Chinese Chip Central Planning Creates “Stunning Absurdities That Defy Logic and Common Sense”

(p. B1) Liu Fengfeng had more than a decade under his belt at one of the world’s most prominent technology companies before he realized where the real gold rush in China was taking place.

Computer chips are the brains and souls of all the electronics the country’s factories crank out. Yet they are mostly designed and produced overseas. China’s government is lavishing money upon anyone who can help change that.

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(p. B2) In a way, China is hoping to achieve the same kind of liftoff that helped it progress from making plastic toys to crafting solar panels.

With semiconductors, though, “the model starts to break down a little bit,” said Jay Goldberg, a tech industry consultant and former Qualcomm executive. The technology is eye-wateringly expensive to develop, and established players have spent decades accumulating know-how. Europe, Mr. Goldberg noted, once had many “incredible” chip companies. Japan’s chip makers are leaders in certain specialized products, but few would call them bold innovators.

“My point is, there is a ladder — China’s moving up it,” Mr. Goldberg said. But it’s “unclear which outcome they go to.”

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At a top-level meeting on the economy last week, the Communist Party’s leaders enshrined technological self-reliance as one of the country’s “Five Fundamentals” for economic development.

Complete self-sufficiency in chips, however, would mean recreating every part of the lengthy supply chains for some of the most complex technology on earth — a mission that would seem to lead, if not to madness, at least to waste.

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“Up until very recently — this year — the goal had been: With state backing, move up the value chain, specialize where China has a comparative advantage, but don’t really try and fall down the rabbit hole of trying to build everything yourself,” said Jimmy Goodrich, the vice president for global policy at the Semiconductor Industry Association, a group that represents American chip companies.

Now, “it’s very clear that Xi Jinping is calling for a redundant domestic supply chain,” Mr. Goodrich said. “And so the rules of economics, comparative advantage and the supply-chain efficiencies have basically been thrown out the door.”

The government is conscious of the dangers. State-run news outlets have amply covered the recent semiconductor flameouts. The message to other upstarts: Don’t mess it up.

When the state broadcaster China Central Television visited one stalled project in the eastern city of Huai’an recently, it found dozens of giant machines idling on the factory floor, many of them still sheathed in plastic.

“There have been some stunning absurdities that defy logic and common sense,” China Economic Weekly said.

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“There is definitely a bubble in China,” he said. “But you can’t overgeneralize.”

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“Something is bound to accumulate, whether it’s equipment, talent or factories, right?” Mr. Liu said. “If not you or the other guy, then it will be someone else who ends up using it. I think this might be the government’s logic.”