The inflection point is coming, and it is imperative to “de-beautify” the chip!

The internal circulation is the main body, and the internal and external circulations promote each other. This is the new pattern of China’s development. The reason why the internal circulation is the main body is because the external environment has changed. A key factor that determines changes in the external environment is Sino-US relations, which can be said to have undergone a qualitative change.

A direct consequence of changes in the external environment is that key core technologies are stuck. On September 11, the general secretary listed several aspects that are subject to human control, such as industry, agriculture, and energy, at the Scientist Symposium. The most typical example in the industry is the chip, which is the most dependent on others and the most easily controlled by others.

In order to open up the internal circulation of China’s manufacturing and information industries, the chip must be conquered.

1. Chinese chips are inherently insufficient

This round of information technology revolution originated in the United States. In 1947, Americans invented the Transistor. Nine years later, an American engineer Jack Kilby and another American physicist jointly invented the integrated circuit, which concentrated many shrinking transistors on a semiconductor silicon wafer. It is called a large integrated circuit, also called a chip.

Silicon is between conductors and insulators, so it is called semiconductor. Silicon has been purified to become a high-performance semiconductor material, which is the parent of the chip. The place where silicon is used to research and produce semiconductor parent chips is also called Silicon Valley. So the chip is also called the semiconductor industry, also called the large-scale integrated circuit industry.

Kilby, who invented the chip, won the Nobel Prize in Physics in 2000. As the computing processing center, the chip laid the foundation of modern industrial civilization, and also opened the prelude to the information revolution of the 20th century. Maybe people didn’t realize this at the time, because the chip was still relatively rudimentary. Until now, the chip has become smaller and more powerful.

The Chinese translation of the word “chip” is really a stroke of genius, meaning the heart and the engine. In the future, even in the cloud era and into the quantum era, chips will still be indispensable.

After the chip, the United States has further related inventions, such as computers, the Internet, mobile phones, smart phones, etc., which together constitute the information technology revolution.

Therefore, in this round of information technology revolution, the United States is the pioneer and leader. Now the United States is always taking the initiative and is upstream everywhere, because it is the birthplace of technology. In this vertical industrial chain, being in the downstream, it is bound to be controlled by others.

In 1963, the fifth year after the chip appeared in 1958, the Japanese imported integrated circuits from the United States. At that time, Japan was in the recovery period after World War II, and the United States adopted supportive policies and technical assistance to Japan. As a result, making microchips, the spirit of Japanese craftsmanship, is beyond blue.

As a result, the Japanese semiconductor industry has come from behind, and has been pushed to the civilian consumption field on a large scale. So in the 1960s and 1970s, Japan was the leader in the semiconductor industry.

In 1965, Japan and South Korea normalized their diplomatic relations, and Japan began to set up factories in South Korea. The mentality of Japan and South Korea also turned a blind eye because of Japan’s historical debts. As a result, South Korea completely mastered the technology imported from Japan from the United States. , even better than Japan in some respects.

In the 1960s and 1970s, the United States, Japan and South Korea, like a wave, chased after each other and formed an international chip industry chain.

In 1965, China realized that the development of large-scale integrated circuits was a very important thing, but during the Cold War, although China developed chips with the system of researching two bombs and one satellite, until the early 1980s, it was closed to the country, high-tech and developed countries. In a state of isolation, the chip industry has not made great progress.

After the reform and opening up, in 1982, the Office of the Leading Working Group on Electronic Computers and Large Integrated Circuits was established at the State Council level. This office has been around for nearly 40 years from 1982 to the present, and it still exists today, referred to as “Daban” for short. It should be said that in the past 40 years, chips have not been neglected.

However, domestic chips are still relatively backward in the world, especially for high-performance chips. There is a huge gap. Three-quarters of the world’s chip market is in China, but about 80% still have to rely on imports. Chip imports cost more than twice as much foreign currency as oil. Oil imports are 140 billion US dollars, and chip imports are more than 300 billion US dollars.

There are also some low-end chips being exported, which are about 100 billion yuan, but the deficit is still more than 200 billion US dollars.

In the global chip industry chain, we are in the middle and lower reaches. Upstream high-end technology, core technology, key components, and key patents are not in our hands. At present, we do not have one of the leading companies in the global chip industry chain.

The most typical memory chip in the chip, currently the United States accounts for half of the global market, South Korea accounts for about 24%, Japan accounts for 10%, Europe accounts for 8%, and China accounts for 3%. The market position is very marginal.

Looking back, the development of Chinese chips in the past 60 years has missed two opportunities. The first time was in the golden stage of chip invention and development. The United States, Japan, South Korea and Europe were basically synchronized to form a global industrial chain. At that time, we were closed to the country. The second time was after the 1990s. The route of market-changing technology met Wasson in 1996. The agreement hindered us and delayed our catch-up pace.

In 1996, 42 developed countries in the West signed the Wassenaar Agreement to block advanced technologies from China, focusing on semiconductor chips.

China’s chip industry has grown rapidly in the past decade. There are more than 2,000 chip manufacturers that can mass-produce 14-nanometer chips. The industrial chain is gradually moving from the middle and lower reaches to the middle and upper reaches. The country’s industrial policy on chips is more intensive and the intensity is also increasing.

At present, China and the first camp, the United States, Japan and South Korea, have two to three generations of chip technology iterations. The goal is to shrink to two or one and a half generations with the first camp in 2025. What does that mean? From the current 14-nanometer mass production, it can mass-produce 7-nanometer and 5-nanometer by 2025.

It was recently reported that TSMC will start 3-nanometer mass production in the next year. Of course, the chip will not be infinitely small. According to scientists’ calculations, the limit of the chip is 2 nanometers, which is determined by the molecular diameter of silicon.

2. Why is the chip so difficult?

The chip industry has its unique internal structure and industrial characteristics. The chip industry chain is divided into five sub-chains, or the chip industry is divided into five industries.

First, design. How to integrate hundreds of millions of circuits together needs to be designed first. The world’s largest company in chip design is the British ARM, while the design software, the American EDA occupies a monopoly position. The biggest news in the chip industry recently is that Nvidia in the United States will acquire ARM from the United Kingdom, and the United States will have a stronger monopoly in the chip industry by then.

Huawei’s HiSilicon, the design capability can reach 7 nanometers. I once asked Dong Ming, vice president of Huawei, why China didn’t buy it? Answer: For companies like the US and Europe, China will never have the opportunity to acquire them.

Second, manufacturing, including the production of finished products and semi-finished products. The semi-finished products are wafers, and high-purity wafers are basically monopolized by the Japanese. The smelting of silicon, the Japanese can smelt 90.9% to 119%, and then the wafers made are the best.

We make chips on the basis of wafers. We all know that TSMC is the largest in this industry, and China’s SMIC is currently the fifth in the world. Of course, it is only the fifth largest in the world in terms of output, the chip grade is low, and the profit margin is not high, because many patented technologies are not in their own hands, and they are also strictly regulated by the United States.

Third, packaging and testing. Compress the chip onto a board for qualification testing. Because there are too many circuits and contacts in the chip, there are a few ten thousandths of error in one place, and the final result is also a considerable error, so it must be tested one by one.

Packaging and testing are basically labor-intensive. In this industry, China is not far behind the world, or even in a leading position.

Fourth, equipment. Everyone knows that the equipment for producing chips, the most sophisticated EUV lithography machine is the Netherlands ASML. In Japan, the equipment for producing wafers is mainly dominated by companies such as Mitsubishi and Sony.

The 7-nanometer process lithography machine is currently only available from ASML in the Netherlands, with a price of more than 100 million US dollars, and money may not necessarily buy it. Shanghai Microelectronics has been able to produce equipment to make 28-nanometer chips.

Fifth, auxiliary materials. Including photoresists, masks, targets, packaging substrates, etc., these materials are still the bottleneck in China.

Chip making is so difficult, yet so important. Its characteristic is its basic and strategic position in the entire national economy. Whether it is people’s livelihood, national defense, industry, equipment, aerospace, etc., a problem with the chip is equivalent to a problem with the human heart.

Chips are also a fully competitive industry in the world, but the barriers to entry are high, the cycle is long, capital-intensive, technology-intensive, and talent-intensive. With tens of billions of dollars in investment and thousands of R&D personnel, it is basically a competition among limited oligarchs around the world and an international market competition that crosses national borders.

However, due to its important strategic value, chip competition is not only market competition, but also national competition, and even a powerful weapon in international trade wars, becoming a key industry for restrictions and sanctions among competitors. National competition and market competition have different competition rules.

3. Chips in the context of Sino-US competition

Since the Sino-US trade war, chips have become a hot word and a focus. On September 15, due to the pressure of US technology monopoly, TSMC officially stopped OEM for Huawei Kirin chips.

Huawei spent 6 million yuan to pull back the last batch of chips from Taiwan on a chartered flight. It is said that all Huawei executives raised funds. TSMC also took care of its compatriots and gave all the goods it could to Huawei. However, the chips stored by Huawei are only enough to support mobile phone shipments in the first half of 2021.

Recently, the US Department of Commerce announced that SMIC will be listed on the US entity list. SMIC just went public in China and raised more than 20 billion. If SMIC has problems with upstream equipment and technology, the production of high-performance chips will regenerate variables, and the prospects are not good.

In the field of chips, China is basically unable to counteract US sanctions. Supply and demand and technology are extremely asymmetrical. Intel, Qualcomm, Apple, and Microsoft are all strongly dependent on us, but weakly dependent on China.

Just like the current Douyin and WeChat, if the United States wants to contain it, we can’t counter it, because Google has already left China, and Facebook has never been to China at all.

Both the U.S. national security strategy and the U.S. strategy toward China regard China as its number one competitor, and comprehensive containment of China has become a national policy. Chips, asymmetrical and precise strikes, have the lowest opportunity cost to the United States and hurt me the most.

The trade war with tariffs as the target has risen to a technological and industrial war with chips as a weapon, and Huawei has become a victim. The successor was detained, the supply of chips was cut off, and the operating procedures expired at the end of the year. The US Department of Commerce has listed more than 300 entities in China, and Huawei has exclusively owned more than 60.

Of course, there is also a reason for the United States to be afraid of Huawei. The information technology revolution is mainly initiated by American communication companies. Huawei is a company with the DNA of the communications industry, not only with mobile terminals, but also with world-leading 5G technology.

Just like the space competition between the United States and the Soviet Union in the past, fighting for the initiative in space, how can we compete for dominance in the coming digital age and intelligent age? Chips have become a key link in key industries.

The United States is not simply anti-globalization. The United States wants to “de-neutralize” in globalization. Although it is a myth that the US hawks advocate a complete decoupling from China, the technological decoupling has already begun. what to do? The first method that comes to mind is to rob people and poach people for several times the salary. TSMC’s security guards strictly guarded the headhunters from mainland China, and it is said that the security guards were eventually dug up.

At the end of July, Ren Zhengfei went to some colleges and universities along the southeast coast to discover talents, because Huawei needed to add 30,000 engineers to enrich the R&D team.

What is lacking most now is talent, the battle for chips, and the battle for talent. One of the characteristics of high-end manufacturing is that it is linked with science and education, and its competition is also a competition for educational and scientific power among countries. So far, the Chinese education system has not had a single Nobel Prize, that is to say, there is a lack of subversive innovation from 0 to 1.

Where did Huawei’s 5G come from? It was the hypothesis of a scientist in Turkey, which was finally discovered and turned into a product by Huawei. Advanced technologies are first hypothesized by scientists, invented in laboratories, and finally industrialized by entrepreneurs and scientists.

China’s industrialization is rapidly catching up with the West, and there are bound to be many things missing in the middle, and many links are missing. Due to poor basic research, the underlying hardware and software depend on others, which is a fundamental gap.

It should be said that we are still catching up. It is only when the international environment changes that we propose the internal circulation as the main body. This is a helpless move and bottom-line thinking.

Proposing a new development pattern does not mean that the problem has been solved, but to make necessary ideological and work preparations in order to cope with the complex and severe international environment. Internal circulation as the main body, internal and external circulation promote each other, easier said than done!

Mr. Justin Yifu Lin has always emphasized the use of comparative advantage, but now there is no comparative advantage. If you continue to insist on comparative advantages, it will always be “made in China” with low quality and low price, and it will always be in the middle and lower reaches of the industrial chain.

The advantage of being a latecomer doesn’t work anymore. The market changes technology and imitates innovation, and always wants to follow others. Now others don’t let you follow, and you can’t keep up.

But in high-tech and high-end manufacturing, decoupling from the United States is inevitable. While others are “de-neutralizing”, one must be mentally prepared to “de-beautify”.

For high-end manufacturing such as chips, there is a huge domestic market, and it is not a long-term solution if it is not developed by itself but is controlled by others. The development of an industry, in addition to capital, technology, talents, etc., first of all, the market must be large, and market demand can drive sufficient investment.

Huawei already has Hongmeng, and the next step is to make HiSilicon bigger. Huawei’s annual chip demand is 80 billion, which is the fulcrum of the industry. It is said that Huawei already has a “Nanniwan plan”. There is nothing more difficult than facing death, fighting against the odds, and having no choice.

The new crown epidemic has led to the reconstruction of the global industrial chain. The trend of reconstruction is that the industrial chain will change from long to short, from thin to thick, and become regionalized and localized. The original industry chain is to follow the cost, where the cost is low and where to arrange. Not now, where is the safe way to go now.

Of course, the principles of efficiency and profit are still in play. The US government advocates decoupling, and may compromise in the face of the huge economic interests of enterprises. The so-called entity list is to require U.S. companies to apply for approval, and after approval, they can still do business.

Now, a large number of U.S. companies have begun to apply to the U.S. Department of Commerce, and decoupling cannot be broken. However, repeated games and gradual decoupling should be the general trend. China’s technology and business circles should prepare for the worst in this prospect.

Fourth, the inflection point of Chinese chips is coming!

In 1982, China established the Office of the Leading Group for Computers and Large Integrated Circuits, referred to as “Daban”. The previous director of the “Daban” was Ma Kai, and now it is Liu He. The establishment of a leading organization of the industry at the national level is a sufficient policy force.

For the development of chips, there were 908 projects in 1990, and 909 projects in 1999. In 2000, the State Council issued a special document No. 18 on chip development.

The 863 plan leans toward a chip focus. After the establishment of the ten major special funds, projects No. 01 and No. 02 were given chips. In 2014, dozens of academicians wrote to national leaders and established a “big fund” dedicated to supporting the semiconductor industry, namely the large-scale integrated circuit development fund. The first phase of the fund raised 130 billion.

At that time, Director Wang Zhanfu of the Finance Department of the Ministry of Industry and Information Technology was the chairman of the board, and this year began the second phase of the 210 billion shareholding system, including more than 20 shareholders such as the Ministry of Finance and the National Tobacco Corporation. Lou Yuguang, the director of the General Office of the Ministry of Industry and Information Technology, served as the chairman of the board. . Undoubtedly, in the 14th Five-Year Plan that is being drafted, chips will still be the top priority. In many places, chips are also listed as key development industries.

Industrial policy is important, but policy is not everything. There are three problems. First, the policy is top-down, casting the net in an all-round way, and not focusing on breakthroughs in subdivided areas. And who will break through the subdivision field? Only the entrepreneurs closest to the market.

The so-called subdivision is actually defined by the enterprise. When the enterprise grows, a subdivision is established, but the planners do not know which subdivision can be expanded; second, the fund reaches the enterprise , especially large state-owned enterprises and central enterprises, it is very likely that they have engaged in infrastructure construction, because the leaders of the enterprises are only one or two, and the effect that can be seen is to build houses.

If you engage in basic R&D and talent investment, it will be difficult to see results during your tenure, and you would rather buy technology to make quick money. Third, all relevant policy and project makers and review experts are mostly drawn from central enterprises and universities, and it is impossible for committee experts Completely neutral, both the referee and the athlete, no one is ultimately responsible for the project.

For example, in 1982, the “Daban” established a two-base and one-point chip industry location layout. The two bases are Jiangsu, Zhejiang, Shanghai and Beijing-Tianjin-Shenzhen, and the one is Xi’an, but Shenzhen and Chengdu have emerged.

The national system has its advantages, but the main body of technological innovation is always the enterprise. The national system and market players are a pair of contradictions that are difficult to reconcile.

In fact, the Chinese government has invested the most money in the chip industry in the world, even more than the United States, Japan and South Korea, and even more than Europe. As for the effect, others will know as soon as sanctions are imposed.

I am also not optimistic about the “new infrastructure” led by the government. The reason is that “new infrastructure” is mainly digital infrastructure and digital economy. These are all done by venture capital, investors and entrepreneurs, and government leadership will inevitably lead to problems.

Excuse me, Pinduoduo, Douyin, WeChat, Dingding, Meituan, SF Express, Didi, these new constructions that change the underlying foundation of our social and economic life, can the government invest money?

With the introduction of investment from all over the world, chips have become a fragrant pastry. Chip projects are flying all over the place, but it is likely to be a chicken feather. According to relevant statistics, in the first eight months of 2020, nearly 10,000 companies in China have switched to the chip industry, including nearly 100 companies in Guangxi and Gansu that have put into production chips. It can be called a great leap forward in chips.

In the capital market, VC/PE is looking for chip projects, and chip investment consulting agencies are blooming everywhere. Experts, entrepreneurs, investors, and intermediaries use each other, embolden each other, and bias each other. Throwing money, telling stories, cashing out, and retreating, small and medium investors see chips like leeks and sickles.

Making chips is to make friends with time, but all the fundraising in the market are new companies, all the PPT are beautiful, but there is no product. Most companies have no upstream and downstream industry chains, low sales, no profits, and even no research team that actually makes chips.

A few years ago, the dean of the School of Microelectronics of a certain university bought chips back from the United States, and then asked temporary workers to file off the trademark on it and engraved the word “Hanxin”. He deceived 1.1 billion, and the worst thing was that it delayed many countries. The project destroys the industrial ecology.

It was revealed a few days ago that Wuhan Hongxin invested more than 130 billion yuan, the project was suspended, and bankruptcy was imminent. The only seven-nanometer lithography machine in China has been mortgaged by the bank. The government and enterprises, ignoring the research foundation and team foundation of chip companies, rejoice in success, and tragically roll over, which is embarrassing.

5. Get through the card points of the inner loop

There is no doubt that China must develop its own chip industry. The worst case scenario is that in the future, there will be two chip supply chains in the world, one in China and another in Western countries such as the United States. As for whether it can be successful? To what extent was it successful? Do it first.

Since 2010, China has become the world’s largest manufacturing power, but ten years later, small chips are still the unbearable weight of the first manufacturing power. It must be admitted that China is a manufacturing power, but far from a manufacturing power.

The world’s manufacturing powers are divided into three camps, the United States is the first, Germany and Japan are the second, and China is in the third camp. The world’s manufacturing giant, the United States is the brain, Japan and Germany are the heart, and China is the limbs, doing the rough and hard work.

The Sino-US trade war and the new crown epidemic have made us find that we are at the middle and low end of the global value chain. The world’s reliance on us cannot be replaced, but our reliance on the world cannot be replaced either.

Made in China, it has variety advantage but no quality advantage; has cost advantage but no technical advantage; has speed advantage but no quality advantage; has product advantage but no brand advantage. Before the start of the 14th Five-Year Plan, the country began to investigate the neck-locking technology in various industries, and the manufacturing industry was the most concentrated.

Chip manufacturing, operating system, new material system, precision equipment system, the three major systems are all controlled by people. Similar to chips, it is subject to key technologies and core components, as well as aero-engines, sensors, ion diaphragms, high-pressure plunger pumps, epoxy resins, etc. The ten major areas that “Made in China 2025” proposes to catch up in the future are mostly controlled by people.

Therefore, if we really want to cut off the external circulation, China’s internal circulation may also be empty talk. The inner circulation is the main body, and the outer circulation is still essential. Moreover, even if the internal circulation is the main body, it is necessary to prevent emerging industries emerging abroad from forming new gaps again due to poor external circulation.

In particular, once the United States forms a global alliance, there will be more and more domestic high-tech manufacturing, advanced manufacturing, and high-end manufacturing card points.

We must also beware that the economy will be down for a long period of time, finance will become more and more difficult, the policy effect of the national system will gradually diminish, and it will also be questioned by the international market. In particular, we must beware that competitive traps like chips have become a war of attrition for China’s national strength. What is a competition trap? That is, when we use the power of the whole country to catch up with the West at the same level of industry at any cost, and the West suddenly opens the market, then all the investment at all costs will be wasted.

The chip is like this. All the industries that are stuck in the neck listed above are made in the same way, and the entire national strength of China will be a huge consumption. Back then, the US-Soviet competition was such that the Soviet Union’s national strength was exhausted, the fuel was exhausted, and the country was disintegrated. Competitive traps are inevitable.

The outer loop remains critical. The door of opening to the outside world can never be closed, it can only be opened wider and wider. No country is self-reliant to build a lithography machine, nor is it necessary.

The general secretary held a symposium of scientists on September 11, and gave six opinions on accelerating scientific and technological innovation, one of which was “strengthening international scientific and technological cooperation”.

Currently, what is needed is still “strengthening”, not “weakening”. It is still very important to join, not to leave the global system of cooperation and division of labor. In the chip industry, two supply chains can, but they must not be separated from the global innovation chain.

All the key technologies of internal circulation are basically basic scientific problems, and these problems cannot be solved in more than ten years.

There are two conclusions: continue to increase the opening up; introspect the science and education system and mechanism.


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