The ‘Confucian’ edge in chipmaking and North Korea’s shadow animators

Hello everyone, it’s Cissy from Hong Kong.

It has been a super-humid week here. Mushrooms have even started to sprout from the damp floor in our office. Thankfully the wind finally arrived today, otherwise I might have to continue suffering the smell of mould in a lot of indoor places I go.

In other damp news about the city, Hong Kong this week made its first known arrests for alleged sedition under the new local security law passed two months ago. Authorities have accused seven people of inciting hatred against the Chinese central government, the Hong Kong government and the judiciary by commemorating the 35th anniversary of the Tiananmen Square crackdown on social media.

The anniversary is next Tuesday. Before Beijing imposed a national security law on Hong Kong in 2020, the city used to be a centre for people to mourn those killed and pass on memories of the tragedy to the next generation. Some Chinese people would even make special trips from the mainland to join the candlelight vigil at Victoria Park.

In the past three years, the park has been blanketed by heavy security forces on the night of June 4, with police arresting or detaining anyone who tried to commemorate the anniversary. Police would also check the bags of passers-by and warn residents who stopped to linger. Events to mark the anniversary have increasingly been held in Taiwan since 2020, though on a smaller scale.

Heavy security is expected at Victoria Park this year, too, and like last year, the venue will also host a food festival organised by pro-Beijing community groups starting on June 1. Organisers have vowed to make the festival an annual event.

Hong Kong still bills itself as a centre of business and innovation, but this really says a lot about how much the city has changed.

The art of discipline

In a recent interview with Nikkei Asia’s Lauly Li and Cheng Ting-Fang, former TSMC executive Konrad Young put forth an interesting theory that Asia’s “Confucian culture”, with its emphasis on discipline and respect for authority, is a perfect fit for modern chipmaking. That, he argued, is one reason Taiwan, South Korea and Japan are ideal places for developing semiconductor manufacturing — as long as they also have enough skilled engineers.

“The hardest thing about semiconductor manufacturing is that it has more than 1,500 manufacturing steps and every step requires a lot of precision measurements, human wisdom, experience and knowledge to get them right,” said Young, who currently serves as a professor at the National Taiwan University Graduate School of Advanced Technology.

Young said that while the creativity, innovation and independent thinking valued in western cultures are vital for forging new industries, sophisticated semiconductor manufacturing requires a different approach and has little room for argument and debate.

But concerns are also growing that Taiwan — home to 90 per cent of the world’s advanced chipmaking capacity — will not have enough engineers to carry on this tradition as the island’s birth rate continues to decline.

Ready to spend

SoftBank is prepared to commit close to $9bn a year to artificial intelligence investments, even as the Japanese tech group holds back firepower for bigger deals aimed at accelerating what could be its most radical transformation to date.

One year after founder Masayoshi Son said the group was ready to go back on the offensive, SoftBank is hunting for deals that can support the group’s crown jewel, UK-based chip designer Arm, writes David Keohane for the Financial Times.

SoftBank’s chief financial officer Yoshimitsu Goto told the Financial Times that the group was prepared to maintain its newly achieved investment pace of about $9bn a year and that its balance sheet was strong enough to allow for even bigger moves.

The problem for Son is that competition for AI deals is already fierce and large ambitions — including rumoured chip production, something Goto refused to comment on — could mean the kind of outlay to make even SoftBank wince.

Drawing fire

Japan’s animation industry, already known for high pressure, intense competition, low wages and gruelling hours, now has a new concern: unintentionally outsourcing work to North Korea via Chinese subcontractors, write Nikkei Asia’s Ryohtaroh Satoh and Cissy Zhou.

In late April, a US think-tank reported finding animation data for Japanese, Chinese and western shows, most of which were still in the middle of production, on a cloud storage server with a North Korean IP address. The files appeared to be related to shows including the Japanese anime Dahlia in Bloom, Amazon Prime Video show Invincible and a Chinese production backed by Tencent.

The founder of a Chinese animation company told Nikkei that it was no secret in the industry that North Korea was part of the global animation supply chain. Because the animation industry is globally interconnected, anyone who can offer the best quality at the lowest price usually wins the contracts — even if they are from North Korea.

For companies wanting to avoid falling foul of sanctions by working with North Korea, even indirectly, there is more bad news. Detecting the involvement of North Korean workers in digital supply chains is becoming increasingly difficult as ever more projects, such as animation or software development, are handled globally and by remote workers.

The Bigger Fund

Beijing has launched its biggest ever state-backed semiconductor fund to bolster the domestic chip sector, a move aimed at countering US efforts to limit China’s access to advanced technology, writes Nikkei’s Shunsuke Tabeta.

The third and latest phase of the China Integrated Circuit Industry Investment Fund — a financing scheme to promote Beijing’s “Made in China 2025” high-tech industrial development plan — is by far the biggest. The previous two phases of the “Big Fund,” as it is commonly known, were set up in 2014 and 2019, with capital of $19bn and $27bn, respectively.

While the exact investment targets remain undisclosed, the focus is expected to be on artificial intelligence-related semiconductors and manufacturing equipment, aiming to help major Chinese semiconductor companies swiftly shift from international to domestic suppliers for essential components.

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