China Intends to Go It Alone in Chip Manufacture Pledge

China’s ruling Communist Party is encouraging the country’s biggest e-commerce company Alibaba to design and manufacture its own computer processor chips.

President Xi has recently said that “Self-reliance is the foundation for the Chinese nation.” This and other pronouncements designed to gear China up to being a technological superpower has some business leaders worried that Chinese strength in this area could upend the balance of global trade. Processor chips are China’s biggest import, ahead of crude oil, with the country spending more than $300 billion last year. Chinese factories assemble many of the world’s smartphones and tablet computers, but need precision components from the US, Europe and Japan. 

At present, China lacks the most advanced tools Chinese chip makers would need to match global leaders in technological efficiency.

Some market watchers are wary of China’s comments, but are not yet overly concerned, citing the difficulty China faces in bridging a decades-old technological gap any time soon.

What does this mean for me?

Processor chips play a vital role in products from smartphones and cars to gaming devices and home appliances. This year, chip shortages due to the Coronavirus pandemic have already disrupted global supply chains of products like the PlayStation 5.

As a trader, this developing story could be one to keep an eye on as any processing chip shortage that is sparked off by a trade war could lead to serious market ripples.