TRANSCRIPTION 🔗
WEBVTT
00:00:02.560 --> 00:00:04.080
China is here to win.
00:00:04.320 --> 00:00:14.960
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.
00:00:15.119 --> 00:00:16.960
And if it fails, they'll try again.
00:00:17.039 --> 00:00:22.640
They'll clean up the campaign, um, with as we've seen in YMTC's history as well, and they'll do it again.
00:00:23.519 --> 00:00:26.960
Good morning, all, and welcome back to the Wire China podcast.
00:00:27.199 --> 00:00:32.640
From today's vantage point, it seems like China's technological giants have always reigned supreme.
00:00:32.880 --> 00:00:37.439
Can anyone remember what it was like before Huawei or even before DeepSeak?
00:00:37.679 --> 00:00:42.880
But just a few years ago, the current success of these mega companies was hardly a guarantee.
00:00:43.039 --> 00:00:52.159
That's especially true in the case of YMTC, full name Yangtze Memory Technologies Corporation, a Chinese memory chip manufacturer.
00:00:52.399 --> 00:00:58.240
In 2022 and 2023, many analysts predicted that the company was on its way out.
00:00:58.479 --> 00:01:06.319
But just a few months ago, YMTC became the world's third largest supplier of NAND, the particular memory chip it manufactures.
00:01:06.719 --> 00:01:14.480
This week, reporter Rachel Chung joins us to discuss her recent cover story on YMTC, aptly titled The Survivor.
00:01:14.719 --> 00:01:19.840
It's already available to read on thewirechina.com, but we're bringing it to you here as well.
00:01:20.000 --> 00:01:20.879
Hello, Rachel.
00:01:20.959 --> 00:01:21.760
Welcome back.
00:01:22.159 --> 00:01:23.200
Hi, Savannah.
00:01:23.680 --> 00:01:31.680
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.
00:01:31.840 --> 00:01:35.120
The link to register is in the podcast description below.
00:01:35.280 --> 00:01:37.439
But back to Rachel in our story.
00:01:37.760 --> 00:01:46.319
So, Rachel, people who follow China's tech or AI industry are already likely familiar with YMTC's strong position.
00:01:46.560 --> 00:01:48.159
But take us back to the beginning.
00:01:48.400 --> 00:01:51.200
What is YMTC's origin story?
00:01:51.599 --> 00:01:54.719
So YMTC is officially founded in 2016.
00:01:54.959 --> 00:01:57.200
As history goes back even further than that.
00:01:57.439 --> 00:02:03.840
You might remember around 2014, China made another huge push to develop an indigenous semiconductor supply chain.
00:02:04.000 --> 00:02:09.680
So there's a big industrial plan and a lot of money flowing into the industry.
00:02:09.840 --> 00:02:18.400
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.
00:02:18.560 --> 00:02:25.919
It landed on Wuhan Sinsi, a chip company founded in 2006 and formed this new unit called YMTC.
00:02:26.000 --> 00:02:30.560
And so YMTC is a chipmaker and its goal is to produce non-chips.
00:02:30.719 --> 00:02:34.719
At the time, China still relied mostly on foreign companies for these memory chips.
00:02:34.879 --> 00:02:39.199
It has tried to build some foreign buy some foreign entities, but those attempts were blocked.
00:02:39.280 --> 00:02:40.879
And now it has YMTC.
00:02:40.960 --> 00:02:43.439
Hopefully, that would become the national champion.
00:02:43.919 --> 00:02:53.439
Does Wuhan Xinshin, the parent company, still exist or has it been completely subsumed by its more successful subsidiary?
00:02:53.919 --> 00:02:55.840
Funnily, so it's not subsumed.
00:02:56.000 --> 00:03:04.000
Um the relationship between these two are have changed over the years, but currently Wuhan Sinzi is a subsidiary of YMTC.
00:03:04.159 --> 00:03:04.479
Yes.
00:03:04.719 --> 00:03:11.039
And so Wuhan Chinese's goal is to produce memory chips, HBM, rather than this kind of sort of non-chips.
00:03:11.360 --> 00:03:14.719
Okay, so they're still related, but not direct competitors.
00:03:15.039 --> 00:03:15.680
Indeed.
00:03:16.319 --> 00:03:23.520
So flashing uh forward a bit to more recent years, how did YMTC end up on a US sanctions list?
00:03:23.680 --> 00:03:26.479
What impact did that have on the company?
00:03:26.800 --> 00:03:32.319
So it's founded in 2016, as mentioned, and fast forward to 2022, the company's doing quite well.
00:03:32.479 --> 00:03:37.439
The market share is still quite small at around 4 to 5%, but it's ramping up its capacity.
00:03:37.599 --> 00:03:42.960
It's catching up with its peers, Micron, SK Heinex, and Samsung in terms of technology.
00:03:43.120 --> 00:03:50.240
And it was about to land this huge contract with Apple to supply memory chips for iPhones that are sold in the Chinese market.
00:03:50.479 --> 00:03:56.159
But the fact that the company's catching up has also sparked some concerns, particularly in the US.
00:03:56.319 --> 00:04:04.400
Um, it grew concerned that given YMTC is backed by state subsidies, it could undercut competitors and win more market share.
00:04:04.560 --> 00:04:20.720
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.
00:04:20.959 --> 00:04:23.439
And so that is sort of the backdrop.
00:04:23.600 --> 00:04:36.240
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.
00:04:36.319 --> 00:04:38.319
And Huawei at the time was already sanctioned.
00:04:38.399 --> 00:04:39.439
So that was the trigger.
00:04:39.600 --> 00:04:47.680
And
Load full transcript
in 2022, um, YMTC was placed on entity lit and later on on the Pentagon section 1260 H list.
00:04:48.160 --> 00:04:55.920
The impact, the immediate impact is that it's become much harder for YMTC to get the chipmaking tools they need from US companies.
00:04:56.079 --> 00:05:00.000
Um, they also have to cut a number of staff, particularly US personnel.
00:05:00.240 --> 00:05:04.560
Some expansion plans were suspended, and they also lost the Apple contract.
00:05:05.040 --> 00:05:06.959
Bit of a rough year for them.
00:05:07.199 --> 00:05:21.759
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.
00:05:21.920 --> 00:05:25.279
YMTC is formed, it's doing quite well.
00:05:25.519 --> 00:05:31.120
Then they're sanctioned, which of course seems to justify the investment in the first place.
00:05:31.279 --> 00:05:41.920
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.
00:05:42.160 --> 00:05:53.519
Things seemed pretty dire in 2022, 2023, but now today, of course, YMTC overcame the little issue of US sanctions and pushback.
00:05:53.759 --> 00:05:57.759
What did YMTC get right about how to build a chip company?
00:05:57.920 --> 00:06:01.040
Or was it just in the right place at the right time?
00:06:01.360 --> 00:06:03.600
I think that there are a couple pieces here.
00:06:03.920 --> 00:06:09.199
So these restrictions, especially in hindsight, are not as harsh as one might think.
00:06:09.360 --> 00:06:13.519
Um, Jimmy Goodrich described them as half measures and weak enforcement.
00:06:13.680 --> 00:06:24.240
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.
00:06:24.399 --> 00:06:34.879
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.
00:06:35.040 --> 00:06:40.720
After 2022, um, it fell from the US, but it actually spiked from Japan and from Dutch.
00:06:40.800 --> 00:06:43.120
So it could turn to all these other alternatives.
00:06:43.360 --> 00:06:49.360
And usually Japan, Netherlands, and the US would coordinate their export controls.
00:06:49.439 --> 00:06:54.480
And they have this list of shared companies which they will try to coordinate their export controls and restrictions on.
00:06:54.800 --> 00:06:57.360
But YMTC was actually left on it.
00:06:57.439 --> 00:07:00.879
So there's never an agreement on what we're going to do with this company.
00:07:00.959 --> 00:07:04.480
Um, one official describes it as a handout to these toolmakers.
00:07:04.720 --> 00:07:05.839
That is one part.
00:07:06.000 --> 00:07:13.040
The other part
is that the restriction also became a catalyst for YMTC to work with Chinese tools.
00:07:13.279 --> 00:07:18.399
It gave them an incentive to work with these Chinese tools and helped them become better.
00:07:18.560 --> 00:07:23.839
So over the years, it has also built up these companies, integrate them into the manufacturing processes.
00:07:24.000 --> 00:07:27.519
And I think that is also happening faster than what people expected.
00:07:27.680 --> 00:07:30.959
Those are sort of the two long parallel tracks happening.
00:07:31.120 --> 00:07:49.680
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.
00:07:50.160 --> 00:07:54.800
And I think one last part is that we also have to give YMTC some credit.
00:07:55.040 --> 00:08:02.399
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.
00:08:02.800 --> 00:08:11.040
The YMTC story has a lot of elements familiar to Wire China readers, and indeed to most observers of China in general.
00:08:11.279 --> 00:08:16.480
We have a grand government plan to funnel resources into a certain industrial sector.
00:08:16.879 --> 00:08:20.240
We have the Chinese company poaching talent in engineers.
00:08:20.399 --> 00:08:27.600
Listeners, Rachel wrote so much more about that particular element of the story in her piece, which is available on our website.
00:08:27.839 --> 00:08:39.279
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.
00:08:39.600 --> 00:08:44.480
Is YMTC more than just a typical case in this regard?
00:08:44.720 --> 00:08:51.440
And what did the process of reporting this story show you about this particular Chinese industrial playbook?
00:08:51.840 --> 00:09:02.879
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.
00:09:03.200 --> 00:09:09.120
Yes, these export controls, these restrictions, these sanctions deal a significant blow to their business.
00:09:09.279 --> 00:09:14.960
But given they have considerable state support, they really managed to bounce back and even thrive.
00:09:15.200 --> 00:09:22.399
I think what's atypical is that YMTC also benefited from the memory boom, which is not something China has planned.
00:09:22.559 --> 00:09:33.679
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.
00:09:33.759 --> 00:09:40.960
And it allowed a company really to benefit from the current memory boom, and which is almost a stroke of luck for the company.
00:09:41.200 --> 00:09:45.279
The other thing I learned is that China is here to win.
00:09:45.519 --> 00:09:56.240
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.
00:09:56.399 --> 00:10:03.279
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.
00:10:03.440 --> 00:10:14.080
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.
00:10:14.960 --> 00:10:15.840
Very well said.
00:10:15.919 --> 00:10:30.639
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.
00:10:30.799 --> 00:10:38.559
That is cattle, C A T L, a leading manufacturer of batteries for electric vehicles, among other things.
00:10:38.799 --> 00:10:43.360
And you wrote in your piece that cattle is rapidly losing market value.
00:10:43.519 --> 00:10:44.240
Why is that?
00:10:44.559 --> 00:10:49.840
So cattle has shed a billion in market value since its peak in May this year.
00:10:50.000 --> 00:10:56.720
And it's because of this growing trend or talk about this trend called decatalyzation, as it's dubbed in Chinese media.
00:10:56.879 --> 00:11:03.759
Basically, Chinese car makers that rely on cattle are now shifting to other lower-tier suppliers or designing their own batteries.
00:11:03.919 --> 00:11:16.399
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.
00:11:16.559 --> 00:11:19.759
I do have to remind you though, cattle is losing market value.
00:11:19.919 --> 00:11:21.759
It's not losing market share yet.
00:11:21.919 --> 00:11:30.720
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.
00:11:30.879 --> 00:11:36.960
So it's still very much the king of the battery market, just dwarving all its other competitors.
00:11:37.120 --> 00:11:39.600
So there's no question about its survival.
00:11:39.679 --> 00:11:44.399
It is also expanding overseas and into other segments such as energy storage.
00:11:44.559 --> 00:11:46.080
But it is quite interesting.
00:11:46.159 --> 00:11:58.000
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.
00:11:58.320 --> 00:12:04.159
So, could cattle be on the cusp of a YMTC-like revival in the coming months or years?
00:12:04.480 --> 00:12:16.080
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.
00:12:16.240 --> 00:12:19.919
Um, but this trend has really provided an opening for them.
00:12:20.159 --> 00:12:28.159
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.
00:12:28.399 --> 00:12:31.440
As for cattle, I think they're still in a very solid position.
00:12:31.600 --> 00:12:34.639
They spend way more in terms of RD than its competitors.
00:12:34.799 --> 00:12:45.039
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.
00:12:45.279 --> 00:12:55.200
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.
00:12:55.360 --> 00:13:01.200
And what they're also watching is how successful will these initiatives by car makers going to be.
00:13:01.360 --> 00:13:11.679
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.
00:13:11.840 --> 00:13:18.639
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.
00:13:18.799 --> 00:13:26.000
And if it fails, as some analysts told me, they could always re-catalyze and shift back to cattle.
00:13:26.480 --> 00:13:28.000
Thank you so much, Rachel.
00:13:28.240 --> 00:13:30.159
This is a fascinating tale.
00:13:30.399 --> 00:13:36.639
Two very important companies, especially uh YMTC right now with the AI and memory chip boom.
00:13:36.799 --> 00:13:42.639
This is undoubtedly a story whose themes we'll see popping up again and again in our coverage.
00:13:42.960 --> 00:13:47.200
We'll publish the next issue of our magazine Sunday evening EST.
00:13:47.440 --> 00:13:49.279
There's a lot to look forward to.
00:13:49.519 --> 00:13:55.840
Our upcoming cover story is an excerpt from the introduction to the People's Republic of the Disappeared.
00:13:56.000 --> 00:14:02.000
That excerpt was written by Michael Kovig, who was held in detention in China for over 1,000 days.
00:14:02.240 --> 00:14:06.879
It's a piercing and moving piece on what people detained in China suffer through.
00:14:07.120 --> 00:14:32.879
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.
00:14:33.200 --> 00:14:35.919
A clip from that interview is coming in just a moment.
00:14:36.159 --> 00:14:40.879
Remember to follow and please do share this podcast if you enjoyed this episode.
00:14:41.039 --> 00:14:43.840
Thank you so much for listening and see you next time.
00:14:44.960 --> 00:14:52.000
I would say that the EU is starting to uh realize the need to have protective measures in place.
00:14:53.840 --> 00:14:57.840
Some would say has not yet entered into a protectionist position.
00:14:58.000 --> 00:14:59.919
The EU's market is largely free.
00:15:00.159 --> 00:15:11.519
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.
00:15:11.759 --> 00:15:17.120
So Chinese exports are growing and European exports are diminishing.
00:15:17.440 --> 00:15:31.440
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.
00:15:32.159 --> 00:15:39.679
Yes, free trade is a key flag, a key conviction of EU foreign economic relations.
00:15:40.080 --> 00:15:47.600
There is no other single market in the world which has entered into so many free trade agreements as Europe has done.
00:15:47.919 --> 00:15:51.440
So it's not that Europe has become afraid of free trade.
00:15:51.600 --> 00:15:56.480
On the contrary, there is not protectionist period starting.
00:15:56.720 --> 00:16:21.919
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.