Chips, politics and economic dominance

Officially Huawei became the world’s number one smartphone player after shipping 55.8 million handsets, surpassing Samsung in the second quarter of 2020. — Bloomberg

SMIC'S progress in industry commendable effort despite sanctions

 

TWO weeks ago, without much fanfare or large-scale promotional event, Huawei Technologies launched a surprise pre-sale of its latest Mate flagship model.

This was out of the blue, considering that Huawei suffered for the past three years since the United States trade sanction during the Donald Trump-led administration which placed Huawei on the export blacklist depriving the phone and network giant from key semiconductor components necessary to manufacture its successful premium smartphone products.

At its peak in 2020, Huawei had 38% of China’s total smartphone market share with Vivo coming in second at 17.7% and Oppo coming in third at 17.4%.

Globally, Huawei had just over 10% with much room to catch up to Samsung and Apple, which had an estimated 30% and 26% respectively.

Despite that, it officially became the world’s number one smartphone player after shipping 55.8 million handsets, surpassing Samsung in the second quarter of 2020.

This did not last long, as in the year after the trade sanctions kicked in, Huawei suffered immensely when its revenue for the consumer division plunged 47% in the first half of 2021 and fell out of the world’s top five smartphone maker for the first time in six years. 

 If that wasn’t enough, Huawei had to endure a prolonged winter because of the sanctions with market commentators even speculating they will exit the smartphone market entirely.

To stay afloat, Huawei sold off its entire stake in Honor, the budget range smartphone business for Us$15.2bil to Shenzhen Zhixin New Information Technology Co Ltd, a consortium made up of over 30 dealers and includes a state-owned enterprise of the municipal government of Shenzhen.

Hence, when social media caught wind of Huawei Mate 60 pro with videos of long queues for the launch of the smartphone, it attracted global attention. The two questions on everyone’s mind were, “how did Huawei do it with the sanctions ongoing?” and “is this the start of Huawei’s path to reclaim its smartphone throne?”

For those who are not too familiar, one should understand that chips are denominated in different measurements such as 5nm, 7nm and 10nm. It represents the specific generation of chips made with a particular technology and the smaller numbers represent more advanced and efficient technology.

In the past, these numbers indicated the size of the smallest features or transistors that can be produced on a chip using a particular manufacturing process.

What is interesting about Huawei’s latest smartphone launch is that the Kirin 9000s System on Chip that powers the phone model appears to be manufactured using an advanced 7nm process.

Following the trade sanction which was meant to cripple Huawei’s advancement in smartphone manufacturing, most would assume that Huawei would not have access to advanced chips.

In addition, Semiconductor Manufacturing International Corp (SMIC), China’s state-backed chip manufacturer which is widely regarded to be the top in China, is only capable of producing 14nm at that time. In addition, SMIC has not been able to procure the advanced Extreme Ultraviolet (EUV) lithography systems that are used to produce chips at 7nm and below before they were sanctioned as well.

Based on teardown analysis by reviewers online, the chip’s overall performance seems to match that of Snapdragon 888 or Apple A13 chipsets which were launched in 2019-2020. But for those who might have some familiarity with the chip fabrication industry, this is likely not the case as the 7nm chip could be produced using the older generation deep ultraviolet machines which China manufacturers can still import.

This would require usage of multi-patterning, a technique that has been utilised by Taiwan Semiconductor Manufacturing Company Ltd (TSMC) in 2017 of producing 7nm chips before EUV was introduced.

In fact, SMIC reportedly used this technique to produce a 7nm chip for bitcoin miners last year, so they are no stranger to the technique.

The downside of this technique is that it will waste more time, energy, water, while also resulting in higher defects and lower yield. Hence the cost of production is likely much higher.

Nonetheless, EUV machines are still needed to advance beyond 5nm process, and at 3nm and below, multi-patterning would be required even with EUV machines. Hence, we can say that the real bottleneck of the United States trade sanction will hit it hard beyond 5nm.

Currently, SMIC, while improving, is still lagging its global peers; TSMC and Samsung have already started mass production of chips using the 3nm process in 2022 which is two generations ahead of the 7nm process used by SMIC.

The gap is around four years but without access to EUV machines, it could take much longer for SMIC to reach 3nm. It is important to note that all its competitors are now working towards mass production of 2nm chips in 2025.

Considering how SMIC is also sanctioned by the United States, it is remarkable to see it making progress. SMIC will likely continue to be supported by the Chinese government in developing advanced chips.

So long as self-interest politics remains the priority over mutual prosperity and the technology transfer agenda, we will see companies and manufacturing bases move across regions based on the countries’ political alignments or foreign policies rather than merits.

Apart from the United States and European manufacturers that have been diversifying production out of China, even some Chinese suppliers are building new factories in our country as they do not want to lose their markets outside of China.

For now, most are setting up in the existing states with matured industry supply chains such as in Penang and Johor.

Hence, sad to say, while this fight between the two economic powerhouse is detrimental to the world in the long term, in the short term, it appears that it is good for our nation, and we should continue to capitalise on the opportunity.

At the end of the day, every country, especially the larger economies, hopes to maintain its economic dominance over the rest of the world. This era, thankfully, is not an era where the wars between countries are fought with guns and bullets. It is an era where the race is on technological advancement and scientific breakthrough.

Apart from the semiconductor chip competition that has been ongoing since the start of the United States-china trade war, the Covid-19 global pandemic has raised the awareness for the government on the importance on advancing research and development in the pharmaceutical and healthcare industry.

Even countries with the strongest military power cannot avoid the same fate of being engulfed in the effects of the pandemic like any other Third World country.

Unlike the United States, Europe, Taiwan and South Korea, China started research and development in the semiconductor industry much later. We must remember China only started focusing on developing its advanced chip technology recently.

Before the decoupling with the United States happened in 2020, there was no urgency to do so, given that they could still rely on imported technology.

As nations around the world continue to become more tribal, it is crucial to be self-sufficient, be it in the area of technology development, healthcare or food security. It may take awhile but eventually, government leaders ought to revert to multilateralism and focus on the benefits of building a global economy in the interests of mankind.

That is the best way forward for humanity.

By NG ZHU HANN

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Ten Republican lawmakers jointly sent a letter dated Thursday to Alan Estevez, undersecretary of Commerce for Industry and Security, exerting pressure and presenting seven demands. These demands include the establishment of a new agency dedicated to controlling the export of American technology to China, imposing “full blocking sanctions” on both Semiconductor Manufacturing International Corporation (SMIC) and Huawei, and placing all their subsidiary companies on the Entity List.

STILL AMRICA FIRST IN TRADE

Domestic drive: The US has endorsed ‘Buy American’ policies, which would favour domestic producers but would be blatantly illegal under WTO rules.

 

https://youtu.be/vcn5Lxshw20 

US’s intention to destroy China will be a difficult process 

 

https://youtu.be/_3tjcoudjbI

US multilateralism is coming back in many areas but in trade, many retrograde policies of the past are continuing.

AFTER the end of the Trump presidency in January, multilateralists around the world heaved a collective sigh of relief.

Gone would be the wrecking ball aimed at international institutions.

Gone would be the go-it-alone approach to dealing with global problems. Gone would be policies towards the rest of the world premised on “America First”.

Gone, hopefully, would be the capricious trade wars, some of them directed at American allies.

To a large extent, these high hopes have proved justified.

Within its first 40 days, the Biden administration has reversed many of its predecessor’s disengagements from multilateral institutions and processes.

It has rejoined the Paris Agreement on climate change, which the United States had abandoned in 2017.

It walked back to former president Donald Trump’s decision to withdraw from the World Health Organisation (WHO), which was due to take effect from July 6.

It has pledged US$4bil (RM16bil) for the WHO-sponsored Covax initiative which aims to distribute Covid-19 vaccines to the developing world, which the Trump administration refused to join.

It has agreed to endorse an allocation of special drawing rights – the International Monetary Fund’s hard currency – which would provide additional resources to poor countries without adding to their debt, and which former Treasury secretary Steve Mnuchin had declined to support.

Given that the World Bank is the world’s biggest financier of climate change-related investments, its president David Malpass reasonably expects that the Biden administration, for which battling climate change is a priority, will be supportive of its mission.

The administration has also vowed the US’ “unshakeable” commitment to Nato, which Trump had derided as an outdated organisation that imposes excessive burdens on the US.

But there is one critical area where the Biden administration is hesitant to support multilateralism, and that is trade.

Here, multilateralists can be grateful for some small mercies.

At least the administration has affirmed its commitment to the World Trade Organisation (WTO) – the custodian and enforcer of world trade rules – which the Trump administration all but ignored during the last four years and even threatened to leave.

It has also broken the impasse over WTO’s leadership, by endorsing the candidacy of Nigerian-American economist Ngozi Okonjo-Iweala for the post of directorgeneral, which was supported by the majority of the WTO’s 164 members, but which the Trump administration had blocked.

So, after being leaderless for almost six months, the WTO now at least has someone in charge.

Modest ambitions

But beyond that, and judging by actions rather than words, the multilateralist ambitions of the Biden administration on trade appear modest.

It has made clear that it will not pursue any trade agreements until it restores America’s competitiveness by investing trillions of dollars in areas such as energy, education and infrastructure.

It has endorsed “Buy American” policies, which would favour domestic producers and would be blatantly illegal under WTO rules.

Citing “systemic problems”, it has continued the Trump administration’s policy of blocking appointments of new judges to the WTO’s appellate body, which functions as a “supreme court” that adjudicates trade disputes.

The body has been unable to issue any judgments since Dec 11, 2019, because it did not have the minimum of three members required to issue a ruling.

Currently, with all judges having completed their terms, there is not a single judge on the body. This means that any appeal against a judgment by a lower panel at the WTO disappears into legal limbo, and the judgment is not binding.

In September last year, a lower panel ruled in favour of China, which made the case that the 25% tariffs levied by the US in June and September 2018 violated the WTO’s cardinal principle of non-discrimination.

The US is appealing that judgment, but the appeal cannot be heard, as the US would know, so the tariffs will remain in place.

Indeed, the Biden administration appears in no hurry to lift the Trump administration’s tariffs on China, all of which are likely to be WTO-illegal, according to trade experts.

It wants to use these tariffs as leverage to secure concessions from Beijing, including its compliance with the phase one trade deal negotiated by the Trump administration under which China was supposed to buy US$ 200 bil worth of US goods and services split over last year and this year, but is falling short of the target.

It has also continued the Trump administration’s policy of designating Hong Kong’s exports as “Made in China”, citing “national security” concerns – which means that in the US view, that issue, too, cannot be adjudicated by the WTO.

In short, a return to multilateralism on trade does not seem to be a priority for the Biden administration.

‘Elephant in the room’

The rise of China is one of the main sources of this reticence.

Like the Republicans, Democrats believe that the WTO is not fit for purpose in dealing with all of China’s alleged trade malpractices.

The case for this is well articulated in a 2016 paper by Harvard Law School Prof Mark Wu, now a senior adviser to the US Trade Representative’s office.

He argues that the main problem is that WTO rules – which were crafted before China joined the organisation – were not made with China’s distinctive economic system in mind.

WTO rules can address only those among China’s trade malpractices which are shared by other countries – such as requiring foreign investors to partner with local firms and buy from local suppliers, or granting exclusive rights to local firms to import or sell goods in the local market – which are practices that are not unique to China, and for which case law already exists.

But problems arise in cases where the boundaries between state and private enterprises are blurred, as is often the case in China. It is then not easy to judge whether a preferential transaction is of a private commercial nature – which falls outside the WTO rules – or amounts to a state subsidy.

At the heart of the problem is what constitutes a “public body”, which in China is not as clear as in other countries.

It is widely accepted, including by WTO itself, that WTO rules need to be updated, not only relating to China but also to issues such as digital trade, competition, services, labour and the environment.

But China, which is involved in the majority of trade disputes involving major economic powers, is the “elephant in the room”.

However, updating the rules should not mean sidelining the WTO in the meantime, which is what seems to be happening.

In a departure from the unilateral approach taken by the Trump administration, the Biden administration says it plans to deal with China’s trade practices in concert with other countries.

But there is no better way to do this than in a multilateral forum like the WTO, which applies a core set of principles to trade disputes such as non-discrimination, has mechanisms to monitor and enforce its rules and which would accommodate the concerns of multiple countries, which is how multilateralism should work.

Besides, China has a good record of complying with WTO rulings that go against it, and not such a good record of caving in to bilateral pressures.

Judicial paralysis

Shutting down the WTO’s judicial function by effectively neutralising its appellate body is especially ill advised.

Some concerns about the way the body functions and its alleged “judicial overreach” may be legitimate, but even if so, this applies only to a minority of cases that the body has adjudicated.

Disabling the WTO’s appellate body prevents the majority of cases, including those unrelated to China, from being resolved.

Besides, for all the criticisms levelled against it, the appellate body has a proud record.

In its 25 years of operation, it has resolved 195 disputes compared with around 160 cases completed in 74 years by the International Court of Justice, with 15 standing judges. Moreover, it has disposed of cases within a few months on average, compared with a few years in the case of other international adjudicating bodies.

Recounting these achievements in her farewell speech on Nov 30 last year, the last appellate judge to finish her term, Dr Zhao Hong, pointed out: “Though there was room to improve, the appellate body distinguishes itself for its outstanding performance among all international adjudicating bodies.”

By continuing to paralyse its functioning, the Biden administration undermines multilateralism and perpetuates the law of the jungle on trade issues, where might is right.

So while the administration has made a good start by re-embracing multilateralism in many areas, its trade policies still leave much to be desired.

-By VIKRAM KHANNA— The Straits Times/ANN

Diplomatic realpolitik

 

AS double-think runs wild in the White House, Crown Prince Mohammad bin Salman (MBS) of Saudi Arabia must be enjoying a quiet chuckle. Diplomatic realpolitik has been accorded precedence over the severe action that was expected of President Joe Biden in the context of the US intelligence report that the Crown Prince was complicit in the ghastly killing of dissident journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October 2018.

The Washington Post columnist was allegedly drugged and his body dismembered. Every tenet of human rights was thus violated.

By advancing what they call a “free pass” to MBS, America’s President has proffered a feeble excuse to justify his defence of the de facto leader of the desert kingdom. Biden, who had referred to Saudi Arabia as a “pariah kingdom with no redeeming social value” in course of his election campaign, has now softened his stance to a dramatic degree.

It thus comes about that in the somewhat surprising reckoning of the US President, the price of directly penalising Saudi Arabia’s crown prince is “too high”.

He may be right when viewed through the prism of certitudes of foreign policy.

The US President was reportedly convinced by his newly formed national security team that there was no way to formally bar the Saudi crown prince from entering the United States or to take a call on the criminal charges against him.

Altogether, it was feared by the current US administration that a drastic reprisal would have breached the equation with one of America’s key Arab allies, not to discount the flutter within the Arab region generally.

There is said to have been a consensus in the White House that the price of that breach was quite “simply too high” in terms of Saudi cooperation in the fight against terrorism and in confronting Iran.

Biden had been urged by a section of the establishment to at least impose the same travel restrictions against the Crown Prince as the Trump administration had imposed on others involved in the plot.

The White House appears to have drawn a fine distinction between MBS and the Saudi military. While the Crown Prince is unlikely to be invited to the United States in the immediate perspective, the establishment has denied that the Saudi ruler is being given a “pass”.

It is pretty obvious though, that the coveted International Visitor Program (IVP) will not be denied to the Saudi Arabian Crown Prince. Going by the terms of protocol, he may yet be treated as a state guest in America.-Reuter

 

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