Amidst the fierce tech rivalry with the United States, China has once again startled the sole superpower by starting the construction of a semiconductor industrial complex in collaboration with a South Korean company. The project is meant to ensure the abundant supply of semiconductors in the country. The supply had been disturbed not only because of the pandemic but the hostile trade policy enacted by the government of former American president Donald Trump. The initiative appears to be a step in the direction of self-reliance, which the communist country has been seeking for some years.
According to media reports, the municipal government of Wuxi, a city in the eastern Jiangsu province, has partnered with South Korean memory chip giant SK Hynix to develop the China-Korea Integrated Circuit Industrial Park. Construction on the $310 million project has already started. It is expected that the city will become a hub of new semiconductor related projects. According to the South China Morning Post, Hynix operates a wholly-owned fabrication plant in Wuxi, where it has been producing memory chips since 2006. The company completed the expansion of its fab for dynamic random-access memory chips in April 2019. The daily observes that the development of a new IC industrial park in Wuxi reflects Beijing’s determination to increase the nation’s self-reliance and tide over the shortage of chips. To this end, the Chinese government has been making smart moves, showering its semiconductor sector with favours, offering tax cuts and subsidies in a bid to encourage this crucial investment. Over the past two decades, Chinese chips manufacturers received $50 billion in subsidies. This policy proved to be beneficial with the semiconductor exports of the country hitting the $101 billion mark in 2019, a 20 percent increase from the previous year.
The US is the dominant producer of semiconductors that experts believe are needed for everything without which modern life is unthinkable. They are at the heart of economic growth and a vital component of technological innovation. From computers to smartphones and cars to data center servers – nothing can be manufactured without these conductors. According to market analysts, the US controls 48 percent of market share in terms of revenue with eight of the 15 largest semiconductor firms being American.
Beijing is dependent on the West for the import of this crucial item, pumping over $300 billion during the last few years into the purchase of these vital elements. Currently it just supplies 30 percent of its chips domestically. Exploiting the situation, the US is trying to use its comparative advantage, making sure that China does not make strides in this crucial sector. To thwart the advancement in Chinese technology, the US placed sanctions on the country’s largest chip maker last September, prompting the second largest economy to come up with a solution. Two months later, Beijing announced its 14th five year plan, vowing to achieve technological reliance. In March, Chinese Premier Li Keqiang hinted at making substantial investment in core technologies like chips, artificial intelligence and 5G. The purpose of the move was to catch up with the US and the West.
This has created the specter of a fierce tech war that would not only affect China and America but the global economy as well. Many are already describing it as a cold war between the two giant powers, fearing the worst in the coming years with the US already considering China a big rival not only militarily but technologically as well.
China is the industrial manufacturing house of the world – producing a myriad of products that are crucial to keep the global economy afloat. In 2020, it churned out almost 1.5 billion cell phones. In August 2021, around 39.8 million finished computers were produced in China while its car production and sales respectively reached 2.84 million units and 2.83 million units in December 2020, an increase of 5.7 percent and 6.4 percent from a year earlier.
It is true that American manufacturing units have suffered badly because of the rise of China. Some estimates suggest more than 55000 industrial units were either closed down or switched their production to China and other parts of the world since the communist country joined the World Trade Organisation. But this shift of industries and manufacturing units has nothing to do with ‘Chinese capitalist rapaciousness’. On this basis, it is infantile to pick a fight with the second largest economy of the world. It is factors such as cheap labour and cost of doing business that decide the movement of capital. If a capitalist finds low production cost in China, he or she will move investment or industry there but if such a phenomenon exists anywhere else, capital would follow it.
China used to be called the sweatshop of the world, helping enrich Western companies. Over the years, Chinese entrepreneurs developed skills required to compete with Western capitalism. It is true that the Chinese state played a crucial role in helping its entrepreneurs but does the Western world not do the same. Did the UK not nationalise Northern Rock and other financial entities? Did the Obama administration not shower hefty bailout packages on banks and other business entities? Did such favours reflect the true spirit of a free market economy? Do they not fly in the face of tall claims of non-intervention by the state? So, if China intervenes in the same way, why should the West describe it as protection or term it hegemonic policies of the communist party?
Creating problems for such an economic giant will end up not just hurting China but the global economy badly as well. Developing countries will especially find it hard to find cheaper products from any other place than China. A tech war between the two largest economies will also pose serious challenges to European countries that are heavily dependent on China for the supply of a number of raw materials and finished goods.
The history of industrial development could not have been possible without the cooperation between states. Japan and South Korea are today developed because of the heavy American investments in the aftermath of World War II. Europe came out of the wreckage of the war, destroyed and debilitated – and again it was the US that extended a helping hand but in the process the American economy also flourished, with the Western countries buying US products and boosting the American manufacturing sector.
Had the US expressed reluctance in transferring technology to other parts of the world, Europe, Japan, South Korea and several other countries would not have been as developed as they are today. So, the ruling elite of the mighty state should come out of its paranoia. China is not seeking global dominance. Its military budget is far less than that of the US, which still has the largest number of powerful companies. It still wins the biggest number of Nobel prizes. Therefore, picking a fight with China does not make any sense. The two powerful economies should instead explore ways they can cooperate and sustain the global supply chain at a time when the global economy is already grappling with the aftereffects of the pandemic which caused the loss of trillions of dollars in manufacturing alone. Cooperation is the way forward. This is the only way to bolster the global economy that has been badly ravaged by the merciless attacks of a contagion.
Email: egalitarianism444@ gmail.comAbdul Sattar, "Saving the global economy," The News. 2021-10-12.
Keywords: Economics , Economic growth , Global economy , Economic giant , Trade , Imports , Exports , Li Keqiang , United States , China