US-China tech war: Shenzhen to establish international sourcing platform for semiconductors as global chip shortage persists

China will develop an international sourcing platform for semiconductors and other electronic components in Shenzhen – known as the country’s Silicon Valley and the richest city in southern Guangdong province – in a bid to advance the nation’s hi-tech self-sufficiency drive amid a race between Beijing and Washington to overcome the global chip shortage.

The goal is to engage various companies involved in the semiconductor and electronics industries around the world, including manufacturers and distributors, as partners in the envisioned global platform in Shenzhen, according to the strategy announced on Wednesday by state economic planner the National Development and Reform Commission (NDRC) and the Ministry of Commerce.

China will support electronics and chip companies to set up shop on the platform, enabling these firms to “encourage domestic and overseas clients to purchase electronics components and various types of chips” through that same resource, according to the government’s plan.

“By choosing Shenzhen, [we aim] to establish replicable and scalable innovations around relaxed market access restrictions … to explore a more flexible and scientific policy and system of management to build a better socialist market economy,” said Zhao Chenxin, secretary general of the NDRC, in a press conference on Wednesday.

Shenzhen, the richest city in southern Guangdong province, is widely recognised as China’s Silicon Valley. Photo: Shutterstock

The southern metropolis, which President Xi Jinping hand-picked to become a world-class innovation powerhouse and model for economic reform, will also serve as a major location for procurement, software development, branding and training, among a range of services, according to the plan.

With key online and physical infrastructure in place, the government expects companies operating in Shenzhen to band together and gain greater leverage in negotiating for equipment, components and raw materials.

The Shenzhen-based sourcing strategy, according to the NDRC, will also entail support from China’s customs authorities and financial institutions to provide import and export documentation, logistics and other related cross-border services for every company using the proposed trading platform.

The plan highlights Xi’s strong belief that Shenzhen would become an important engine of growth for the Greater Bay Area development zone, as the city pushes reforms in line with China’s tech self-sufficiency strategy.

Under the city’s 14th five-year plan from 2021 to 2025, released by the Shenzhen government in June last year, the local economy is forecast to reach 4 trillion yuan (US$632 billion) by the end of that period, up from 2.8 trillion yuan in 2020.

Shenzhen, known as the country’s original test bed for market-opening reforms, is home to many large Chinese technology companies, including video gaming and social media giant Tencent Holdings, drone manufacturer DJI, and telecommunications equipment makers Huawei Technologies Co and ZTE Corp. It is also the location for a major integrated circuit plant of Semiconductor Manufacturing International Corp and the largest manufacturing complex on the mainland for Taiwanese firm Foxconn Technology Group at the Longhua Science & Technology Park.

The government’s latest strategy for Shenzhen, however, comes at a time when the global chip shortage, continues to disrupt a wide swathe of industries worldwide, from makers of toys, home appliances, gaming consoles and smartphones to manufacturers of medical devices, cars and aircraft.

On Tuesday, the US Commerce Department said the global semiconductor shortage will persist until at least the second half of this year. US officials plan to investigate claims of possible price gouging for chips used by carmakers and manufacturers of medical devices, according to Commerce Secretary Gina Raimondo.

Information gathered by the US agency from more than 150 companies in the semiconductor supply chain, shows “there is a significant, persistent mismatch in supply and demand for chips”, Raimondo said.

On the same day, the US House of Representatives finalised sweeping legislation meant to boost US competition with China. US President Joe Biden said that proposals within the “America Competes Act of 2022” would help bring back manufacturing jobs to the country, ease supply chain bottlenecks within the semiconductor industry and help tackle the climate crisis.