A new chapter in the US-Chinese chip war is already being written
A surge of manufacturing capacity in mainland China has the United States government worried. “Over the last few years, we’ve seen potential signs of concerning practices from the People’s Republic of China to expand their firms’ legacy chip production and make it harder for US companies to compete,” said US Commerce Secretary Gina Raimondo in a statement announcing a survey “to identify how US companies are sourcing current-generation and mature-node semiconductors.” The analysis will inform decisions to protect the US legacy-chip supply chain, considered by Raimondo to be “a matter of national security.”
The Chinese capacity build-up is stoking fears that, after solar panel manufacturing, another Western industry will lose out to state-sponsored competition. “Western nations need a plan for when China floods the chip market,” economic historian Chris Miller wrote in the Financial Times this week. Clearly, another round of protectionist measures is in the making.
Surge
China’s semiconductor manufacturing capacity is set to more than double in the next five to seven years, Bloomberg reports based on research conducted by Barclays. In another analysis, research firm Trendforce counted 44 active wafer fabs in China, 7 dormant ones and another 22 under construction. Most of the additions are said to target mature-node technologies of 28nm and above.
Driving the development of a local supply chain is high domestic demand and a desire for increased self-sufficiency, which was already on Beijing’s agenda well before the US introduced any export restrictions. The Made in China 2025 plan, presented in 2015, calls for meeting 70 percent of the country’s semiconductor needs with domestic supply.
There’s plenty of reason to invest in mature semiconductors. The ‘COVID shortages’ demonstrated the importance of these humble components, handfuls of which are found in every electronic device on the planet, and proved that manufacturing capacity for these legacy chips is tight. Demand is expected to surge due to emerging applications such as electric vehicles and energy technology. On its 2022 Investor Day, ASML predicted that the industry would need to add 780,000 monthly wafer starts per year on average in the 2020-2030 period, almost half of which to produce mature technology, driven primarily by automotive and industrial electronics needs.
Analysts agree, however, that China is almost certainly overdoing it, pulling the market into an oversupply situation and kicking off price wars. On a recent earnings call, TSMC CEO CC Wei said that “the concern on overcapacity is valid.”
A matter of time
One way to read the situation is that China is simply making wise investments by responding to rising demand and manufacturing technology that’s key to solving major societal challenges, including climate change. Chinese companies may not immediately turn to exporting their products, but even if they eventually start “flooding the market,” that’s not necessarily a bad thing. It should be noted that few (Western) incumbent companies are following China’s example.
The US government takes a different view. Miss Raimondo said it in no uncertain terms: she’s worried about a state-sponsored operation to wrestle control over legacy chip manufacturing. “Addressing non-market actions by foreign governments that threaten the US legacy chip supply chain is a matter of national security,” she noted, adding that “legacy chips are essential to supporting critical US industries, like telecommunications, automotive and the defense industrial base.”
The question now is what the response of the US will be. Increasing subsidies for Western companies, perhaps? Bans for certain use cases or select products from Chinese companies? Or even new export restrictions for manufacturing equipment? It’s only a matter of time before we’ll find out.
