Domestic Goddess

China’s been cooking up new plans to develop its domestic microchip industry and throw away all those unappetizing foreign imports.

Image source: Jirik V, Jiri Hera, Frederic Legrand - COMEO, Everett Collection - Shutterstock

What's going on?

China’s been cooking up new plans to develop its domestic microchip industry and do away with all those unappetizing foreign imports.

What does this mean?

Microchips – otherwise known as semiconductors – are the fundamental building blocks of countless technologies, from smartphones to electric vehicles. And China – which uses more than 60% of the world’s supply – relies heavily on foreign imports to meet its needs. That’s what makes the increased restrictions America is imposing on China all the more problematic. Just this month, for example, the US will ban shipments of virtually all homegrown semiconductors to Huawei, one of China’s biggest technology companies.

Knowing it can’t depend on Stateside suppliers anymore, China’s trying to bolster its own capabilities by increasing research and financing for the industry. It’s all part of the country’s fourteenth consecutive 5-year economic plan, and comes on top of an existing $1.4 trillion pledge to support tech ventures – like artificial intelligence and 5G wireless networks – through to 2025.

Why should I care?

For markets: Delayed reactions.
Major Chinese chipmakers welcomed the news, with several of their stocks rising between 10 and 15%. As for international chipmakers, their share prices didn’t move much more than the overall market. But it might only be a matter of time: China spends $300 billion every year on foreign chips – more than it spends on oil imports – and could single-handedly leave quite the dent in those firms’ revenues.

The bigger picture: Conscious decoupling.
A disruption to the flow of technology between China and the US isn’t necessarily in the former’s best interests: a decoupling of the world’s two biggest economies would, according to a study by Bloomberg, cut China’s growth rate to 3.5% in 2030, compared to 4.5% if things remain broadly unchanged (tweet this). And if the US convinces key allies to steer clear of the People’s Republic as well, that drop could look even steeper…

Originally posted as part of the Finimize daily email.

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