China’s efforts to reduce its reliance on foreign technology are taking a significant turn as it sets its sights on excluding American chip manufacturers from its telecommunications infrastructure. The move, directed by Chinese officials earlier this year, entails phasing out foreign processors crucial to the country’s largest telecom carriers by 2027, posing a potential blow to American chip giants Intel and Advanced Micro Devices (AMD).
The directive, issued by China’s Ministry of Industry and Information Technology, aims to expedite Beijing’s efforts to eliminate the use of foreign core chips in the country’s telecom networks. State-owned mobile operators have been instructed to scrutinize their networks for non-Chinese semiconductors and develop timelines for their replacement. This push underscores China’s commitment to bolstering its domestic semiconductor industry and reducing dependence on foreign technology.
The transition to domestic alternatives is gaining momentum, thanks to improvements in the quality and performance of Chinese chips. This shift is expected to impact Intel and AMD the most, as these companies have been major suppliers of core processors for networking equipment in China and globally.
Beijing’s desire to wean China off American chips is the latest reaction in the U.S.-China technology war that is splintering the global landscape for network equipment, semiconductors and the internet. American lawmakers have banned Chinese telecom equipment over national-security concerns and have restricted U.S. chip companies including AMD and Nvidia from selling their high-end artificial-intelligence chips to China. China’s electric vehicle production may also be impacted as President Joe Biden, the President of the United States has been urged by the Chairperson of the Senate Banking Committee, Senator Sherrod Brown to ban EVs from China, “Chinese electric vehicles are an existential threat to the American auto industry,” he stated.
Shares of Intel and AMD experienced declines following the news, reflecting investor concerns over the potential repercussions of China’s move on these companies’ revenue and market share.
China’s localization efforts extend beyond telecommunications, with the country seeking to source products locally to address national-security concerns. This trend has been observed in various industries, including software and hardware procurement, where Chinese entities are encouraged to prioritize domestic alternatives over foreign products.
Intel and AMD’s China operations face heightened geopolitical risks, with both companies acknowledging the challenges posed by U.S.-China tensions and China’s localization push in their respective annual reports. The dependence on export control authorization and restrictions on high-end AI chip sales to China further complicate the outlook for these companies.
While Chinese chips may not always match the quality of their foreign counterparts, they have gained traction among Chinese telecom customers. Recent procurement data from China Telecom illustrates this trend, with Intel CPUs gradually losing ground to Huawei’s Kunpeng processors in server purchases.
Despite these challenges, China’s demand for wireless communications equipment remains robust, positioning the country as a key market for semiconductor firms. Local CPU substitutes, including offerings from Huawei Technologies’ HiSilicon and Hygon Information Technology, have made significant advancements, further fueling China’s drive towards technological self-sufficiency.
