Once the sleeping giant, China tech wakes up

Even if U.S.-China trade talks are fruitful, China is gaining independence in tech. (Getty Images)

It doesn’t take an expert on China to see what’s going on. China is becoming increasingly independent from the U.S. and much of the rest of the world in the technology field.

Part of China’s transition to tech independence has been happening for the last few years, but the mounting trade war between the U.S. and China has added impetus.

Some chip manufacturers have left China for Vietnam, India and other countries over the past two years. More recently, the May entity blacklisting of Huawei and other Chinese tech companies by the U.S. and two rounds of trade tariffs (the second to take effect Sept. 1) seem to have heightened a sense of urgency for Chinese companies. In a few cases, U.S. companies doing business in China or with Chinese companies, or both, are publicly concerned.

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The Chinese government had already been urging a move to Made in China 2025 to promote self-reliance. But the past few days produced a couple of graphic examples of what that means for companies in China.

In one example, Huawei on Friday launched an open source OS called HarmonyOS that Huawei will use in coming years on mobile devices. It’s a hedge against the loss of Android, should it come to that under the entity listing.

Huawei prefers to use Android, but it could switch to HarmonyOS if necessary. One way that Huawei seems to have stuck it to the U.S. is that Android apps can purportedly be ported to HarmonyOS with Huawei’s ARK compiler.

In another example, a new tech-heavy stock board called STAR Market launched in July on the Shanghai Stock Exchange. Most of the first 25 companies were tech-related, with half a dozen in the chip field including Anji Microelectronics Technology, AMEC, Montage Technology, Raytron Technology and Espressif Systems. Total trades on STAR were about $7 billion on the first day. The 25 companies on STAR have given birth to 124 billionaires, including 38 in the semiconductor industry, according to EE Times.

China’s economy has suffered in recent years, which makes the move to more internal reliance a healthy move for China. The question for U.S. companies long term will be how easily they can find alternatives to getting supplies from China or making sales to that country without an open conduit of trade. That trade concern is beginning to formulate in the minds of some investors, if not for U.S. politicians or U.S. semiconductor CEOs. It might be a moot concern if President Trump’s trade team can negotiate a sound deal with China in continuing talks—if they even continue in earnest.

Just about every business trade group in the U.S. has denounced the U.S. tariffs on Chinese goods. Even so, there appears to be a strong strain of support for cracking down on theft of intellectual property by Chinese companies, including some that aren’t China government controlled. A bipartisan bill in the U.S. Senate calls for greater scrutiny of the supply chain from China (and other countries) to avoid potential cybersecurity lapses posed by Chinese servers and other computers brought to the U.S. and used in military and sensitive settings.

What does it all mean? 

“I expect to see much more Chinese emphasis on self-reliance and developing indigenous technology, rather than just relying on outside tech, especially from the U.S.,” said Jack Gold, an analyst at J. Gold Associates. Even if Chinese companies are purloining U.S. technology using various schemes “that doesn’t preclude China from becoming a major supplier of its own and potentially exporting that technology,” he added.

China’s long-range plan to improve its own technology position has the advantage of being funded by its government, Gold noted. “Unlike the U.S., China can have a centralized plan and the government can push it along, which is what is happening,” he said. “External factors, especially the trade war, have shown China it must become more independent for its own benefit.”

There are other long-term considerations for China and the U.S. beyond Huawei and the trade war. Something often overlooked by U.S. policymakers is how much control China has over rare earth elements and rare metals used in making chips and components. In one example, China produces 95% of the world’s raw gallium, used in making chipsets for high frequency radio waves in 5G base stations. Gallium is one of 35 elements deemed a U.S. security concern.

Another long-term reality is brain power. “China is producing tons of engineers, many who used to study in the U.S.,” Gold noted. “Many are now studying and staying in China to fuel the technology sector there. In some cases that’s due to the difficulty of getting employed in the U.S. if you are not a citizen.”

China is large, and its economic potential is great. Sometimes it seems as if Americans don’t know that’s so, or don’t care. French Emperor Napoleon Bonaparte called China a sleeping giant 200 years ago. His following words have been translated in various ways, but a good paraphrase goes: “Let China sleep, for when she wakes, she will shake the world.”  Some translators say Napoleon actually said that China will “astonish” the world upon awakening.

Either way, his warning is there for the wise.

RELATED: Stocks rebound one day after their worst of the year amid trade war woes

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