China faces an additional geopolitical challenge in chip fabrication and assembly. Just a handful of Japanese companies dominate the global market in silicon wafers, photoresists, and essential packaging chemicals. These companies are well-regarded for their high-quality production capabilities and their products are not easily replaceable even by a manufacturing heavyweight such as China. In a changing world where strategic concerns are guiding technology flows, China’s chip ambitions can be foiled not just by the US but also by Japan and Taiwan.
China’s state-backed funds may well spur private investment, even producing a few champions, but are unlikely to result in a self-sufficient Chinese chip industry any time soon.
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