Earlier this week Scott Foster, an analyst for Tokyo-based Lightstream Research and frequent Asia Times columnist, opined on China’s efforts to achieve their Made in China 2025 goals, with a specific focus on semiconductors.
Foster makes a few main points:
1 – China is failing to fulfill its ambitious goals. For example, the country set a goal of producing 70% of their own needed semiconductors by 2025, but that they will not even account for 20%.
2 – On the other hand, China has been and will continue to invest in semiconductor manufacturing equipment, which is manifest in increased production. As proof, China’s spending on wafer fab equipment has doubled in the past five years and, consequently, the value of semiconductors manufactured in China will also (nearly) double over the next four years.
3 – As a case-in-point, Foster suggests that readers “keep an eye on Yangtze Memory Technologies Company (YMTC), China’s homegrown maker of NAND flash memory… It aims to double 300mm wafer processing capacity to 100,000 per month by the end of this year.”
4 – Foster observers that YMTC “makes chips using equipment that is supplied almost entirely by American, European and Japanese companies” but that YMTC is not a threat, and American policymakers should leave them alone.
Ultimately, Mr. Foster’s conclusion is wrong. YMTC is a threat, as SOSi’s James Mulvenon has persuasively documented.
Surprisingly, Foster recognizes that YMTC is “a competitor focused on market share, not the maximization of profit” and that they are “almost certainly losing money,” but he fails to combine the two points. YMTC need not worry about profitability when they propped-up by Chinese government grants as a vital strategic investment in communications and military capabilities. (For an explanation of how there is no clear line between the China’s civilian and military economies, see pages 7-8 of our recent white paper.)
The US in coordination with like-minded nations has succeeded to slow the proliferation of state of the art semiconductor manufacturing equipment to China’s military-linked entities, but as technology advances, China acquires older generation of equipment and innovates. Anyone who doesn’t believe that China is a threat to flash memory semiconductors hasn’t paid attention to smartphones, solar panel, telecommunications equipment, flat panel displays, and LED equipment. This is why the Biden Administration needs to keep the pressure on and restrict the supplies to YMTC, a Chinese-military linked entity.