Competing in Artificial Intelligence Chips: China's Challenge Amid
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SPECIAL REPORT Competing in Artificial Intelligence Chips: China’s Challenge amid Technology War Dieter Ernst SPECIAL REPORT Competing in Artificial Intelligence Chips: China’s Challenge amid Technology War Dieter Ernst SPECIAL REPORT Competing in Artificial Intelligence Chips: China’s Challenge amid Technology War Dieter Ernst About CIGI Credits The Centre for International Governance Innovation (CIGI) is an independent, non- Director, Global Economy Robert Fay partisan think tank whose peer-reviewed research and trusted analysis influence Program Manager Heather McNorgan policy makers to innovate. Our global network of multidisciplinary researchers and strategic partnerships provide policy solutions for the digital era with one goal: to Senior Publications Editor Jennifer Goyder improve people’s lives everywhere. Headquartered in Waterloo, Canada, CIGI Publications Editor Susan Bubak has received support from the Government of Canada, the Government of Ontario Graphic Designer Brooklynn Schwartz and founder Jim Balsillie. À propos du CIGI Le Centre pour l’innovation dans la gouvernance internationale (CIGI) est un groupe de réflexion indépendant et non partisan dont les recherches homologuées par des pairs et les analyses fiables incitent les décideurs à innover. Grâce à son réseau mondial de chercheurs pluridisciplinaires et de partenariats stratégiques, le CIGI offre des solutions politiques adaptées à l’ère numérique dans le seul but d’améliorer la vie des gens du monde entier. Le CIGI, dont le siège central se trouve à Waterloo, au Canada, bénéficie du soutien du gouvernement du Canada, du gouvernement de l’Ontario et de son fondateur, Jim Balsillie. 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Centre for International Governance Innovation and CIGI are registered trademarks. 67 Erb Street West Waterloo, ON, Canada N2L 6C2 www.cigionline.org Table of Contents vi About the Author vii Acronyms and Abbreviations 1 Executive Summary 3 Introduction 9 Competing in AI: Major Challenges 17 Contrasting America’s and China’s Different AI Development Trajectories 27 What’s Happening in China’s AI Chip Industry? 45 Conclusions 53 Works Cited About the Author Senior Fellow Dieter Ernst joined CIGI in May 2016. At CIGI, Dieter’s research explores unresolved challenges for the global governance of trade, intellectual property (IP) and innovation, addressing three issues in particular: finding out what adjustments are needed in the development and use of IP, especially patents and trade secrets, to cope with the requirements of increasingly complex and diverse global corporate networks of production and innovation; dealing with the effects of the proliferation of strategic patenting behaviour on the organization and governance of these global networks; and assessing US-China technology competition in information technology. Based in Hawaii, Dieter is an adjunct senior fellow at the East-West Center. He has served as a member of the US National Academies’ Committee on Global Approaches to Advanced Computing, as a senior adviser to the Organisation for Economic Co-operation and Development in Paris and as a research director of the Berkeley Roundtable on the International Economy at the University of California, Berkeley. Previously, Dieter was a professor of international business at the Copenhagen Business School and served as a scientific adviser to governments, private companies and international institutions, including the World Bank, the UN Conference on Trade and Development and the UN Industrial Development Organization. He holds a Ph.D. in economics from the University of Bremen. vi Special Report • Dieter Ernst Acronyms and Abbreviations 3GPP 3rd Generation Partnership Project IEEE Institute of Electrical and Electronics Engineers 5G fifth-generation IoT Internet of Things AGI artificial general intelligence IP intellectual property AGI-19 12th Conference on Artificial General Intelligence (2019) IT information technology AI artificial intelligence LOB line of business AIDP Next Generation Artificial MIC 2025 Made in China 2025 Intelligence Development Plan nm nanometre ASICs application-specific integrated circuits OECD Organisation for Economic BIS Bureau of Industry and Security Co-operation and Development (US Department of Commerce) R&D research and development CFIUS Committee on Foreign Investment in the United States RMB renminbi CISTP China Institute for Science SASAC State-owned Assets Supervision and Technology Policy and Administration Commission CPUs central processing units SEPs standard-essential patents DARPA Defense Advanced Research SMIC Semiconductor Manufacturing Projects Agency International Corporation DoD Department of Defense SOEs state-owned enterprises DRAM dynamic random-access memory TDD time division duplex ECRA Export Control Reform Act TSMC Taiwan Semiconductor Manufacturing Company fabs semiconductor fabrication plants WIPO World Intellectual Property FDD frequency division duplex Organization FinFET fin field-effect transistor FIRRMA Foreign Investment Risk Review Modernization Act FPGAs field-programmable gate arrays GPU graphics processing unit GVCs global value chains HR Horizon Robotics IaaS infrastructure-as-a-service IC integrated circuit Competing in Artificial Intelligence Chips: China’s Challenge amid Technology War vii Executive Summary This special report assesses the challenges conducted a significant amount of AI research that China is facing in developing its artificial (some of it at the frontier), but knowledge exchange intelligence (AI) industry due to unprecedented with industry remains limited. Drawing on deep US technology export restrictions. A central integration with America’s AI innovation system, proposition is that China’s achievements in AI Chinese AI firms, in turn, have focused primarily on lack a robust foundation in leading-edge AI chips, capturing the booming domestic mass markets for and thus the country is vulnerable to externally AI applications, investing too little in AI research. imposed supply disruptions. Success in AI requires mastery of data, algorithms and computing power, To find out what is happening today in China’s which, in turn, is determined by the performance of AI chip design, capabilities and challenges are AI chips. Increasing computing power that is cost- assessed, both for the large players (Huawei, effective and energy-saving is the indispensable Alibaba and Baidu) and for a small group of AI chip third component of this magic AI triangle. “unicorns.” The report concludes with implications for China’s future AI chip development. Research on China’s AI strategy has emphasized China’s huge data sets as a primary advantage. It was assumed that China could always purchase the necessary AI chips from global semiconductor industry leaders. Until recently, AI applications run by leading-edge major Chinese technology firms were powered by foreign chips, mostly designed by a small group of top US semiconductor firms. The outbreak of the technology war, however, is disrupting China’s access to advanced AI chips from the United States.1 Drawing on field research conducted in 2019, this report contributes to the literature by addressing China’s arguably most immediate and difficult AI challenges: → How to ensure that the country’s AI developers, implementers and users have secure access to specialized semiconductors that are needed for training an algorithm and for conducting inference with an already trained algorithm? → In the face of US technology restrictions, what realistic options does China have to substitute AI chip imports from the United States through local design and fabrication or through imports from other non-US sources? The report highlights China’s challenge of competing in AI, and contrasts America’s and China’s different AI development trajectories. Starting much later than the United States, Chinese universities and public research institutes have 1 As this report goes to press, the rapid spread of the coronavirus (COVID-19), first identified in Wuhan, China, in late 2019, is further decoupling China from international trade and technology flows. Competing in Artificial Intelligence Chips: China’s Challenge amid Technology War 1 2 Special Report • Dieter Ernst Introduction China’s Next Generation Artificial Intelligence of restrictions on China’s access to advanced US Development Plan (AIDP), released by the State technology. The Commerce Department has placed Council in July 2017, provides a detailed road Huawei and China’s leading AI start-up companies map for developing an increasingly integrated on its so-called Entity List, which is basically a AI ecosystem.2 An essential part of the Made trade blacklist that bars anyone on it from buying in China 2025 (MIC 2025) plan, the AIDP seeks advanced semiconductors and software from US to use AI as a catalyst for upgrading China’s companies without the government’s