What The Most 'Chinese' Smartphone Yet Tells Us About Politics
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The writer is author of 'Chip War'
What is the significance of Huawei's new smartphone chip? The controversial Chinese telecoms company has attracted headlines because its new Mate 60 Pro phone has a sophisticated homegrown chip. SMIC, the Chinese chipmaker that Huawei collaborated with, has never previously made such an advanced semiconductor.
The chip industry is divided on what this means. On the one hand, SMIC has succeeded only in replicating a manufacturing process — called 7 nanometre — that Taiwan's TSMC, the world's leading chipmaker, was already producing at high volume in 2018. SMIC generally lags half a decade behind TSMC in rolling out new manufacturing processes, so by that metric, the Chinese company's 7nm process has arrived right on schedule.
Moreover, to produce Huawei's chips, SMIC has used DUV lithography machines rather than more advanced EUV tools, which it is barred from buying. Foreign chipmakers such as TSMC and Intel learnt how to produce 7nm chips with DUV machines years ago, before turning to more efficient EUV tools. SMIC's manufacturing costs are thus probably only competitive because the Chinese state is footing the bill. The company's 7nm chip is, then, far from an unprecedented breakthrough.
Nevertheless, the fact that SMIC has produced millions of such chips is real progress — and evidence that US, Dutch, and Japanese controls are far from watertight. The Netherlands will continue to allow shipment of advanced DUV lithography tools until the end of this year. Meanwhile, companies from all three countries and other western nations continue to ship less advanced tools to China, in addition to key chemicals, gases and chip packaging equipment. China hawks in the US Congress question the logic of banning the transfer of certain tools but selling the chemicals needed to operate them.
Yet focusing only on the main chip in Huawei's new phone misses the broader ramifications: the Mate 60 Pro shows that Beijing is as committed as ever to squeezing out western chipmakers and electronics companies from the Chinese market.
Substituting imported chips with domestic components has been China's stated goal since around 2014, when it launched its first major semiconductor subsidy fund. Yet until now, most phones sold in the country — even from local brands such as Oppo and Xiaomi — have been full of foreign-made chips.
Huawei's Mate 60 Pro is different: it may be the most "Chinese" advanced smartphone ever made. As well as the phone's primary 7nm processor, many of the phone's auxiliary chips are homegrown, including the Bluetooth, WiFi and power management chips.
Of course, no one knows whether in a competitive market, Huawei's homemade suppliers could compete on cost. But cost matters less when the government is bankrolling a self-sufficiency drive. As the new phone hit the shelves, Beijing announced a new $40bn fund — one of several in recent years — to pour subsidies into chipmakers.
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The government is also helping with new restrictions targeting the Mate 60 Pro's primary competitor, the iPhone. Huawei's phone launched alongside reports that Chinese government institutions and state-owned companies were discouraging employees from buying Apple products.
All this threatens the foreign companies that have advocated stabilising trade ties between China and the west. As recently as July, US semiconductor chief executives made pilgrimages to Washington to argue against new restrictions on China. Now their market share is at stake. If the Chinese market looks lost, American companies have no reason to lobby for access to it.
And as their chips are replaced by local versions, they may question whether the west's decision to keep supplying China with chipmaking tools and chemicals is really in their interest.
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Europe's Best-selling Chinese EV Maker Has A Surprising Name
This story first appeared in China Report, MIT Technology Review's newsletter about technology in China. Sign up to receive it in your inbox every Tuesday.
These days, few Chinese tech sectors have received more fame and attention than electric vehicles. With domestic EV adoption rising aggressively every year, Chinese EV companies are the stars of auto shows from Shanghai to Munich, and they are drawing up big plans to replicate their success far from home. (Back in February, I wrote about how Chinese EVs came to dominate.)
But these global ambitions hit a roadblock this month when European Commission president Ursula von der Leyen made a high-profile announcement launching an investigation into whether Chinese-made EVs benefit from excessive government subsidies.
As I wrote in a story published yesterday, the coming investigation will look at whether the Chinese government has given its automakers too many subsidies and therefore conferred an unfair advantage on the world stage. If the inquiry finds evidence for this claim, which experts told me is very likely, it could result in increased import duties for Chinese-made EVs that would likely make them less competitive in European markets.
"In my opinion, this announcement is just the first of several measures that Europe will consider taking in order to protect its local industry," says Felipe Muñoz, a senior analyst at the London-based auto-industry consultancy JATO Dynamics.
The investigation comes at a time when European automakers are feeling increasingly threatened by Chinese brands, which are releasing competitive models at least $10,000 cheaper than their European rivals. A lot of the Chinese brands that are stirring up concern are well-known names in China, like the established giant BYD and the promising startup Nio.
But there's one name you might not expect.
"The one who's really changing the game is not Nio. It's not BYD," says Muñoz. "The big thing, which accounts for around 80% of the Chinese brands' sales in Europe, is MG."
Er, what's MG? To be honest, I hadn't even heard of that brand before this conversation, let alone had any sense of how successful it has been.
I've since learned MG was created in the UK in the 1920s, getting its name from an Oxford retail center called Morris Garages. It remained a luxury British sports car brand for more than 80 years until its owner went bankrupt in 2005. It was then acquired by a smaller Chinese company called Nanjing Auto and later by SAIC Motor, China's largest auto company. Since then, all MG cars have been designed and manufactured in China. It produces both gas cars and electric vehicles but plans to go all electric by 2027.
I suspect I have never paid attention to the name because, as a Chinese brand, MG is doing pretty poorly in its domestic market, even though all of its cars are made in the country and there's ample market demand. In China, its annual sales in 2022 were less than what BYD can sell in a month.
But in reporting this story, I learned that MG has had the best-selling Chinese EV model in Europe for months; its growth trend is topped only by Tesla's.
The affordable options MG offers have become a threat to many mass-market vehicle brands in Europe. "MG is changing the EV game with the MG4 and MG ZS EV," Muñoz says, referring to a small family car model and an SUV that MG released last year, "because those cars are really competitive—especially the MG4, which is already outselling cars like the Volkswagen ID3." (For comparison, the price of an MG4 starts at €28,590 in Germany, while the comparable Volkswagen ID3 starts at €39,995.)
To be clear, what has elevated the MG4 above other Chinese EV models is not its quality or affordability, which Chinese companies already have a good grasp of. The key is in the branding.
"The biggest drawback of Chinese cars is that they have very low brand recognition [in Europe]. They can only rely on low prices," says Zhang Xiang, a Chinese auto-industry analyst. Despite being household names in China, brands like BYD and Nio are seldom ones that an ordinary European car buyer would be familiar with.
And the flip side of my not knowing MG is a Chinese brand is that it is still perceived by many Western consumers as a British luxury brand, even though it's been fully Chinese for more than a decade. "Very old-school, history—classic cars" is what came to the mind of my British colleague when asked about his perception of MG. And nope, he didn't know it had become a Chinese company. MG has therefore avoided the stereotype that all Chinese-made products are low quality.
Well, I can't really say that is the solution for Chinese brands trying to break into the European market. It's not like everyone can just acquire a European brand in bankruptcy to pull off an image overhaul.
But the success of MG is a reminder to other Chinese companies that mastering the technology and manufacturing of a product is only the first step to success abroad; changing the overall perception of Chinese-made cars is a harder job. Muñoz says Chinese brands need to look to the Korean car makers of the '90s or Japanese car makers of the '70s for lessons on building trust and recognition in a new market.
Obviously, that took a while for them. I think this is a reality check for both Chinese companies and the observers cheering them on. It's a triumph for them to make a good EV product that sells well in China, but that doesn't automatically translate to success with a wholly different set of consumers.
And this challenge could grow with the new investigation and corresponding political discussions. "The long-term effect is that … [the Chinese brands] could eventually get more negative perception among the consumers because they are becoming a 'problem' for Europe," says Muñoz. Building trust among consumers while the general political narrative is working against you? Good luck with that.
Would you consider buying a Chinese-made electric vehicle if it was available where you live? Why? Let me know by writing to [email protected].
Catch up with China1. If you searched on Google last week for "tank man," the famous 1989 Tiananmen Square protester, the first result was an AI-generated selfie. (404 Media)
2. At the opening ceremony of the Asian Games 2023, held in Hangzhou, real fireworks were completely replaced by those generated by augmented reality. (Associated Press)
3. TikTok is setting up an e-commerce hub in Seattle as it looks to compete directly with Amazon on US soil. (The Information $)
4. Ultra-rich Chinese Gen Z heirs who were educated in the West are increasingly returning to China and betting on the potential of their home country. (Bloomberg $)
5. One leading Chinese university just scrapped the mandatory English test that all students needed to pass to graduate. It signals the declining importance of the language in China. (South China Morning Post $)
6. Only two pages of Walter Isaacson's 600-page Elon Musk biography concern his dealings with China—where over half of Tesla cars are produced. (Rest of World)
Lost in translationDo you want to buy a smartphone as an accessory for your car? Nio, the Chinese EV startup, is betting that you do. On September 21, Nio officially launched its first smartphone, which will be closely tied to its cars' functions. Priced between 6,499 RMB and 7,499 RMB ($890 to $1,025), it costs about the same as an iPhone 15, which puts it in the small luxury smartphone sector in China. And the company plans to release a new model every year, similar to Apple's approach.
Who's the target customer? According to the Chinese publication Shijie, Nio CEO William Li says it's Nio car owners: "If we can sell 5 million Nio cars, half of the owners buy Nio phones, and they get a new phone every three years, then it will be profitable." The Nio phone would replace traditional car keys and control various vehicle functions remotely. Still, some consumers have questioned the need for a dedicated smartphone when a mobile app could do the same. While many Chinese EV brands have found a fervent following among their customers, Nio is about to find out whether their loyalty is strong enough to justify a $900 accessory.
One more thingIt's the Mid-Autumn Festival again this Friday, and I've already stocked up on mooncakes—the decadent, unhealthy treats filled with lotus seed, red bean, and salted egg yolk, which are reserved for this holiday. But I didn't know until this visual story in the Washington Post that mooncakes have also been used to spread political rebellion, from ancient China to Hong Kong in the 2010s. Well, I will devour the mooncakes with more respect this year.
