Beijing is worried by news that the Biden administration is conducting a survey of the extent of use of Chinese chips in critical industries in the United States.
In a phone call on Thursday, Chinese Commerce Minister Wang Wentao told US Commerce Secretary Gina Raimondo that China is seriously concerned by Washington’s latest move to probe American companies’ purchase of mature-node China-manufactured computer chips of 28 nanometers or above, which are known as “legacy chips.”
Wang also complained that the US had restricted third-countries’ lithography exports to China and imposed sanctions on Chinese firms.
Wang’s comments came after the US Commerce Department said on December 21 that its Bureau of Industry and Security (BIS) would launch a new survey in January 2024 to identify how US firms are sourcing current-generation and legacy chips.
Raimondo said at that time that the US had seen signs of potentially concerning Chinese practices that could expand PRC-based firms’ legacy chip production and make it harder for US suppliers to compete.
She said legacy chips are essential to supporting critical US industries, including telecommunications, automobiles and the defense industrial base. She said addressing non-market actions by foreign governments that threaten the US legacy chip supply chain is a matter of national security.
A study released last month by the BIS Office of Technology Valuation said the Chinese government had provided its chipmakers with about US$150 billion in subsidies in the past decade, which is likely to drive below-market pricing for legacy chips and create a non-level global playing field for US and other foreign competitors.
Raimondo told Wang on Thursday that US national security issues are not negotiable.
“The US government’s ‘small yard, high fence’ approach is not about containing China’s economic development. Rather, it aims to safeguard our national security and values without unduly limiting trade and investment,” she said.
“The US government’s ‘small yard, high fence’ approach is not about containing China’s economic development. Rather, it aims to safeguard our national security and values without unduly limiting trade and investment.”
US Commerce SecreTary Gina Raimondo
Meanwhile, the House Select Committee on the Strategic Competition Between the US and the Chinese Communist Party on January 8 wrote a letter to Raimondo and US Trade Representative Katherine Tai, raising concern that China will flood the US and world markets with subsidized legacy chips to gain global dominance.
The committee suggested that the US implement “component tariffs” on China’s legacy chips within finished products.
“If the US becomes dependent on China for foundational chips, our military and economic well-being may run the risk of being overly reliant on the CCP,” said Mike Gallagher, a Republican congressman from Wisconsin who is chairman of the Select Committee on the CCP.
China’s share
As of March 2023, US chip designers depend almost entirely on foreign foundries to manufacture 20-45nm chips, according to a report published by Rhodium Group, a New York-based think tank. These chips are key for making microcontrollers for machines and autos.
About 60% of worldwide manufacturing capacity for 20-45nm chips is located in China and Taiwan, with 27% in China alone. Over the next three to five years, the figure will grow to 80%.
China currently controls about 30% of manufacturing capacity globally for 50-180nm chips that are commonly used in power switches, internet-of-things (IoT) devices and sensors. The figure is expected to grow to 35% within the next five years and 46% within a decade.
TrendForce, a Taipei-based market intelligence provider, said in a report last October that only about 30% of the global production capacity will be used to make advanced chips below 16nm by 2027 while the remaining 70% will still be used to make chips above 28nm.
It said China’s share in global mature process capacity is anticipated to grow from 29% in 2023 to 33% in 2027 while Taiwan’s share will fall from 49% to 42%. Major players in China include Semiconductor Manufacturing International Corp (SMIC), HuaHong Group and Nexchip.
A Henan-based IT columnist suggests that the US may have miscalculated earlier, when it placed its regulatory emphasis on slowing exports of cutting-edge US technology while leaving the booming legacy chips trade to the market.
“Thinking it would be impossible for the US to stop China from boosting its mature process, Washington just gave up trying to do so,” the columnist writes in an article.
“The US thought that it could slow the Chinese economy by banning the export of its high-end chips and chip-making equipment to China,” he says. “But such a move made China focus on the mature chip-making process.”
Without the US curbs, he says, China would not have achieved strong growth in the mature process. He says China will dominate the legacy chip markets while the West will focus on advanced processes.
“The US thought that it could slow the Chinese economy by banning the export of its high-end chips and chip-making equipment to China,” he says. “But such a move made China focus on the mature chip-making process.”
A Henan-based IT columnist
New foundries
On October 7, 2022, the US Commerce Department announced its chip export controls against China. Early last year, the Biden administration persuaded Japan and the Netherlands to put into effect their own chip export rules.
The Netherlands agreed to ban the shipment of some of ASML’s immersion deep-ultraviolet (DUV) lithography machines to China. The measure took effect on January 1, 2024. China can no longer purchase NXT:2050i and NXT:2100i from ASML.
It’s unclear whether the shipment of NXT:2000i has also been stopped. But in any case, China will still be able to buy the NXT:1980 series, which can make 38nm chips in single exposure and up to 7nm chips in multiple exposure.
According to a research note from Barclays analysts, China’s chipmaking capacity will more than double in five to seven years based on local manufacturers’ existing plans – “materially more” than the market expects.
Based on an analysis of 48 chipmakers with fabrication plants in mainland China, the note said most of that additional production capacity could be added in the next three years.
Barclays analysts including Joseph Zhou and Simon Coles said there are materially more local chip makers and fabs in China than suggested by mainstream industry sources.
Global chip-making capacity will grow to 30 million wafers per month in 2024, up 6.4% from last year, according to the Semiconductor Equipment and Materials International (SEMI), a California-based industry association.
Of the 42 new foundries that will be built globally this year, 18 will be situated in mainland China, it said.
Read: High-end DUV ban: China’s damage coming into focus
Follow Jeff Pao on Twitter at @jeffpao3