TRANSKRIPTIO 🔗
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China is here to win.
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These goals of building up self-sufficiency in Fair's core technologies are so important to the country that it's willing to put in a lot, a lot of resources, money, whatever it takes, basically.
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And if it fails, they'll try again.
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They'll clean up the campaign, um, with as we've seen in YMTC's history as well, and they'll do it again.
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Good morning, all, and welcome back to the Wire China podcast.
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From today's vantage point, it seems like China's technological giants have always reigned supreme.
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Can anyone remember what it was like before Huawei or even before DeepSeak?
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But just a few years ago, the current success of these mega companies was hardly a guarantee.
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That's especially true in the case of YMTC, full name Yangtze Memory Technologies Corporation, a Chinese memory chip manufacturer.
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In 2022 and 2023, many analysts predicted that the company was on its way out.
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But just a few months ago, YMTC became the world's third largest supplier of NAND, the particular memory chip it manufactures.
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This week, reporter Rachel Chung joins us to discuss her recent cover story on YMTC, aptly titled The Survivor.
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It's already available to read on thewirechina.com, but we're bringing it to you here as well.
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Hello, Rachel.
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Welcome back.
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Hi, Savannah.
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If you missed this story from Rachel, you may have missed signing up for our free newsletter to get our magazine in your inbox each Sunday evening EST.
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The link to register is in the podcast description below.
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But back to Rachel in our story.
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So, Rachel, people who follow China's tech or AI industry are already likely familiar with YMTC's strong position.
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But take us back to the beginning.
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What is YMTC's origin story?
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So YMTC is officially founded in 2016.
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As history goes back even further than that.
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You might remember around 2014, China made another huge push to develop an indigenous semiconductor supply chain.
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So there's a big industrial plan and a lot of money flowing into the industry.
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And Tsinghua Unigroup, this big corporation, which hasn't really been involved in chips until then, decided to go around a country and look for opportunities.
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It landed on Wuhan Sinsi, a chip company founded in 2006 and formed this new unit called YMTC.
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And so YMTC is a chipmaker and its goal is to produce non-chips.
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At the time, China still relied mostly on foreign companies for these memory chips.
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It has tried to build some foreign buy some foreign entities, but those attempts were blocked.
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And now it has YMTC.
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Hopefully, that would become the national champion.
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Does Wuhan Xinshin, the parent company, still exist or has it been completely subsumed by its more successful subsidiary?
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Funnily, so it's not subsumed.
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Um the relationship between these two are have changed over the years, but currently Wuhan Sinzi is a subsidiary of YMTC.
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Yes.
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And so Wuhan Chinese's goal is to produce memory chips, HBM, rather than this kind of sort of non-chips.
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Okay, so they're still related, but not direct competitors.
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Indeed.
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So flashing uh forward a bit to more recent years, how did YMTC end up on a US sanctions list?
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What impact did that have on the company?
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So it's founded in 2016, as mentioned, and fast forward to 2022, the company's doing quite well.
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The market share is still quite small at around 4 to 5%, but it's ramping up its capacity.
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It's catching up with its peers, Micron, SK Heinex, and Samsung in terms of technology.
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And it was about to land this huge contract with Apple to supply memory chips for iPhones that are sold in the Chinese market.
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But the fact that the company's catching up has also sparked some concerns, particularly in the US.
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Um, it grew concerned that given YMTC is backed by state subsidies, it could undercut competitors and win more market share.
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As Jimmy Goodrich points out, very much like shipbuilding, steel, aluminum, flat panel displays, LEDs and solar, all these other industries, the worry is that there would be nothing left for the rest of the global manufacturing sector if this company or if Chinese companies are allowed to thrive.
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And so that is sort of the backdrop.
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But the exact trigger was because, um, as a commerce department official, the former commerce department official told us it was because they found a memory chip from YMTC in a Huawei phone.
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And Huawei at the time was already sanctioned.
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So that was the trigger.
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And
Load full transcript
in 2022, um, YMTC was placed on entity lit and later on on the Pentagon section 1260 H list.
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The impact, the immediate impact is that it's become much harder for YMTC to get the chipmaking tools they need from US companies.
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Um, they also have to cut a number of staff, particularly US personnel.
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Some expansion plans were suspended, and they also lost the Apple contract.
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Bit of a rough year for them.
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So we have this company that was founded with state backing to meet this need that China saw, that they wanted this crucial industry, they wanted domestic players in the game in this crucial memory chip industry.
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YMTC is formed, it's doing quite well.
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Then they're sanctioned, which of course seems to justify the investment in the first place.
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If it's possible for US sanctions to kind of cut off memory chip supply to China, cut off Chinese companies, then it makes sense to have someone, a company in your own corner.
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Things seemed pretty dire in 2022, 2023, but now today, of course, YMTC overcame the little issue of US sanctions and pushback.
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What did YMTC get right about how to build a chip company?
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Or was it just in the right place at the right time?
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I think that there are a couple pieces here.
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So these restrictions, especially in hindsight, are not as harsh as one might think.
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Um, Jimmy Goodrich described them as half measures and weak enforcement.
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For instance, it's actually possible for YMTC or other Chinese companies to turn to Japanese and Dutch toolmakers, which makes a lot of the similar tools that American chipmakers make.
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So when I look at Chinese customs data and the amount of chipmaking equipment that Hubei province, where it is based, has been importing over the years.
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After 2022, um, it fell from the US, but it actually spiked from Japan and from Dutch.
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So it could turn to all these other alternatives.
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And usually Japan, Netherlands, and the US would coordinate their export controls.
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And they have this list of shared companies which they will try to coordinate their export controls and restrictions on.
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But YMTC was actually left on it.
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So there's never an agreement on what we're going to do with this company.
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Um, one official describes it as a handout to these toolmakers.
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That is one part.
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The other part
is that the restriction also became a catalyst for YMTC to work with Chinese tools.
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It gave them an incentive to work with these Chinese tools and helped them become better.
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So over the years, it has also built up these companies, integrate them into the manufacturing processes.
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And I think that is also happening faster than what people expected.
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Those are sort of the two long parallel tracks happening.
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At the same time, and I think what also helped YMTC a lot, especially in those immediate years, was a big big capital injection of 49 billion UN, so around 7 billion US dollars from various state affiliated funds from the big phase two of the big big fund, the semiconductor national fund.
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And I think one last part is that we also have to give YMTC some credit.
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People do say that the company has executed very well over the years, and that's partly why they're able to do so well right now.
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The YMTC story has a lot of elements familiar to Wire China readers, and indeed to most observers of China in general.
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We have a grand government plan to funnel resources into a certain industrial sector.
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We have the Chinese company poaching talent in engineers.
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Listeners, Rachel wrote so much more about that particular element of the story in her piece, which is available on our website.
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And third, we have the pressure of US sanctions actually forcing increased innovation and the development of the robust domestic industry built to withstand any foreign pressure.
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Is YMTC more than just a typical case in this regard?
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And what did the process of reporting this story show you about this particular Chinese industrial playbook?
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I think it's typical in the sense that like Huawei or Chinese AI companies, it didn't just die because US put restrictions and took hold.
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Yes, these export controls, these restrictions, these sanctions deal a significant blow to their business.
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But given they have considerable state support, they really managed to bounce back and even thrive.
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I think what's atypical is that YMTC also benefited from the memory boom, which is not something China has planned.
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The money, but the money it received and sort of the conviction that a state has in the company has allowed it to add capacity at the time when everybody else was cutting capacity.
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And it allowed a company really to benefit from the current memory boom, and which is almost a stroke of luck for the company.
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The other thing I learned is that China is here to win.
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These goals of building up self-sufficiency in FERS core technologies are so important to the country that it's willing to put in a lot, a lot of resources, money, whatever it takes, basically.
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And if it fails, they'll try again, they'll clean up the campaign, um, with as we've seen in YMTC's history as well, and they'll do it again.
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So the progress might be slow, or these restrictions might be able to slow slow China's sort of technological progress, but it's not gonna hamper China's ambitions, basically.
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Very well said.
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Uh, your most recent news analysis feature, also on our website, covers another Chinese industrial giant, which in some ways looks like it has the same trajectory as YMTC, but is in a bit of a tough spot right now.
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That is cattle, C A T L, a leading manufacturer of batteries for electric vehicles, among other things.
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And you wrote in your piece that cattle is rapidly losing market value.
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Why is that?
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So cattle has shed a billion in market value since its peak in May this year.
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And it's because of this growing trend or talk about this trend called decatalyzation, as it's dubbed in Chinese media.
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Basically, Chinese car makers that rely on cattle are now shifting to other lower-tier suppliers or designing their own batteries.
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It's also mostly driven by cost because cattle is more expensive than other batteries, and it also batteries makes up a huge part of electric vehicle cars, and the margin is just very, very slim these days.
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I do have to remind you though, cattle is losing market value.
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It's not losing market share yet.
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It still has very, very solid financials, double-digit growth in revenues and profits in the first half of this year, and it has over half of the market share in China.
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So it's still very much the king of the battery market, just dwarving all its other competitors.
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So there's no question about its survival.
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It is also expanding overseas and into other segments such as energy storage.
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But it is quite interesting.
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Um, we're seeing this shift and Chinese, it also shows you how tough and how cutthroat the competition is really within the Chinese EV and industry, that it's also the competition is turning inwards.
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So, could cattle be on the cusp of a YMTC-like revival in the coming months or years?
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I think when we think about survivors, it's the lower-tier battery suppliers here who are, who have really been struggling to survive because they cannot compete against cattle.
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Um, but this trend has really provided an opening for them.
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So it depends on how well they can seize these opportunities to gain market share, develop their technologies, and sort of build up their collaboration.
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As for cattle, I think they're still in a very solid position.
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They spend way more in terms of RD than its competitors.
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It has skill, it has vertical integration, it owns everything from lithium mines all the way to labs and all these um storage technology we talked about.
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So none none of the people I speak to really see other companies rising to challenge cattle anytime soon, but they could chip away at cattle's market share.
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And what they're also watching is how successful will these initiatives by car makers going to be.
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Because there have been cases in the past where they adopt these batteries by lower-tier suppliers, but there have been accidents whether these batteries malfunctioned, whether they swell.
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So whether these batteries are going to be up to par and they can catch up with cattle is something that is still up in the air.
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And if it fails, as some analysts told me, they could always re-catalyze and shift back to cattle.
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Thank you so much, Rachel.
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This is a fascinating tale.
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Two very important companies, especially uh YMTC right now with the AI and memory chip boom.
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This is undoubtedly a story whose themes we'll see popping up again and again in our coverage.
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We'll publish the next issue of our magazine Sunday evening EST.
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There's a lot to look forward to.
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Our upcoming cover story is an excerpt from the introduction to the People's Republic of the Disappeared.
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That excerpt was written by Michael Kovig, who was held in detention in China for over 1,000 days.
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It's a piercing and moving piece on what people detained in China suffer through.
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We also have other coverage on whether or not China is about to break through a key chipmaking bottleneck by Alberta Moel, an op-ed on the global impact of Taiwan's local November elections by John Pomfred and Seamus Boyle, a profile of China's state-run scientific research funder by myself, and a QA with former EU diplomat Gunnar Wiegand on the almost but barely just averted EU-China trade war.
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A clip from that interview is coming in just a moment.
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Remember to follow and please do share this podcast if you enjoyed this episode.
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Thank you so much for listening and see you next time.
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I would say that the EU is starting to uh realize the need to have protective measures in place.
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Some would say has not yet entered into a protectionist position.
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The EU's market is largely free.
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Otherwise, we wouldn't have this enormous surge of Chinese uh products, and over the last few years we have seen this development of a steadily growing Chinese trade surplus.
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So Chinese exports are growing and European exports are diminishing.
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I think that the urgency of the situation to do something about it has now struck everybody, including in Beijing, seems to have grown understanding that deficits of such magnitude are uncertain.
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Yes, free trade is a key flag, a key conviction of EU foreign economic relations.
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There is no other single market in the world which has entered into so many free trade agreements as Europe has done.
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So it's not that Europe has become afraid of free trade.
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On the contrary, there is not protectionist period starting.
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But in the specific case of China, there is the realization not only the massive scale and the genius of the engineers and relatively low wages of the Chinese workers, but that two key elements have come together which give unfair competitive advantage, and these are many different forms of subsidization and undervaluation of the currency.