China’s Drive to Make Semiconductor Chips Is Failing

China’s Drive to Make Semiconductor Chips Is Failing

The stunning success of U.S. efforts to hobble Huawei shows the fragility of Beijing’s highly centralized tech sector.

Shenzhen, a city of some 12 million people in southeastern China’s Guangdong province, is the consumer electronics capital of the world. Immediately abutting Hong Kong, it now towers over its restive regional rival in terms of population, skyscrapers, and by some counts even gross domestic product. It is also home to Huawei, the Chinese telecommunications company that dominates global 5G wireless infrastructure and sits at the center of the U.S.-China tech war.

Long a hub for mobile phone assembly, the city of Shenzhen is about to get into the business of making phones itself. In November, a consortium led by the Shenzhen municipal government struck an unusual deal to pay Huawei $15 billion and take over the company’s Honor budget smartphone brand. Huawei is fighting for its very survival since it was added to both the U.S. Commerce Department’s export licensing Entity List and the U.S. Defense Department’s foreign investment blacklist.

The strange spectacle of a city government funneling money into a global tech giant and ending up with a budget phone maker is emblematic of China’s problems in developing its own technologies. China has the ambition, and it can do things at scale. It can also raise the money, even (when necessary) from unlikely sources. But it lacks the broad ecosystem of commercial cooperation, intellectual property protection, and intelligent venture capital that makes deep technology collaboration possible. China’s command economy is a cookie-cutter economy, but high technology is a networking game.