Another 'BRICS' in the wall

This month's China update

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September 19, 2023

In 1979, at the age of eleven, I went to boarding school in Folkstone, England. I still vividly remember that whenever the teacher left the classroom, we would all scream out Pink Floyd’s lyrics from the album Another Brick in the Wall: “Hey! Teacher! Leave us kids alone!”.

We were rebelling against the ‘system’ of schoolteachers that abused their power against us kids. My hands and back felt the cane of the headmaster more than once. Yes, I was a rebel.

Pink Floyd’s bassist Roger Waters keeps speaking out against the abuse of major powers. He wrote his popular song in 1979 to illustrate the childhood trauma, anger, despair and sense of emptiness which builds an emotional wall around him. Piece by piece, the wall gets bigger, isolating him more and more from the world. The teachers are just another brick in the wall.

This is how many countries in the Global South have been feeling about the world powers. Especially, western politicians teaching them how to behave by building a ‘great wall of higher moral values’ around them, all whilst abducting their resources at the same time. Climate change is hitting the Global South, access to mRNA vaccines came late, and an endless war in Ukraine pushes the developing world back to the past. Another few bricks in an already existing ‘wall of fear’. The disenchantment from outside the ‘developed countries’ with the prevailing international system is growing by the year.

BRICS is a group of world economies of Brazil, Russia, India, China and South Africa that have increasingly formed into a more cohesive geopolitical bloc, with relations conducted mainly on the basis of non-interference, equality and mutual benefit - mostly related to trade. They are considered a geopolitical rival to G7 of leading advanced economies. Every year the leaders of these five BRICS countries convene, as they did in August in South Africa. Putin participated online as he is wanted for war crimes under indictment by the International Criminal Court.

This fifteenth BRICS summit has gone further than before as it has sent a strong signal that the post-World War II order should accept the multipolar reality of a changing world. The expansion of the BRICS into a BRICS+ came about by adding six new members: Argentina, Saudi-Arabia, UAE, Egypt and Iran. With little commonalities amongst these countries, it seems BRICS+ is headed for an organization that is going beyond traditionally “acceptable” partners if compared to the G7. Therefore, and despite the many warning headlines, I do not view BRICS+ as an anti-Western association as much as it is a platform to give developing countries a greater voice in world affairs. China and India provide them with a megaphone.

The adoption of guiding principles, standards, criteria, procedures and flexible lending model with less USD dependencies have made the BRICS institution anno 2023 a lot more attractive for the developing world to join. Before the summit 40 countries expressed interest to join and 23 formally applied to join. China and India are the major economic superpowers in BRICS+, but in terms of oil production, Russia, Saudi-Arabia, UAE and Iran are powerful stakeholders as well. Today, BRICS+ represents 29% of the world’s GDP, 46% of the world population, 43% of the global oil production and 25% of exports – led primarily by China.

A “wall of BRICS” is being constructed to help new country members to accelerate their economic development and destiny. Adding Iran to BRICS+ sent the most powerful ‘Roger Waters’ style message that Washington’s lectures are becoming just another brick in an old crumbling wall of overreaching power…and what if Mexico would join at the 2024 BRICS summit in Russia? “Trump’s Wall” would suddenly get a very different political meaning!?

1.     China said to deliver first home-grown 28nm lithography in 2023

Shanghai Micro Electronics Equipment (SMEE), which is blacklisted by the U.S., is said to be able to deliver China’s first home-grown proprietary 28-nm lithography machine by year-end. China relies on advanced DUV machines made outside China for example from ASML in the Netherlands. ASML currently withholds sales to Chinese clients of extreme ultraviolet (EUV) lithography machines to make leading edge chips. However, shipments of ASMLs less advanced DUV machines will also become harder to sell to China from September 1st 2023 under the new export control rules of Washington.

It is estimated that a 10-year gap could exist between Chinese lithography machines and the world’s market leader ASML. The most advanced EUV lithography machine has more than 450,000 components, and even ASML only makes 15 percent of the total components of one machine. China is now forced by Biden to make all of these components for many different machineries domestically. It is an effort no one company can do on its own. Many Chinese are now chipping into this race against time.

Founded in 2002, SMEE is seen as China’s best hope to produce machines to manufacture advanced chips. SMEE has successfully produced lithography machines with a resolution of 90nm – for lower-end chips. SMEE accounts for about 80 percent of the overall domestic lithography market and abroad up to 40% of the global 90nm market.

The fact that SMEE announces a 28-nm lithography machine in 2023 confirms to Beijing that Western tech curbs are ineffective long-term.

Early this year, Huawei submitted a patent application explaining the Extreme Ultraviolet Lithography (EUV) scanning device components for the production of sub-7nm chips. One invention after the other, China is trying to close the gap.

SMEE products

2.     Chinese smart drilling tech boosts oil-gas production fivefold

After six years of research, the Chinese Academy of Science (CAS) built a ‘groundbreaking’ 3D geological model with metre-level resolution of ‘structure, rock properties and composition’ using intelligent algorithms. A smart drilling technology which has detected with high precision underground oil and gas in China’s Tarim Basin and guided a drill to hit the best extraction points. The intelligent drilling system, guided by 3D target navigation technology as its “brain” uses various imager instruments such as electromagnetic waves as its “eyes” and equipment placed on the drill as its “limbs”. It resulted in a fivefold increase in production.

Tarim Basin’s Cretaceous-era oil and gas reservoirs are more than 4,000 metres deep and have a complex, uneven distribution. Traditional directional drilling techniques have been limited in extracting these resources. This new 3D model allowed to preset drilling targets, design horizontal well paths and predict possible geological structures as well as oil and gas encounters. China is the second largest consumer of oil and gas in the world, but relies for more than 50% on imports which possess an energy security risk. China is digging deep to come back stronger!

Intelligent steering drilling technology of China Academy of Science/photo CMG

3.     Beijing fosters high-tech “Little Giants” towards an “acceleration system”

When we talk of successful Chinese innovators, we tend to refer to private companies such as Alibaba, Tencent or Huawei. A common view is that Chinese state-led funding for innovation in the past has led to corruption, complacency and market failure. As we observed Beijing’s technology crackdowns during the pandemic on high-tech giants, many concluded that the Chinese government is killing innovation through more state intervention and regulations.

This view is myopic.

The real secret weapon of Chinese innovation is coming from China’s “hidden champions”. One of the most significant evolutions in China’s industrial policy approach is its recent focus on cultivating high-tech SMEs. The end goal is to create an Olympic team of SMEs which not only rise to the top of China’s domestic market, but can also succeed internationally. Officials are channeling ever more finance towards government-certified start-ups and SMEs through loan financing and access to equity markets for high-tech SMEs. They benefit from a comprehensive tiered-cultivation system of direct and indirect support that combines state guidance and support with hyper-competitive Chinese market forces.

Since the economic downturn of China (newsletter July 2023), the government has gained a renewed appreciation for the importance of private enterprises and small forms as drivers of innovation. Beijing has identified 70,000 “Specialized SMEs” and over 12,000 “Little Giant” SMEs. The emergence of an “accelerator state” in China marks a dramatic extension of its industrial focus towards smaller companies to achieve the Made in China 2025 goals.

Foreign firms and governments ought to be wary of the large and growing pool of state-backed SMEs. These firms selected as Little Giants have now begun their entry into foreign markets. The West is worried about overdependencies on China’s supply chain, rare earths and global monopolies such as Huawei or Alibaba, but what we should be really watching are the hundred-thousands of Chinese hidden champions that are quietly, under the radar, becoming a market leader with critical components such as semiconductor lasers or harmonic reducers. We won’t see them coming!

Photo: Merics/MIIT

4.     Fourier Intelligence plans world’s first mass-produced humanoid robot

In August, China World Robot Expo 2023 kicked off in Beijing with hundreds of robot tech pieces from around the world on display. From a 1,300-year-old poet brought back to life, to bar tenders or civil servants, China seems to have embraced humanoid robots to showcase what a robot-assisted world could look like. Beijing is now creating a US$ 1,4 billion robotic fund as well as generous subsidies as part of plan to become the industry’s ‘international industrial highland’. This is the same modus operandi used in Electrical Vehicles before. We all know what is happening in that industry now with Chinese EV cars flooding our markets.

In Shanghai, Fourier Intelligence, is now planning by the end of 2023 to mass-produce its GR-1 humanoid two-legged robots with AI brains. When the company unveiled its lanky, jet-black humanoid bipedal robot in July at World Artificial Intelligence Conference (WAIC) in Shanghai it instantly stole the show. The robot is capable of walking at 5km an hour while carrying 50 kg load. 42-year-old founder Alex Gu, is a mechanical engineer who had long dreamed about creating his own humanoid robot. He wants to focus on the robot hardware “body” and open up their system for all major AI developers to work on the “brain”.

There are several famous humanoid robot companies like Boston Dynamics. But most humanoid robots today still live in labs and are extremely expensive to build and hard to commercialize. A year ago, more attention was given to the potential by founder of Xiaomi Lei Jun showing off on stage the company’s first humanoid robot CyberOne, and Tesla’s Elon Musk unveiling a  prototype of the Optimus robot. Musk last month did say that Optimus was not intended to “have great intelligence”, but to help humans with “boring, repetitive or dangerous tasks”.

Alex Gu shares similar visions with Musk, but added that robots “can also become very good friends of humans by providing emotional value”. This is where China is going to go faster in approaching robots as they see large language models (LLMs) – the type of software that underpins chatbots like ChatGPT - as giving the robots the ability of logical reasoning, making them much more human-like. China is getting ready for robots to leave the movie screen and come to people’s homes, on the streets and at work this decade still.

A Fourier Intelligence engineer tests the self-balancing ability of the company’s humanoid robot. Photo: Handout

5.     China is sitting on a goldmine of genetic data

China has been pouring billions of dollars into its efforts to become the pre-eminent force in Bioscience, with experts claiming its massive population of 1.4 billion people can provide a treasure trove of data. Vast amounts of this data already exists in biobanks and research centers around the country - but the government is now launching a “national genetic survey” to collect information about and assert more oversight over these genetic resources.

China also just introduced 24-point list of guidelines to woo foreign investors, with assurances of bolstering R&D in the biotech industry and “fast-tracking” cross-border data flows. The new storyline: Invest in Biotech in China. “We have the genomic data, you don’t! If you want better cancer treatments, do groundbreaking discoveries in medicines, and if you want live longer, you should put scientific collaboration with China above geopolitics. My gut feeling tells me genetics is the next big tech war Biden will launch.

As restrictions on foreign access to genetic data are part of the latest regulations on China’s genetic resources, the underlying message is mixed. Foreigners can come to China to work with Chinese scientists who have access to genetic data, and only the results can be shared. The commission is now also soliciting public feedback on the proposed regulation until the middle of September. Yes, China does ask for public opinion before making rules go into laws.

The new regulation is very much about containing genomic data inside China, but more so about protecting consumers against misuse. New rules drafted by the Beijing will make it “strictly prohibited” to use AI for generating medical prescriptions. One remarkable rule is that AI software shall not replace the doctors to provide diagnosis and treatment services. This rhymes with China’s national standard for LLMs recently drawn up (newsletter July 2023). Just in time, as China now allows the public to use generative AI chatbots for the first time (next topic below). China is getting all its legal ducks in a row to support generative AI development for potential to drive economic growth, whilst maintaining strict supervision to avert risks.

A file photo shows a staff member placing the blood samples at the China National GeneBank in Shenzhen, south China's Guangdong Province. (Xinhua/Mao Siqian)

6.     China allows the public to use generative AI chatbots for the first time

China has granted its first batch of approvals for generative AI  services, giving technology firms such as Baidu, SenseTime, ZhipuAI and Baichuan the green light to offer ChatGPT-like chatbots to the public. Just like anywhere, millions of Chinese have accessed ChatGPT services. But as these platforms are officially unavailable in China, local users have accessed them via Virtual Private Networks (VPNs). Many Chinese are eager to try out domestic AI chatbots. Baidu added a “dialogue” button on top of its search engine, that opens Baidu’s Ernie Bot, similar to how Microsoft has integrated ChatGPT with its Bing search engine (newsletter June).

We will have to wait a few weeks to see how Chinese ChatGPT will match the experience and accuracy that global Generative AI tools offer today. Let’s recall the beginning of the internet days when US President Bill Clinton famously quipped in 2000 that for China to control the Internet would be like ‘nailing jello to a wall’. ‘Liberty will spread by cell phone and phone modem’, he said. However, China has been able to ‘Nail Jello to the Wall’. My prediction is that Chinese will be mostly using local ChatGPT services now available to all. But where China could really excel is in the vast deployment of content writing programs, hidden away in automated software such as customer service tools, news articles writing or drafting legal documents. A space to watch!

Baidu’s ERNIE Bot (文心一言) historical milestones

7. Chinese scientists unveil 12-inch wafer with groundbreaking 2D materials

Chinese researchers have managed to produce new 12-inch wafers that are just one atom (two-dimensional) thick and have low production costs. Work still needs to be done to transform them into a usable chip but scientists expect they will eventually complement silicon chips. The 2D material consists of crystalline solids with one to several layers of atoms. The wafers’ unique physical atomic-level properties could solve a major problem of silicon transistors: currents exist even when the device is not working, resulting in additional energy costs and heat generation.

Just as with traditional semiconductors, the challenge of industrialising the 2D technology first lies in fabricating wafers. Traditionally, wafers are typically grown in a furnace using a method called point-to-surface. This works well when the wafer is tiny. But as size increases, the diffusion of sources becomes less even in the furnace and leads to a decline in the wafer’s quality.

Chinese researchers now developed a new approach, utilising a surface-to-surface supply method that ensures uniform growth, solving previous limitation in wafer size. A transistor built from a single layer of 2D material even outperforms one made with the same thickness of silicon many times. At each layer, 2D materials can exist separately, allowing them to be stacked layer by layer.

This is very early days of two-dimensional semiconductors from laboratory to industrial application, but as the history of semiconductors has shown, iteration is key, and some hurdles are likely to be overcome with industrial refinement. Never thought the future would be made in 2D!

This is Pascal's monthly newsletter. Find it and more here.

Pascal Coppens
Pascal Coppens
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September 19, 2023