Tech War with the US is Spurring Chinese Firms to Develop their Own Chips, Says Venture Capitalist

The U.S.China trade war and the threat that Chinese firms could be cut off from using American technology is boosting China’s push for its own semiconductor industry.

“Huge amounts of capital and talent are going to be thrown at building self-reliance and establishing a kind of parallel ecosystem here without dependence on U.S. chips, operating systems,” said Ben Harburg, managing partner of MSA Capital, a Beijing-based venture capital firm.

“The rationale is that this moment created demand. Previously, it didn’t have demand for those Chinese chips,” Harburg told CNBC Monday at the World Economic Forum in Dalian, China.

While there was government money in the past to back such businesses, the understanding was that there were always U.S. chips to fall back on.

“That has changed now where there was a moment of complete desperation where there wasn’t an alternative to U.S. chips,” said Harburg, who added that MSA Capital is now investing more in core technologies like chips, core artificial intelligence and companies that aren’t dependent on U.S. chips.

Last month, Chinese tech giant Huawei was placed on a U.S. blacklist that required American firms to obtain government permission to sell to the company. The telecommunications equipment maker relies on some key components from U.S. firms and software from Google and Microsoft. Washington has granted a 90-day reprieve for now, but the threat remains a major problem for the company.

Huawei rival ZTE faced a similar situation last year, which significantly damaged the company.

A homegrown Chinese semiconductor industry will likely hurt American chip makers as China will aggressively push their chips not just domestically but to other markets, said Harburg.

“American companies in the hardware space like Apple have priced themselves out of markets like Africa. So if American chips aren’t going in there, it’s Chinese chips that are going into the phones being sold locally, ” he said.

Chinese tech manufacturers will also start targeting consumers in smaller cities in China, Harburg added.

Over the weekend, U.S. President Donald Trump suggested he will be reversing his government’s decision to ban American companies from selling products to the tech giant. Still, Trump said the issue of Huawei will be resolved only at the conclusion of the negotiations.

— CNBC’s Arjun Kharpal contributed to this report.

Author: Huileng Tan

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