China donated $ 2.4 billion to giant SMIC to build chip factories to compete with the US

China has come up with a master plan to match the US in the field of manufacturing advanced chips. The US blocking Chinese companies from accessing chip technologies with the “US factor” puts Beijing in a difficult position. This pushes China to have autonomy of chip technology, the brain of all electronic devices.

In its first big move, SMIC agreed to a joint venture with Shenzhen City to develop and operate a chip factory that can produce chips of 28 nanometers or more. The joint venture targets production by 2022, and when it’s running at full capacity, it can produce 40,000 12-inch finished sheets per month.

China is looking to build a group of tech giants that can rival Intel Corp. and Taiwan’s TSMC in the production of state-of-the-art chips over the next five years. This is also an attempt for China to compete for global influence with the US.

For the time being, Beijing is rapidly cutting its reliance on Western technology for important products like chips. That becomes even more urgent in the context of the whole world falling into a shortage of chips due to the unusual effects of the Covid-19 pandemic.

Meanwhile, Washington also blacklisted many Chinese technology companies, including SMIC’s, making them inaccessible to US-based technologies. This leaves Chinese companies with no access to state-of-the-art chip manufacturing technology even though they are not made in the US.

For now, it is unclear whether the Joe Biden Administration can allow US companies to continue selling to SMICs on a large scale or ease the pressure on European allies and elsewhere to put pressure on. Chinese companies or not.

Meanwhile, business-government relationships could be key for the country to achieve its ambitious goal of competing with the United States in semiconductor technology. Chinese chipmakers also need to surpass their 28-nm chip production target to become more mature. These chips are currently being used in industries such as manufacturing automation and smart TVs. However, it takes billions of dollars and years of testing for China to produce more sophisticated chips to use them for smartphones.

SMIC’s Shenzhen project will also be one of a handful of facilities in China to manufacture 12-inch wafers. Most other facilities make only 8-inch panels. The larger wafer size helps save costs because more chips can be joined on it. However, it is much more difficult to fabricate.

According to the plan, SMIC will own 55% stake in this factory. A Chinese government organization owns 23% of the shares.