Paul van Gerven
5 September 2022

The US has almost completely cut off China from key resources to manufacture advanced semiconductors. The Middle Kingdom has no choice but to focus on mature nodes.

The US Chips Act, signed into law by president Biden on 9 August, will “distort the global semiconductor supply chain and disrupt international trade,” complained one Chinese government official. “It contains essentially discriminatory clauses in market competition and creates an unfair playing field, which goes against the WTO’s fair-trade principles,” the vice chairman of the China Semiconductor Industry Association (CSIA) lamented.

Interesting accusations coming from a country that has had its share of accusations of violating fair-trade policies. Not to mention the fact that the Chinese government is doing everything in its power to propel its domestic semiconductor industry, too. Earlier this year, for example, a number of US chipmakers accused Chinese companies of stockpiling chip manufacturing equipment and paying above-market prices. Beijing is financing this buying spree, Gartner analyst Gaurav Gupta told Bloomberg. It would explain why China has been the biggest buyer of semiconductor manufacturing equipment for two years straight.

Semiconductor purchases

And yet, there’s no denying that the US Chips Act runs counter to fair-trade principles. These days nobody bats an eye anymore about generous government handouts for semiconductor companies, and the 50+ billion dollars in incentives and tax credits for expanding US manufacturing and R&D support isn’t what incurs China’s wrath. The ever-tightening of restrictions on any China and semiconductor-related business is.


The Chinese government allocated 150 billion dollars in 2014 to become a global leader in semiconductor technology by 2030, and over half of that amount is said to have been already spent. These investments kicked off a growth spree, judging from SIA data, lifting China’s share in global semiconductor device sales from 3.8 percent in 2017 to 9 percent in 2020, the latter being about the same share as Europe and Japan. In terms of 12-inch-equivalent production capacity, China claims 24 percent this year, according to market research firm Trendforce.


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One Chinese feat in particular grabbed headlines recently: a SMIC-manufactured 7nm bitcoin mining chip. But, while the device presents progress for the Chinese foundry’s capabilities, it doesn’t mean that China is catching up fast. The 7nm nomenclature is rather optimistic, bitcoin mining designs are relatively simple and, most of all, even if SMIC would manage to make true 7nm chips, without access to EUV lithography, they wouldn’t be competitive.


In fact, US restrictions leave the Chinese semiconductor industry no choice but to focus on mature nodes. Recently, Washington tightened the 10nm restriction on the export of manufacturing equipment to 14nm and, according to a recent report, wants to see China get off from immersion DUV equipment in addition to EUV gear.

Additionally, the Chips Act prohibits recipients of incentives from investing in sub-28nm process technologies in China for ten years. And since the Committee on Foreign Investment in the United States intervened in a Chinese-Korean merger involving a company with barely any US exposure, it’s generally assumed that any semicon deal involving China will be shot down in the future.

Without an equipment and materials sector of its own, this stops China’s advancement in semiconductor technology in its tracks. “I don’t think China has any good immediate policy options at this point. China essentially doesn’t have the technology to create those advanced] fabs,” Xiaomeng Lu of think tank Eurasia Group [commented. Even the Chinese seem to have resigned themselves to their fate, at least for now. “It’s impossible for China to tackle bottlenecks in semiconductor equipment and materials on its own,” the South China Morning Post quoted a CSIA representative. He suggested that China look for other semiconductor activities, such as advanced packaging.