semiconductor industry will have a significant impact on their economic and national security. India's journey toward semiconductor self-reliance, like China's, presents both opportunities and challenges, requiring careful policy planning and execution.

Source - IDA