The West's Technological Edge in Geopolitical Competition

[Riaz Haq]

The US and its allies enjoy a significant technological advantage over China and Russia.  The Chinese are working hard to catch up but the West is not standing still. It is making huge investments in research and development to maintain this edge as it becomes increasingly clear that the outcome of the ongoing international geopolitical competition will largely be determined by technology. 

East-West Comparison of GDP, R&D. Source: IMF (GDP), OECD (R&am...

In 2019, the United States and its allies invested $1.5 trillion in research and development, far outpacing the combined Chinese and Russian R&D investment of half a trillion USD.  This gap will likely narrow if the East's GDP continues to grow faster than the West's, allowing for higher investment in technology. 

After the Russian invasion of Ukraine, the US, EU, Japan, South Korea and Taiwan have made it clear that the Western allies can and will use technology sanctions to control the behavior of China and Russia. 

Taiwan Semiconductor Manufacturing Company (TSMC) will no longer fabricate computer chips for Russia, according to media reports. The ban will particularly affect Russia's Elbrus and Baikal processors, unless China agrees to step in to manufacture these chips, and risk additional US sanctions itself. Both Russian processors use mature 28 nm technology. The world's most advanced TSMC fabrication technology today is 5 nanometers. The best US-based Intel can do today is 7nm technology. China's SMIC (Semiconductor Manufacturing International Corporation) has the capability to produce chips using 14 nm technology.  Semiconductor chips form the core of all modern systems from automobiles to airplanes to smartphones, computers, home appliances, toys, telecommunications and advanced weapons systems.  

While China is the  biggest volume producer of semiconductor components in the world,  the Chinese design centers and fabs rely on tools and equipment supplied by the West to deliver products. Western companies dominate all the key steps in this critical and highly complex industry, from chip design (led by U.S.-based Nvidia, Intel, Qualcomm and AMD and Britain’s ARM) to the fabrication of advanced chips (led by Intel, Taiwan’s TSMC and South Korea’s Samsung ) and the sophisticated machines that etch chip designs onto wafers (produced by Applied Materials and Lam Research in the U.S., the Netherlands’ ASML Holding and Japan’s Tokyo Electron ), according to the Wall Street Journal. 

There is no question that the current western technology sanctions can seriously squeeze Russia. However, overusing such sanctions could backfire in the long run if the US rivals, particularly China and Russia, decide to invest billions of dollars to build their own capacity. This would seriously erode western technology domination and result in major market share losses for the US tech companies, particularly those in Silicon Valley. 

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[Riaz Haq]

How Intel’s CEO Helped Create China’s Chip Industry - The Wall Street Journal.

https://www.wsj.com/tech/how-intels-ceo-helped-create-chinas-chip-i...

Over four decades and hundreds of investments, Tan’s U.S.-based venture-capital firm, Walden International, supported some of the biggest names in China’s chip industry. The list includes China’s leading chip manufacturer as well as smaller companies that filled essential niche roles.

At the time, most of the firm’s investments weren’t controversial, and many Silicon Valley venture capitalists and U.S. university endowments joined Tan in pouring billions of dollars into China.

With U.S.-China tensions now high, those investments no longer look so benign. Under both presidents Biden and Trump, Washington has restricted chip exports and chip-making equipment to China, fearing the military implications of Beijing’s technological advances.

In a statement, Tan said he shared the president’s “commitment to advancing U.S. national and economic security” and that Intel was working with the Trump administration “to address the matters that have been raised and ensure they have the facts.” He added that the U.S. has been his home for more than 40 years: “I love this country,” he said.

Tan was born in what is now Malaysia and raised in Singapore, where most of the population, like Tan, is of Chinese ancestry. The avid basketball player got a master’s degree in nuclear engineering from the Massachusetts Institute of Technology and a second master’s in business from the University of San Francisco. Now 65, he is a naturalized American.

Tan founded the San Francisco-based venture-capital firm Walden International in 1987 with the aim, he said decades later, of becoming “the pride of overseas Chinese.” Its name was inspired by the Henry David Thoreau book “Walden,” which championed simple living, self-sufficiency and contrarian thinking.

“I said, ‘I want to be an impact player and what can I offer?’ ” Tan recalled in a 2007 presentation at the University of California, Berkeley. He concluded that his background positioned him to bring U.S. investors to Asia and help Asian companies expand abroad.

In 1993, Chinese officials invited Walden to introduce the concept of venture capital to the Communist Party-run country, a company promotion video said. A year later, Walden established a China-focused fund.

Early investments went to both state-owned companies and China’s swelling class of entrepreneurs. At one point, it was the biggest shareholder in Sina, parent of Weibo , the Chinese social-media equivalent of X. “It is fair to say there would be no Sina today without Walden,” Sina’s chairman once said.

Tan’s impact was most profound in semiconductors. China remains behind its Asian rivals and the U.S. in major chip technologies, and while Intel’s principal competitors aren’t Chinese, they are catching up fast.

Walden was an early investor in SMIC, the company trying to become China’s answer to Taiwan Semiconductor Manufacturing , the widely recognized global leader in making cutting-edge chips. Although it still trails TSMC, SMIC is now China’s biggest chip maker.

Tan served on SMIC’s board of directors for at least 18 years. When the company went public on a Chinese exchange in 2020, Tan said that “Walden has stood alongside SMIC all the way” and supported its manufacturing breakthroughs.

Later that year, the Commerce Department took action to block SMIC from further breakthroughs and put it on a list restricting U.S. suppliers from selling equipment to the Shanghai-based company.