China vows to win chip war

The chip war is on, and we’re not talking about the always-heated debate about Doritos vs. Miss Vickies—this is the (just slightly) more important battle to control the world’s supply of the most advanced computer chips. 

Driving the news: Chinese President Xi Jinping committed to developing his country’s capacity to build its own cutting-edge semiconductors in a two-hour speech at the Communist Party’s twice-a-decade congress.

  • “We will focus on national strategic needs, gather strength to carry out indigenous and leading scientific and technological research, and resolutely win the battle in key core technologies,” said Xi. 

The speech comes shortly after US President Joe Biden announced the most restrictive controls yet on exporting chips and chip-making technology to China. 

  • The new rules also block US citizens and residents from participating in China’s semiconductor industry, a serious blow to the country’s efforts to build its own advanced chips.
  • ASML, a Dutch company that is the world’s only manufacturer of the machines needed to build the most advanced chips, instructed its US employees to immediately stop servicing customers in China.

Why it’s happening: Chips are essential for everything from cars to refrigerators to, of course, computers—but it’s their military and intelligence applications that have made chips such a flashpoint.

  • By blocking China from importing the most advanced chips (which it can’t yet make itself) the US hopes to slow its progress in building high-tech weapons systems and supercomputers that might threaten American security.

Yes, but: The chip blockade could accelerate China’s efforts to become technologically self-sufficient, which would ultimately strengthen its position.

  • “These products are technologies, they're not magic, and the Chinese task is to reinvent a lot of existing wheels,” China analyst Dan Wang told Bloomberg’s Odd Lots podcast, “[...] And I expect that these US regulatory actions will ultimately constrain US businesses and the US position.”

Bottom line: China has already invested billions (unsuccessfully) trying to build a domestic chip industry—Xi has now made it clear that he’s prepared to double down on that mission.