During my recent visit to many American cities, the most-talked about global subject was not the Russia-Ukraine conflict, but the ‘Chip war’.
The Joe Biden government has taken a bold step to prevent selling advanced chips or its technology to Chinese firms engaged in Artificial Intelligence and supercomputing activities. Even American allies, such as South Korea and the Dutch chip-making machinery equipment giant ASML Holdings, have instructed their American staff to not interact with Chinese customers.
In America, many commentators have interpreted this move as the official beginning of the Cold War-II. According to the latest report by McKinsey, the newly enacted CHIPS and Science Act 2022 which directs $200 billion in governmental spending in R&D of chips and $52.7 billion for semiconductor manufacturing will help improve US economic growth.
America’s desperation to control the advanced chip supply chain is clear because “microchips are the new oil”. American experts call it “building blocks of the modern digital economy” and vital for national security, weapons, space and defence systems. Americans have conveyed through their recent actions that the military power is computing power, actually.
The current acceleration of tension within America is due to the short supply of chips in the global market that dents economic growth and China’s attempt to accelerate its R&D with help from US-trained experts. China’s semiconductor industry is worth multi-billion dollars and globally, 19 out of the 20 fastest-growing semiconductor companies are Chinese. Defiant China is full of techno-nationalism. It has declared chip manufacturing a national mission and is surging ahead with tremendous determination to become self-dependent.
The US makes 12 per cent of the world’s chips. Much less than the share it had (37 per cent) in the 90s. In the modern world, be it calculators, smartphones, computers, high-tech weapons, missiles, cars, airplanes, ships, or even stock markets, nothing can function without chips. So its shortages cause widespread panic. And the beauty of this strategically most important industry is that neither China nor America is dominating it fully. It’s a truly global participation and interconnected businesses of more than 10,000 companies.
In 2021, China exported chips worth $120 billion whereas its imports cost more than $400 billion, a budget larger than its oil imports. But due to US actions, it will have to accelerate domestic production. Even American companies will have to rework their procurements because they, too, will be impacted. Apple relies on about 100 companies worldwide for design tools, instrumentation, IP, chips and other components, many of which come from China. Apple, whose phones are also manufactured by Taiwanese company Foxconn, has huge operations in China, too.
The critics are interpreting American action as “reversing globalisation” in the chip industry and aiming at restricting China’s economic growth by putting sanctions on using American talent in an advanced semiconductor industry.
However, Taiwan’s one company is critical right now to both America and China. Taiwan Semiconductor Manufacturing Company (TSMC), which makes 90 per cent of sophisticated cutting-edge chips, is the “epicentre” of semiconductor technology, business and diplomacy. It comes as no surprise that TSMC was founded by Morris Chang, the legendary mastermind of economic diplomacy who studied in MIT and Stanford and worked in Texas Instruments for 25 years. When he was not made CEO of the Dallas-based tech company, he accepted an invitation from the Taiwan government and founded one of the most fascinating ventures of the industrialised world.
Recently, in San Francisco, Chris Miller, the author of the recently published must-read book The Chip War: The Fight for the World’s Most Critical Technology was in conversation with historian Niall Ferguson. American insecurities were visible when both intellectuals imagined a scenario: what if China decides to take over physical control of TSMC and owns up the company by invading Taiwan.
Miller responded saying that, “The facilities would not survive invasion” as it has many explosive chemicals. It has perfectly designed machinery built ever in human history but it won’t survive war. Resultant disruptions in supplies can upset the world economy completely. However, Miller added that there is correlation between America’s dwindling power in the Asia-Pacific region and control or access of TSMC shipping facilities.
It’s accepted now that to understand world affairs one should acknowledge the vitality of chips in running the planet.
So, where does India stand in the maze of an amazing world of chips?
I asked this question to legendary Professor Emeritus Arogyaswami Paulraj of the department of electrical engineering at Stanford University. Paulraj said, “India has no presence whatsoever in the semiconductor manufacturing industry. I always look at China and say, ‘Good luck, and let them move forward.’ But, in my opinion, why not do the same thing? We need to catch up to them and compete with them.” He is closely involved in India’s attempt to catch up with the global chip industry.
Paulraj, while talking to me at his home on the Stanford campus,
said, “China is less than 10 per cent of global share despite the huge chunk of money they have invested in. It’s a few steps behind the US in technological advances. More than $300 billion has been invested but China doesn’t dominate the industry. The dominant players are Taiwan, America, Netherlands, Japan, and South Korea. But, Chinese are seriously trying to come up and Americans are worried about it. So, there’s a lot of conflict between the US and China. To some extent, India’s reliance on it stems from the fact that many of the phones and smartphones we buy are manufactured in China.”
Paulraj, a former Indian Navy officer who immigrated to the US three decades ago, is the creator of MIMO technology, which is used in all the phones with 4G and 5G mobile networks. Its IPR is worth more than $100 million.
A Padma Bhushan, Paulraj is a member of the advisory committee of the Ministry of Electronics and Information Technology along with renowned venture capitalist Vinod Dham of Pentium fame. IT minister Ashwini Vaishnaw keeps them well-informed of the India Semiconductor Mission formed in December 2021 to tackle this semiconductor emergency.
Paulraj has worked closely with the Indian designers of chips and scores of Indian PhD scholars. He said that India should be proud that it has the best chip designers in the world. Around 20 per cent of the workforce in the chip-designing industry is Indian. “The majority of the major chip makers are present in India, and the chip design sector employs over 90,000 professionals,” said Paulraj.
When asked what are the lessons for India from the US ban on Chinese companies, Paulraj said, “Number one lesson for India is that we may be in the same position as China tomorrow.”
He explained that America can deny India advanced technology in the same way that it has denied nuclear technology and know-how of the F series fighter jets. India needs a reality check on the impact the global semiconductor squeeze can have on its economic growth.
Paulraj has met Prime Minister Narendra Modi twice and is impressed by his “energy” and his “total focus on new technologies.” He said, “In the most critical matter of semiconductors, India must have its own stamping. America is a good friend. But there are no permanent friends. No permanent enemies. So it’s fundamental national security interest now that India builds internal capability to set up its own semiconductors industry. As far as India is concerned, my thinking is, forget China, forget the United States, we build it on our own. It will take us another 30-40 years of enormous investment and dedication. But let’s start on the journey.”
Vedanta and Taiwanese company Foxconn has announced a Rs 1.5 lakh crore investment, the largest ever corporate investment in India, to establish a semiconductor and display production plant in Dholera, Gujarat. It is likely the joint venture will take three years to build the proposed plant.
The Dholera Special Investment region, about 90km from Ahmedabad, has excellent power and water supplies, as well as road and air connectivity. Gujarat is the only state that has a semiconductor policy plan: the ‘Gujarat Semiconductor Policy 2022-27’. Under the new policy, a new JV will get 75 per cent subsidy on purchase of the first 200 acres of land and other concessions from the Gujarat government.
In the next 20 years, “Dholera Semicon City” will be India’s busiest semiconductor centre, based on the Taiwan model. Although the top chip-makers such as Intel, ASML, TSMC and Global Foundries have not yet invested in Fab companies in India, some progress has been made.
Foxconn isn’t a big name in semiconductor manufacturing as Intel but it’s a welcome step, said Paulraj.
“It’s an opening of a door to many decades of huge opportunities,” said Rajeev Chandrasekhar, Union Minister of State for Electronics and Information Technology. In a tweet, PM Modi said, “This MoU is an important step accelerating India’s semiconductor manufacturing ambitions. The investment of Rs 1.54 lakh crore will create a significant impact to boost the economy and jobs. This will also create a huge ecosystem for ancillary industries and help our MSMEs.”
Much before China started investing in chip-making, in the early 80s, India had built Semiconductor Complex Ltd (SCL) in Chandigarh. It never took off as expected. Now, it will be revamped. India had missed the bus then.
Paulraj concluded, “India needs its own company for us to have some power in the world, and the way we get power is when America is dependent on us and we are dependent on them, which makes it much more difficult to put pressure on us. Chinese believe in the saying, ‘fortune favours the bold’. It’s time for India to take risks and plunge in manufacturing of semiconductors.”
Sheela Bhatt is a Delhi-based senior journalist. Views are personal.
(Edited by Tarannum Khan)