U.S. sanctions could slow China’s chip production in the next 10 years
The trade war between China and the United States continues, having started with the Trump presidency, and even earlier. At the same time, China is constantly trying to get out of a difficult situation for itself, and the States are introducing new and new restrictions.
One of them, related to the Chip and Science Law, could slow down the development of China’s semiconductor industry for the next 10 years. Let’s see what’s the matter – under the cut, as always, the details.
What kind of law is this?
Just a few days ago became aware of the main points Chip and Science Act. It is not so much about science as about limits on subsidies for companies that manufacture and supply electronic components and systems. The restrictions that this law imposes on the activities of such organizations will probably affect not only China, but also Russia, Iran, and possibly other countries.
Now, the Netherlands and Japan have joined the sanctions imposed by the United States on the spread of advanced technologies that the States are related to. One of the consequences is restrictions on the distribution of DUV scanners, which are used in 16nm, 28nm and 40nm process technologies. Well, this may hinder the development of China’s semiconductor industry, despite the fact that the country is now working on creating its own chip manufacturing infrastructure.
Even if some of the companies from the countries that have joined the sanctions have their own production in China, they will not be able to use the technologies mentioned above. And this, in turn, means falling under the sanctions of Samsung, SK Hynix and TSMC. All of these companies have their own factories in China, and they usually receive funding under the CHIPS and Science Act.
The difficulty is that now all of these companies have permission to use modern tools in their factories in China. But receiving funding from the US government, if any, means a ban on the modernization of these factories. Perhaps they will be able to use existing equipment, but it will not be possible to install new ones. Almost all major players receive subsidies, and they are unlikely to be able to refuse funding from the US government.
What will happen next?
An example is one of the leaders in the modern electronics industry – TSMC. She now has an import permit. It is valid until mid-2023. The enactment of the provisions of the “Law” means a restriction on the expansion of TSMC’s Chinese capacities for 16/12nm and 28/22nm process technologies. And not for a couple of months, but for years.
But TSMC factories in China are actively fulfilling orders from Chinese customers. In fact, about 85% of the company’s products manufactured here are intended for the Chinese market.
SK Hynix has similar problems, but its capacity utilization at its Chinese plant has already fallen by about 4%, from 48% to 44%. Production volumes will also fall at other factories of other companies. As a result, according to experts, China’s share will gradually decline on an annualized basis – from about 14% to 12% by 2025%. It would seem that it seems a little – only 2%, but in terms of money it is billions of US dollars.
Of particular note are restrictions on the production of NAND flash memory in China. They mostly apply to technologies with more than 128 layers. Just one of the Samsung factories, which is located in Xi’an, produces such memory, it accounts for approximately 17% of the global production of such products. The SK Hynix plant produces another 9% of the world’s NAND memory. The restrictions will likely result in both companies not expanding or modernizing their product lines. Accordingly, by the same 2025, experts expect “Chinese-made” memory to fall from 31% to 18%, which is already very sensitive for the global semiconductor industry.
The sanctions have already led many companies to partially withdraw production from China, transferring capacities to other regions. Because of the new realities, the speed of “industrial migration” can only increase.
Accordingly, China finds itself in a very disadvantageous position, losing not only investments, jobs, but also the very products that the country’s electronics industry needs.
What can China do?
Now the country is actively developing an autonomous electronic industry. According to the country’s new industrial doctrine, the production of electronics is one of the foundations of national security. Well, this is solved in different ways – from allocating more than a trillion US dollars in equivalent to luring specialists to the country.
Representatives of the People’s Republic of China poach talented engineers from other companies, including TSMC. The incentive for the transition is a triple salary. In addition to money, insurance is also offered, vacations, benefits for education.
The “hunt” itself has been going on for several years (earlier, of course, engineers were also lured away, but not so actively). Hunting itself is a strategy that was developed by representatives of the Chinese industry and scientists from the Chinese Academy of Sciences. The first point of the plan is to attract professionals to the industry. The authors of the plan reasonably believe that a good specialist must receive a lot of money in order to be interested in his work.
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Will it help China? Only time will show. So far, the country’s struggle with sanctions has been with varying degrees of success.
