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Western sanctions hurting China’s semiconductor goals. Xi must raise the stakes or give up

Advanced chips are often described as the oil of the future. The sanctions by US, Netherlands, and Japan condemn China to be a second-rate power.

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Eighty Sen’ was what the Tokyo Geishas who manicured the Admiral’s nails called him. The rate for a manicure was 100 sen, but Isoroku Yamamoto insisted on a discount since he had lost two fingers battling the Imperial Russian Navy.  The naval commander who crafted the audacious raid that almost wiped out the United States Navy’s Pacific Fleet at Pearl Harbour often spent his evenings playing poker, and the Japanese board-game shogi, for high stakes. In addition to knowing the value of money, the Geishas learned, the old sailor had a shrewd grasp of strategy.

“There is no chance of winning a war with the United States,” Admiral Yamamoto emphatically warned his superiors. “We must not start a war with so little chance of success.”

Last week, China appointed bureaucrat Zhang Xin to spearhead a $150 billion bid to develop advanced computer chips through its scandal-tainted semiconductor investment fund, sometimes simply called The Big Fund. The odds of success, Zhang likely knows, are low. The so-called Made-in-China 2025 launched under President Xi Jinping in 2015 to free China of dependence on foreign semiconductor technology has seen billions lost to graft and wasteful spending—but no breakthroughs.

Facing new technology sanctions by the United States, the Netherlands and Japan, Xi likely believes he has no choice. Advanced chips are often described as the oil of the future, the fuel of modern economies. The sanctions condemn China to be a second-rate power.

The Admiral would have told Xi he is making the wrong call. Facing sanctions that choked access to the banking system and four-fifths of its oil and steel, historian Edward Miller has written, Imperial Japan felt it had no option but to strike.

Even as he planned Pearl Harbour,  a gamble a crippling strike could settle the war on the first day, Yamamoto advocated reversing Japan’s invasion of China and severing ties with Nazi Germany. The colossal industrial resources of the United States, he warned, guaranteed Japan’s eventual defeat.


Also Read: What US, Taiwan’s ‘Chips Acts’ mean for India’s ambitions in the semiconductor sector

The technology Cold War

Through the course of the Cold War, the West cemented its technological lead over the Soviet Union through a technology-denial regime known as the Coordinating Committee for Multilateral Export Controls, or CoCom. Though Soviet science registered many impressive technological achievements—expert Slava Gerovitch has documented the significant progress made in computer science, and the country famously succeeded in landing on Venus in 1975—CoCom made this progress extremely expensive.

Even though effective Soviet bloc scientific espionage compensated for some of these weaknesses, declassified documents show, stealing technology could not create an economically efficient and self-sustaining innovation ecosystem.

Among the concerns that drove CoCom was the realisation of the consequences of technology transfer. The growth of the Imperial Japanese air power was powered by, among other things, British technology and American machine tools. The increasing sophistication of Japanese air power allowed the country to bypass restrictions on the size of its battleships placed after the First  World War.

Though there were multiple intelligence warnings about the increasing sophistication and capabilities of Japanese air power, military historian Justin Pyke has noted, racism led strategists to underestimate the threat these posed.

Following the historic break between the Soviet Union and China, however, the United States became increasingly willing to allow Beijing to reach past the great CoCom wall. Tai Ming Cheung and Bates Gill note that, as China emerged as a major western trading partner, economic concerns trumped national security worries. China gained ever-easier access to state-of-the-art technologies in aerospace, materials sciences, nuclear physics and computing.

The West also facilitated access to military technology for Beijing, seeing it as a hedge against the Soviets. Japan gave China access to integrated circuits critical to missile guiding and tracking systems, William Tow and Douglas Stuart recorded. Experts from Japan lectured Chinese technicians on state-of-the-art air defence systems and the application of computers in military systems. Israel also became an important provider of cutting-edge military technologies.

Also Read: Chinese balloon over US a reminder time has come to regulate, facilitate espionage from space

Xi’s last gamble

Leading up to his election in 1969, United States president Richard Nixon had published a road map for Western rapprochement with China. Ever since the revolution of 1949, the United States had denied recognition to China, seeing communism as a threat to its interests in Asia. The strategy was misplaced, Nixon now argued, that “the world cannot be safe until China changes”. “Thus our aim, to the extent that we can influence events, should be to induce change. The way to do this is to persuade China that it must change.”

Xi’s increasingly-aggressive efforts to rewrite the structure of global power, and establish China as the hegemon in Asia, were the outcome of that argument. The Chinese president gambled his country’s centrality to the global economy could insulate it from the consequences of his actions.

From the story of the Big Fund, though, it is clear Xi made a bad bet. Well-connected tech swindlers proved adroit at syphoning off state funds into dubious enterprises. Genuine innovations like Huawei’s Kirin 9000 mobile phone chips, were crippled by sanctions which denied it access to the machines needed to turn the designs into mass-market products. China just didn’t have the fundamental scientific base needed to produce cutting-edge chip fabrication machines.

“This frenzy of state capital investment, political salience, and the nationalist narrative sounds eerily similar to the disastrous Great Leap Forward of 1957, which was about increasing steel production,” Elliot Ji notes. Today, this new Great Leap forward threatens to become a Great Leap into nowhere.

Also Read: India has joined the global chip race. Question is, should it fly solo?

Is war ahead?

Following its invasion of China, Japan grandly announced the arrival of “a New Order in East Asia.” Tokyo planned, it announced, “to perfect the joint defence against Communism and to create a new culture and realise a close economic cohesion throughout East Asia.” Following Nazi Germany’s successes in Europe, Japan became increasingly convinced the West would be able to respond to a swift war of expansion. Japan could simply seize the resources it needed, and establish a sphere of influence across Asia.

The hawkish figures who dominated Japanese policy-making badly miscalculated. What was meant to be a swift resource grab led the country into a war it could not win.

Xi likely knows his billion-dollar semiconductor just defers his moment of strategic decision. Facing sanctions, and a slowing economy, the Chinese president could just fold, and walk from the crisis he’s marched the country towards.

This sane course, though, isn’t the only one Xi has. He might believe the West will be unwilling to pay the gargantuan economic and military costs of a superpower war, simply to safeguard allies like Taiwan.  Even if it does, Xi might consider the price worth paying. China’s economic growth is, after all, slowing and its population is ageing, which means Xi must act now—or lose the chance forever.

Ever since atomic weapons ended the war with Japan, the world order has rested on the assumption that no nuclear power will goad another into war. The war that began in 1941, though, shows deterrence can and does fail. When leaders believe the alternative to war is certain defeat, they will take ill-advised chances. Will Xi be willing to sacrifice the hard-won prosperity of his nation for an ideologically-driven illusion? The path to the last great war in Asia tells us we shouldn’t take the answer for granted.

(Edited by Theres Sudeep)


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