The technological ARMs war over ‘Made in China 2025’

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A circuit board for smart devices. Photo: iStock

Advanced RISC Machines hardly rolls off the tongue. Known as ARM Holdings to the business fraternity, it is not exactly a household name in Scunthorpe, Seattle or Shanghai.

Yet this high-tech research and development company could end up being crucial to President Xi Jinping’s ambitious “Made in China 2025” project, which aims to turn the world’s second-largest economy into a technological powerhouse.

“ARM Holdings doesn’t build processors per se,” Jason Perlow, a technical architect consultant at Dimension Data, told ZDNet, a business technology news website published by CBS Interactive and TechRepublic.

“It creates reference designs or ‘architectures’ which are essentially the basic blueprints, or the ‘DNA,’ of how semiconductors work,” he added. “[The firm] then licenses those basic designs to other companies, which in turn use them in their own chips.”

From humble beginnings amid the dreamy spires of the university city of Cambridge in England, ARM has become a ‘hothouse’ of innovation since the 1990s and is part of what the United Kingdom calls ‘Silicon Fen,’ a typically British play on Silicon Valley.

Now part of Masayoshi Son’s sprawling SoftBank Group after a US$32 billion takeover in 2016, the semiconductor designer’s core customers are Apple, Samsung and Qualcomm, who are licensed to incorporate their chip designs.

Its influence is immense.

High-tech hub

In April, ARM set up a joint venture in Shenzhen’s high-tech hub. Since then, plans have emerged that the company is planning to cede control to a Chinese consortium, including Hopu-Arm Innovation Fund, which is also known as Hou An Innovation Fund, according to China’s Ministry of Science and Technology.

Other key investors are believed to be Baidu, which is China’s answer to Google, Bank of China Group Investment and venture capital firm Sequoia, the Nikkei Asia Review reported two weeks ago.

If the deal goes through, the new entity will be known as Arm Mini China. Obviously, sharing future technology by boosting funding for further research and development in the microchip field will become a priority. Money will be no object.

“It’s hard to predict how long it will take for China to catch up with others, or successfully develop its own core technologies, but for traditional chip sectors, the time will be longer,” Geng Bo, the vice-secretary general of the inappropriately named China Solid State Lighting Alliance, a technology research and investment firm in Beijing, said.

As it stands, about 90% of the world’s mobile devices use the ARM chip “blueprint.”

The group’s Chinese clients include Huawei’s semiconductor division, Hisilicon Technologies, Xiaomi and Fuzhou Rockchip Electronics under a “royalties” scheme.

But it is the R&D work, conducted by roughly 250 employees in Shenzhen, which is the perfect fit for the “Made in China” program.

In its scale, the project is breathtaking.

Rolled out in 2015, four years after Germany’s Industrie 4.0 initiative was launched at the Hanover Fair, the policy encompasses an array of sectors, from chips, computers and the cloud to smart cars to smart cookers.

Renewables, railways and robotics are other vital areas earmarked, along with the Internet of Things, and interconnected smart technology linked through artificial intelligence, or AI, for the pharmaceutical industry.

Yet the sheer depth of the scheme has triggered a technological arms race, with US President Donald Trump insisting that China’s state subsidies for high-tech industries must be curtailed as trade talks resume in Washington this week.

“The current trade war between the United States and China is not about trade,” Yukon Huang, a senior fellow at the Carnegie Endowment and author of Cracking the China Conundrum: Why Conventional Economic Wisdom Is Wrong, wrote in an opinion piece for Caixin.

Dominant economic power

“This war is about protecting the technological edge that has made the United States the world’s dominant economic power,” the former World Bank director for China added on the Beijing-based media website.

Running alongside the trade spat has been the ZTE saga. The Shenzhen telecom giant has been left crippled after being banned for seven years from buying US-made components, such as semiconductors, wrecking its supply chain.

A stellar company in China’s tech firmament, ZTE was ruled to have violated a sanctions settlement, involving illegal exports to Iran and North Korea, by the US Commerce Department.

Beijing’s take, though, has been quite different, pointing out that this was a direct assault on its cutting-edge tech sector and the coveted “Made in China” policy.

“We have good reasons to question the legality and legitimacy of many actions taken by the US on the grounds of national security, like its plan to impose high tariffs on many industries of ‘Made in China 2025’,” Hua Chunying, a spokeswoman for the Chinese Foreign Ministry, told a media briefing last month. “Clearly, they are targeting something else.”

Still, the same could be said of the move to snap up ARM’s joint venture and the state-sponsored move to dominate tomorrow’s technology today.

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