Shanghai adds advanced chip production to its 2021 priority list along with Tesla, digital currency

Che Pan
·4-min read

The Shanghai government said it aims to achieve “scaled production” of 12-nanometre semiconductors this year, as part of the nationwide effort to strengthen domestic production to cut reliance on imported chips amid ongoing US sanctions that restrict Chinese access to advanced foreign technologies and products.

The plan is one of 166 projects put forward for 2021 by the Shanghai Municipal Development & Reform Commission, according to its report to the local legislature. Other major tech-related projects on the list include a digital currency pilot programme and the second phase of the Shanghai factory operated by US electric carmaker Tesla.

While Shanghai authorities did not elaborate on what foreign technologies would be needed to achieve 12-nm mass production or which companies will take the lead, the proposal has nonetheless created debate in the industry – with some wondering how such an ambitious goal can be achieved in such a short time frame.

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Shanghai-based Semiconductor Manufacturing International Corporation (SMIC), the country’s most advanced chip foundry, began mass production of 14-nm chips in the fourth-quarter of 2019 and local media reported that it started on risk production of 12-nm chips last month. By comparison, Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics are currently producing 5-nm chips in volume.

Smaller nanometre process nodes are important, especially for consumer electronics products such as smartphones, because they boost circuit performance and reduce power consumption.

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China’s reliance on US and foreign technology is set to continue, according to analysts, as the production of 12-nm semiconductors still requires a lot of foreign-made equipment and materials.

Gu Wenjun, chief analyst at Shanghai semiconductor ­research firm ICwise, said he does not think the Shanghai announcement means it will fund a new wafer fab capable of making chips at the 12-nm node.

Rather, it is likely that SMIC will be put in charge of the Shanghai project as it can produce chips at the 14-nm and 12-nm nodes “without any serious problems”, according to another China-based semiconductor analyst, who requested anonymity due to the sensitive nature of the topic.

However, “capacity is still a problem and there aren’t sufficient clients for SMIC at the 12-nm node,” the analyst said.

The share of SMIC’s foundry services revenue derived from 14-nm and 28-nm nodes declined to 4.32 per cent in 2019, down from 8.12 per cent in 2017, according to its initial public offering prospectus.

SMIC said in recent stock filings that most of its technology suppliers are from Japan, South Korea, the Netherlands and US. After it was added to Washington’s Entity List in December, the company said the action could have a “serious, adverse effect” on its ability to progress beyond the 10-nm node.

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Last October, the Shanghai government unveiled a project called Dongfang Xingang – or Oriental Chip Port – which brought together more than 40 Chinese semiconductor companies in sectors from circuit design and materials to high-end equipment and manufacturing.

Officials from the Shanghai municipal government did not immediately respond to a request for comment from the Post.

Nevertheless, the announcement is emblematic of the country’s stepped-up efforts to develop semiconductor projects as hopes wane that the new Biden Administration will roll back some of export control policies imposed by the former Trump Administration.

White House press secretary Jen Psaki said in a briefing on Monday that “strategic competition with China is a defining feature of the 21st century,” adding that Beijing is engaging in conduct that “blunts the US technological edge”.

Earlier this week, a senior official within the inner circle of the ruling Chinese Communist Party said China must embrace a “whole country” approach and mobilise the nation’s private businesses to reduce reliance on foreign technologies amid US tech sanctions.

Shanghai’s aspirations to develop semiconductor projects are echoed by other provincial governments. Guangdong, China’s electronics manufacturing hub, said it aims to “make up for the shortcomings in IC, industrial software and high-end equipment” this year with a special project dubbed “Guangdong Strong Semiconductor”, according to its 2021 provincial government report published on Sunday.

In a separate effort, Shanxi province, known for its coal mining industry, said it will cooperate with China Electronics Technology Group Corporation (CETC) to develop two industry clusters specialising in semiconductor materials and components in the city of Xinzhou and in the provincial capital of Taiyuan, according to its 2021 provincial government report.

However, the CETC 13th Research Institute and 12 of its subsidiaries were blocked from sourcing US technologies after being added to the Entity List in August 2018 over national security concerns.

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