- [Narrator] This is a chip.
It's the brains of electronic devices,
laptops, smartphones, TVs,
and certainly the device
you're watching this video on right now.
Almost half of these chips sold globally
by American firms like Qualcomm and Intel.
But now China is racing to change that.
The country has added almost $30 billion
into its own semiconductor companies,
like Chinese manufacturer, SMIC.
- SMIC is China's hope to win this tech race with the US.
- [Narrator] SMIC is one of many
little known Chinese tech companies
that have seen their stocks rise
as the Trump administration announced a number of moves
to effectively shut Chinese tech giants,
including TikTok and Huawei out of the US market.
- Huawei is something that's very dangerous.
- I mean, Washington's attitude toward China,
particularly when it comes to technology
is that the two countries need to separate.
We could wind up with two different ecosystems
when it comes to technology.
- [Narrator] This separation process
has been called decoupling.
So how are the US and China
trying to become more self-sufficient?
And what does it mean for tech giants in both countries?
- We cannot take the security risks
of any of those companies,
including Huawei, which as you know, we put a halt to.
- [Narrator] Huawei and the hugely popular video app, TikTok
have both been accused of being potential tools
for Chinese espionage,
and have been labeled by the US as a security threat.
- We wanna see untrusted Chinese apps
removed from US app stores.
President Trump has mentioned impending action on TikTok,
and for a good reason.
- [Narrator] Both Huawei and TikTok
vehemently denied those allegations
and said they operate independently from Chinese government.
- And this administration has broadened
the notion of what national security is
way beyond any other administration.
And when it comes to China,
they define national security as data,
all Chinese technology is suspect,
according to this administration.
- [Narrator] As TikTok received threats
of being outright banned in the US
and the US government said Huawei would be barred
from buying chips from the US and other countries,
investment from China has almost ground to a halt.
- Chinese investment in the US is down 90 some odd percent.
- [Narrator] The restrictions have also startled
a number of American companies,
which have been lobbying hard against the changes.
Huawei is a big client for corporations,
including Qualcomm and Intel.
The likes of Microsoft's Bill Gates,
and Alibaba's Jack Ma have said the recent escalations
are counterproductive for both sides.
- American companies supply parts to Huawei,
that may all go away, all of it.
I mean, the Trump administration's message
to American companies and European companies
that wanna do business in China is don't do it,
come to the US.
- [Narrator] So how is China responding?
Beijing announced it would no longer allow
its own artificial intelligence tech,
think facial recognition and data processing,
to be exported without new licenses.
While Washington and Beijing
are fighting on a number of fronts,
from Hong Kong to Taiwan and the South China Sea,
tech has emerged as a strategic priority.
That's where companies like SMIC come in.
- China has had a long standing desire
to reduce Chinese companies dependence on foreign supply.
However, it's really not until the Trump's trade war
that the Chinese leadership realized
that this is really serious,
we really need to put our act together now.
- [Narrator] China launched its own version
of the NASDAQ last year, the STAR market,
and stocks there are soaring.
It reflects how much investors think companies can benefit
from the country's quest for self-reliance.
- Under Xi Jinping, there's a new slogan,
it's called domestic circulation.
This esoteric slogan means that China going forward
is going to prioritize its own companies,
its own markets and Chinese consumption.
- [Narrator] Chips are particularly important.
China is the world's biggest consumer of chips.
It spends more on chips than it does on oil,
and imported $300 billion worth of chips last year.
- Policy makers are using SMIC as a role model
for other companies with similar ambitions,
they're basically telling those companies,
we're willing to invest in you, we're willing to help you,
but as long as you adhere to the policy agenda.
- [Narrator] Beijing is already touting
a number of successes.
China's economy is forecast
to be the only major economy to grow this year.
And that's benefiting it's tech giants.
Huawei, which is already a global champion in 5G technology
became the number one smartphone seller in July,
mostly, thanks to its domestic market,
where it sells over 70% of its phones.
But ending its reliance on US technology
remains complicated.
- We have a lot of really smart engineers and scientists
on both sides of the Pacific.
If they are not working together,
that will clearly retard innovation.
- [Narrator] Huawei announced in 2019
that it can produce a phone without US chips.
Still, those substitute parts of themselves made
with American technology and tools,
and the administration has taken steps
to close the loophole.
And if US regulation doesn't allow Huawei
to buy key components made with US tech,
Huawei may simply not be able to produce its hardware.
Analysts estimate that Huawei stockpile of US components
will only last one or two years.
Huawei has declined to comment on its inventory.
Huawei situation is seen as a confirmation
that despite heavy investment,
Chinese chip companies like SMIC are still lagging behind.
China is said to be about four years
behind the US and Taiwan.
SMIC, which also uses a lot of US technology,
has said it aims to accelerate the development
of its own chip making capability.
- China has been here before.
It has been trying to catch up with the US for decades.
And it's not the first time it has invested so heavily
in semiconductor industry.
However, it still has a huge gap to fill,
and now time is running short.
- [Narrator] And the US is also making moves.
Legislation is making its way through the US Senate
that could pump an additional $37 billion
into American semiconductor manufacturing
and research and development.
And whether or not Trump is reelected,
US actions aren't likely to stop.
- I don't think that a Biden administration
would take a fundamentally different view toward China.
China would still be the number one competitor.
There would still be issues, you know, on human rights,
national security, technology.
- No matter who's next in the White House,
this kind of inward turning policy China has
is here to stay.
China's leadership realizes
the US is no longer a reliable partner.
- [Narrator] So after years of escalating tensions
between the US and China,
the decoupling of their tech industries
will now likely continue.
- I mean, what the US at the moment is doing
is saying to the rest of the world, choose,
you know, you're gonna go with us
or you're gonna go with them.