Chips and Water

On June 17, 2020, Open published an article by me titled “The Chinese Endgame”. Certain predictions were made in that article which is now coming home to roost.

In May 2020, the Trump administration placed a US embargo on the sale of microchips—microchip manufacturing machines, all microchip-related software and technology to China by any country that has obtained such technology from the US. On October 7, 2022, the Biden administration announced widespread new curbs on the sale of semiconductor technology to China. This was a firm step directed at crippling Beijing’s access to critical technologies that are needed for everything, from supercomputing to guided weapons.

And days later on October 12 this year, the Biden administration fired its next barrage of sanctions, which includes restrictions on the so-called US persons supporting the development, production, or use of integrated circuits at some chip plants located in China. Effective from October 12, 2022, the measures are wide enough to encompass the holders of US green cards as well as US residents and US citizens, encompassing a wide swathe of senior executives at Chinese semiconductor firms. Six of the seven key research and development executives of China’s leading semiconductor equipment maker Piotech Inc. are US citizens, as per its Star Markets filing in early 2022. Many of Piotech’s top management, including its chairman and general manager, is also US nationals.

These moves, which are a non-kinetic across-the-board attack on Chinese industry, would have raised concerns at the 20th National Congress of the Communist Party of China on October 16. Instead of strengthening Xi Jinping’s adversaries, they apparently enabled him to hold on to power. The moves by the US are the sharpest indicator that a dangerous standoff between the world’s two major superpowers is increasingly playing out in the technological sphere, with the US trying to establish a stranglehold on advanced computing and semiconductor technology that is essential to China’s military and economic ambitions. The package of restrictions, which was released by the US Department of Commerce, is designed in large part to slow the progress of Chinese military programmes, which use supercomputing to simulate nuclear blasts, guide hypersonic weapons and establish advanced networks for monitoring political dissidents, and minorities among other surveillance-related activities.

These developments have the potential of a direct impact on both India and Taiwan.

India’s gravest national security threat stems from China, which has time and again overawed, deceived, and humiliated India’s political leadership from 1949 till date. This is not an opinion but a statement of fact.

India is in a state of both semi-kinetic and non-kinetic war with China and this is a manifestation of the continuing 19th-century Great Game for domination of the land mass and natural resources in Asia. Let me explain.

From 2003, China systematically undermined India’s industrial base in the garb of “trade”. In FY22, India’s trade with China stood at $130 billion and our annual trade deficit with China was $73 billion. The China trade, which was kickstarted by the Vajpayee government in 2003, has grown exponentially from $1 billion in 2003 to $130 billion today. Under the garb of this trade, China systematically induced large swathes of Indian industry to shut down their manufacturing and instead buy what they were producing from China at a then miraculously lower cost, which provided them with lucrative profits in the process. The Indian economy has therefore suffered “de-industrialisation”. This is a prime example of ongoing non-kinetic warfare. As part of the Great Game paradigm, China seeks to only source natural resource-based non-manufactured products from India and sell us low-to-medium quality intermediate and finished manufactured products at throwaway prices.

Despite the institutionalisation of growing trade deficits with the Chinese, which were ignored by successive Indian political leaderships, the Chinese deceived us with the events of the summer of 2020 and invaded vast tracts of Indian territory in eastern Ladakh. Twenty-two rounds of army-to-army talks have produced zero results as both armies are still eyeball to eyeball on high alert.

I have listened to numerous speakers opine about why the People’s Liberation Army (PLA) is still amassed on the Line of Actual Control (LAC) and no one has provided a satisfactory answer. Let us look at reality as it stands. What is the natural resource in Ladakh that currently attracts the Chinese to such an extent that they have kept the PLA bunkered down in forward positions in Ladakh? These are the waters of the Galwan, Changchemo, Nubra, and Shyok rivers that all merge into the Indus. These rivers are currently swelling and surging as a result of glacial melt caused by global warming. The Chinese are completing the construction of the Diamer Bhasha Dam and Bunji Dam, respectively, upstream on the Indus near Gilgit in PoK.

Bunji is a run-of-river project. The hydro reservoir capacity is planned to be 308 million cubic metres. The project is expected to generate 26 Gwh of electricity. The project cost is expected to be around $13.5 billion. The cost of the Diamer-Bhasha dam was estimated at $14 billion and it will have a storage capacity of 10 cubic kilometres (8,100,000-acre ft) of fresh water. However, it will have a power generation capacity of 4.5 Gwh.

So, are the Chinese stupid to invest $27.5 billion in two dams?

Why build a storage capacity of 8.1-million-acre-feet of water, a capacity that is one-twelfth the size of the Siachen glacier?

Let me also say that 1 Gwh is equal to 1,000 Mwh, which then  is equal to 10,00,000 Kwh.

According to the Pakistan Economic Survey 2021–22, the installed electricity generation capacity in Pakistan reached 41.5 Gwh in 2022. The maximum total demand coming from residential and industrial estates stands at nearly 30 Gwh, whereas the transmission and distribution capacity stands at approximately 22 Gwh. This leads to a deficit of about 8 Gwh when the demand peaks. This additional 8 Gwh required cannot be transmitted even though the peak demand of the country at 30 Gwh is well below its installed capacity of 41.5 Gwh.

Therefore, when Pakistan already has a surplus installed capacity of 11.5 Gwh, who is going to consume and pay for the extra 30 Gwh of electricity to be generated from the Bunji and Diamer Bhasha dams collectively?

The OECD’s Nuclear Energy Agency estimated in a 2020 study that the cost of generating 1 Gwh of electricity was $68,000. So, 30 Gwh is going to cost $2.04 million. That leads to a 12-hour daily usage cost of $24.5 million, or annually $8.8 billion.

So, where is this electricity to be consumed?

Northern China, including Xinjiang, is highly populated but severely water-deficient. While China has 21 per cent of the world’s population, it only has 7 per cent of the world’s freshwater, almost all located in southern China. Thirty per cent of China’s groundwater is unfit for human consumption and 16 per cent of its groundwater is unfit for any use at all. China’s daily usage of water is 10 billion barrels. Almost $100 billion is what China spent last year on water-related projects. Because of her water crisis, hydropower plants are being shut down.

In early 2018, the State Grid Corporation of China, or SGCC, which is the world’s largest power company, began work on erecting a 1.1-million-volt transmission line in Changji near Ürümqi in Xinjiang as the nodal hub. The transmission lines will also link Changji to Kashgar and to the Khunjerab Pass in the southwest, and Korgas in western Xinjiang. Most importantly, it will extend 3,500 km to the current hub of China’s microchip centre in Hefei, in the Anhui province, west of Shanghai.

Changji is 625 km by road from Korgas aka Khorgas aka Horgos, which is emerging as the new hub of China’s microchip industry. Five thousand semiconductor chip test production lines with a total investment of $1.42 billion have begun production in Horgos, China’s Xinjiang Uygur Autonomous Region. The Horgos Sanyou Fuxin Optoelectronic Semiconductor Industrial Park project was officially launched in the Horgos Industrial Park on July 8, 2020, barely a month after the Galwan Valley clash between the Indian Army and the PLA. After entering production, the lines will realise an annual output of 24 billion semiconductors and electronic components.

.Therefore, when you integrate all these factors into a dynamic matrix, you realise why China started pushing forward into eastern Ladakh in February 2020 because of the “failed” summit talks between Xi and Prime Minister Narendra Modi in Mamallapuram in October 2019, and why the incursions took the shape of non-kinetic medieval violence on June 15, 2020, in the Galwan Valley.

The three raw materials for microchip manufacture—sand, water, and electricity—will be readily available in Xinjiang provided China has physical dominion and control over the Indus and its main tributaries, namely the Nubra, Shyok, Galwan, and Changchemo rivers. These rivers hold the key to solving China’s water crisis, which in turn holds the key to its microchips, electricity, and food, particularly in northern China.

For this to happen, the PLA will have to push the Indian Army beyond the west bank of the Indus River in Ladakh and take physical control of the area west of Daulet Beg Oldie, including the Siachen glacier.

To my mind, therefore, war clouds are looming on the horizon for both India and Taiwan.

I do not think that Taiwan will be invaded from the sea as Putin’s Ukrainian fiasco has cautioned the Chinese from making such a blunder. My bet is that the PLA will launch conventionally armed missiles on each of TSMC’s 13 microchip factories located in Taiwan to destroy them as part of a scorched earth policy. The military attack, however, will happen in Ladakh but its manifestation will be very different from anything witnessed in either 1962 or 2020.

About The Author

Iqbal Chand Malhotra

Iqbal Malhotra is an award-winning TV producer and the author of Red Fear: The China Threat