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By PIETER HAECK
with PHELIM KINE
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Hello China Watchers. This is Pieter Haeck, filling in for Stuart (who sends his greetings from Italy). I cover all things microchips at POLITICO, and today we unpack how “legacy” chips (like those used in basic home appliances) are the EU’s latest concern on the China front.
SPOTLIGHT ON LEGACY CHIPS
EU STARTS LOOKING INTO CHINA’S POWER OVER LEGACY CHIPS: In recent years, much of the discussion around microchips has focused on the advanced types used in smartphones or data centres (the ones mainly produced in Taiwan).
But the EU is now shifting some of its attention to “legacy chips,” the more “boring,” less advanced types used in household appliances, medical devices, cars and other machines.
The European Commission will start to question microchip suppliers and customers about legacy chips and whether there is a dependency on China supplies in that space, I wrote as a scoop for EU PRO Tech subscribers on Monday. The first results are expected by the end of summer.
Teaming up: As often happens in the microchips sphere, the U.S. has set the tempo and now the EU is following.
The U.S. launched a survey on the topic in January. In April, during a huddle between EU and U.S. top officials in Belgium, U.S. Commerce Secretary Gina Raimondo opened up to reporters about some of the concerns around these “workhorse” chips (as she called them.)
She estimated that China will produce around 60 percent of the legacy chips coming to the market in the “next handful of years.”
“We know there’s a massive subsidization of that industry on behalf of the Chinese government, which could lead to huge market distortion,” she added.
New battlefield? The first round of the global chips war focused on the more advanced chips, and especially the gear to make them — with the U.S. pressuring its European allies and Japan to block some of the export of advanced microchip printers to China. Dutch tech champion ASML was a prominent example affected.
EUROPEAN CHIPS FEED CHINESE EV BOOM, EXPERTS SAY: European chips companies (like Germany’s Infineon and the Netherlands’ NXP) are still leaders in the global car chip market, a report published last week argues.
This puts them in a good position to piggyback on the boom of electric vehicle production in China (a hot topic in Brussels these days because of the ongoing Commission anti-subsidy probe.)
“Of course, they benefit if Chinese EV is growing,” Jan-Peter Kleinhans, head of global chips dynamics at German think tank Stiftung Neue Verantwortung, told China Watcher.
Last week, German chip company Infineon offered a taste of what that means, when it announced that it’s a supplier of Xiaomi, a Chinese smartphone manufacturer which is now looking for its way into the electric vehicle market.
The dream could quickly turn into a nightmare, though, if Chinese domestic car chip production picks up — and the researchers are quite sure that’s going to happen.
“I think there’s a general trend of import substitution that they cannot stop. I think that train left the station,” Kleinhans added.
CHINA’S NEW PHARMA ROLE
CHINA HAS BECOME A DRIVER OF PHARMA INNOVATION, NEW BOOK SAYS: China is transforming from a country where medicines were manufactured to a country that is innovating itself in drug development, a book released in April claims.
China is now starting “to out-license its biopharma technology to the rest of the world,” Ben Wu and Sven Agten write in their book “Biopharma in China: Innovation, Trends and Dealmaking.”
Wu has been a pharma executive in China for companies such as Sanofi and Johnson & Johnson, while Agten, an executive at construction material company Rheinzink, has consulted on deals in that space.
How to leapfrog: China’s size could give the country a fast-track to pool data for clinical trials.
“If you’re doing clinical trials in China, then you need one hospital, and you have enough patients,” Agten told China Watcher. “In Belgium, you already have to go to Spain, to France,…”
The use of artificial intelligence could be another piece of the puzzle. “They have a bunch of data, a bunch of patients, if you put AI onto that, then you can generate results very quickly,” Agten added.
FOREIGN SUBSIDY LATEST
CHINESE BIDDERS DROP OUT: For the second time, Chinese bidders withdrew from a government tender after the European Commission opened a probe into whether they received unfair foreign subsidies. This time, the bidders bailed on a Romanian solar power contract. As a result, the investigation was also closed. The China Chamber of Commerce to the EU slammed the probe and claimed that the foreign subsidy rules are selectively enforced.
TRANSLATING WASHINGTON
BILATERAL AI TALKS IN GENEVA: U.S. and Chinese officials will meet in Geneva today to discuss the "technical risks" of artificial intelligence, POLITICO's Mohar Chatterjee writes in to report. The discussion is one of the commitments that President Joe Biden and China's leader Xi Jinping agreed to in their meeting in San Francisco in November. The interagency U.S. delegation includes special assistant to the president and senior director for technology and national security, Tarun Chhabra, and State's acting special envoy for critical and emerging technologies, Seth Center, the White House said in a statement Monday. The Geneva event is "an opportunity to directly communicate on respective areas of concern," said senior administration officials who briefed reporters prior to the meeting on the basis of anonymity. The meeting will include an information share of details of U.S. domestic policies on AI risk and safety, as well as each country's international governance approach to the rapidly growing technology. Stay tuned.
BEIJING GROWLS AT LOOMING U.S. TARIFFS: The Chinese government is fuming about the likely rollout today of new tariffs targeting imports the U.S. considers strategically sensitive. The U.S. continues to "politicize trade issues, abuse the so-called review process of Section 301 tariffs and plan tariff hikes —this will just double the U.S.'s fault," Chinese Foreign Ministry spokesperson Lin Jian said Friday. The Biden administration "will maintain existing tariffs on many Chinese goods set by former President Donald Trump…[and] will also add new tariffs to semiconductors and solar equipment," CNBC reported on Saturday.
U.S.-CHINA TALK NICE ON CLIMATE COOPERATION: Beijing and Washington signaled intent to continue bilateral climate cooperation with an upbeat joint readout of talks between John Podesta, senior adviser to the president for climate policy, and his Chinese counterpart, Liu Zhenmin, in Washington last week. The envoys tiptoed around potential third-rail issues including their respective positions on climate finance (dished in this edition of China Watcher). Instead they focused on upcoming bilateral events including a U.S.-China High-Level Event on Subnational Climate Action in California at the end of May and a second "Methane and Non-CO2 Greenhouse Gases Summit" the two countries will co-sponsor at the United Nations COP 29 climate summit in November.
But Beijing made clear that bilateral climate cooperation is vulnerable to wider tensions in the U.S.-China relationship. "Despite its professed willingness to strengthen cooperation with China on climate change, the U.S. has been hyping up the so-called 'overcapacity' in China's new energy sector and vowing to impose additional tariff hikes on Chinese electrical vehicles and solar products —this is self-defeating," Chinese Foreign Ministry spokesperson Wang Wenbin said Monday. Stay tuned.
BEIJING BLASTS U.S. CONSUL'S HK COMMENTS: Chinese authorities are hopping mad over candid comments about the deterioration of rule of law in Hong Kong by Gregory May, the territory's U.S. Consul-General. May "openly supported anti-China elements" including imprisoned former media tycoon Jimmy Lai, "and meddled in Hong Kong affairs and China's internal affairs," the spokesperson of the Commissioner's Office of the Chinese Foreign Ministry in Hong Kong said in a statement Friday. May triggered that response by saying that the U.S. will "continue to urge authorities to withdraw the arrest bounties that have been put on democracy activists overseas…[and] continue to call for the release of Jimmy Lai," at a Center for Strategic & International Studies event last week.
U.S. NAVAL PASSAGE REAPS CHINESE IRE: The guided missile destroyer USS Halsey cruised past the Paracel Islands in the South China Sea on Friday. And Beijing isn't pleased. That passage violated Chinese sovereignty and was "irrefutable evidence of the U.S. ‘navigation hegemony’ and ‘militarization of the South China Sea’," China's Defense Ministry said in a statement Friday. The U.S. Navy said the Halsey's mission was to push back against China's expansive territorial claims in the region. The voyage aimed at "challenging the restrictions on innocent passage imposed by the People's Republic of China" in the region, the 7th Fleet said in a statement Friday.
MANY THANKS TO: Editor Christian Oliver, and reporters Phelim Kine, Varg Folkman and Camille Gijs.
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