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China's Ministry of Industry and Information Technology (MIIT) has issued a directive mandating the removal of foreign-owned chips from the country's telecommunications networks and infrastructure by 2027. This move, aimed at bolstering China's technological sovereignty and reducing dependency on external semiconductor suppliers, underscores the nation's strategic intent.

China's ascent as a global semiconductor powerhouse has been rapid, with the nation emerging as the world's top semiconductor consumer, accounting for over 50% of global consumption, according to the Centre for International Governance Innovation (CIGI). Despite this, China ranks fifth in semiconductor manufacturing, trailing behind Taiwan, South Korea, Japan, and the US.

According to Statista, China's semiconductors market is projected to reach USD 198.90 billion in 2024, with integrated circuits leading the market at USD 160.10 billion. In tandem, the global semiconductor market is expected to grow at a CAGR of 6.16% from 2024 to 2027, reaching USD 238.00 billion by 2027.


Chip Replacement During Geopolitical Turmoil

Telecommunications providers in China now face the challenge of assessing the extent of foreign chip integration within their networks and formulating plans to replace them within the stipulated timeframe. This task requires meticulous planning to ensure a seamless transition while maintaining operational continuity.

For state-run entities like China Mobile, China Telecom, and China Unicom, complying with this directive presents significant challenges. These companies operate extensive networks comprising thousands of foreign chips, particularly in cloud computing data centers crucial to telecom operations. Identifying and replacing these chips within a compressed timeframe poses operational and logistical hurdles for these industry giants.

This directive aligns with the broader geopolitical backdrop of escalating tensions between the US and China, especially in semiconductor manufacturing. China's move to assert control over its semiconductor supply chain reflects its determination to achieve technological self-reliance and mitigate vulnerabilities arising from external dependencies.

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Reducing Reliance on US Technology

Over the past decade, China has pursued strategies to reduce reliance on US technology, particularly in government computers. Notably, China is blocking government agencies from purchasing computers built with AMD and Intel chips. New purchasing guidelines mandate the procurement of computers equipped with "safe and reliable" processors from Chinese companies such as Huawei's HiSilicon, Loongson, Zhaoxin, and Phytium.

Read More: China Bans Intel and AMD Chips in Government Computers

While these guidelines do not impose a complete ban on Intel or AMD-powered computers, they introduce stringent requirements for their procurement by government agencies. This underscores China's strategic shift towards domestic alternatives and its determination to bolster technological sovereignty.

The impact of these guidelines extends beyond government agencies, encompassing Chinese state-owned enterprises and party organs. This transition aligns with China's broader agenda of promoting domestic innovation and reducing reliance on foreign technology.

Read More: US Continues to Limit China’s High-Tech Sector With Fresh Bans


China Aims for AI Superpower Status

In tandem with its semiconductor prowess, China has articulated ambitions to become an artificial intelligence (AI) superpower in the near future. These aspirations have raised eyebrows in the US, particularly against the backdrop of escalating geopolitical and trade tensions between the two nations.

The US’ response to China's semiconductor and AI ambitions has been marked by skepticism and apprehension. In response to China's rapid semiconductor development, the US has taken measures to curb Chinese access to critical technologies. Notably, several Chinese companies, including Semiconductor Manufacturing International Co (SMIC), China's largest chipmaker, have been placed on a trade blacklist by the US, citing security concerns.

Read More: Global Military Powers Pursue AI Amid Ongoing US-China Tech War

While China's move may pose challenges in the short term, it reflects China's determination to reduce dependency on external semiconductor suppliers and assert control over its technological destiny. As tensions between the US and China persist, this directive underscores the complex dynamics shaping global competition in the semiconductor industry. Ultimately, how China navigates these challenges will not only impact its own technological trajectory but also shape the broader landscape of global innovation and geopolitics.

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