A staff member assembles semiconductor devices at hi-tech enterprise MacMic Science & Technology Co. Ltd. in Nanjing, Jiangsu Province, on February 17 (XINHUA)
The Taiwan Semiconductor Manufacturing Corp. (TSMC) on December 6 last year said it would triple its investment at its Arizona plant in the U.S. from $12 billion planned in May 2020 to $40 billion. On the same day, U.S. President Joe Biden visited the site and hailed the project, saying "American manufacturing is back, folks."
Is it? Recent interviews with 11 TSMC employees conducted by The New York Times revealed how doubts are rising inside the world's chipmaking leader—headquartered in China's Taiwan region. Calvin Su, President of chemical supplier Chang Chun Arizona, told the newspaper on February 22 that the factory's construction would cost 10 times than that in Taiwan due to "unfamiliarity with U.S. regulations and building permits, as well as an insufficient supply of production materials."
Then there's the aspect of cultural incompatibility. TSMC employees who trained their American counterparts said it took huge efforts to train them in the standardized practices and that they often complained they had to shoulder more responsibilities than their American peers as the latter would sometimes reject any new tasks assigned to them, according to The New York Times.
TSMC's huge investment is a result of the CHIPS and Science Act signed into law by Biden in early August 2022, including $52.7 billion in subsidies to bring back U.S. semiconductor manufacturing and prevent advanced chip technology from going to China.
The U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced updated export restrictions on American advanced chip technology to China on October 7 last year in case the country develops its domestic chip industry. Most recently, Biden managed to secure support from Japan and the Netherlands to further restrict advanced chip manufacturing equipment from being exported to China on January 27; no further details have been made public yet. The Wall Street Journal on February 28 reported that, according to people familiar with the matter, the White House "is considering revoking export licenses issued to U.S. suppliers for sales to Chinese telecom giant Huawei."
In December 2022, China filed a complaint with the World Trade Organization against the U.S. over its export control measures. In its report, China said the curbs threatened the stability of the global industrial and supply chains and that America's national security justification was dubious.
The China Semiconductor Industry Association (CSIA) on February 15 protested the reported chip export restrictions. "If the move becomes reality, it will cause serious harm to the semiconductor industry in China, with detriment to the global economy, as well as long-term damage to the interests of consumers worldwide," the CSIA said in a statement, calling for a united global effort to maintain supply chain stability.
A hazardous move
The tighter U.S. restriction undermines the interests of a number of global semiconductor industry giants, which all have a significant presence in China. Tokyo Electron, a major supplier of chipmaking equipment, along with its peers American Applied Materials and Dutch ASML, have stated China is a very important market for them, accounting for more than one quarter of their annual revenues.
The Republic of Korea (ROK), as an American ally, fell victim to the superpower's moves against China. The business performances of Samsung Electronics and SK Hynix factories in China deteriorated greatly in 2022 due to America's sweeping export controls. Even worse, the White House recently announced it would set a technological limit to prevent ROK semiconductor companies from producing highly advanced semiconductors at their China factories.
Sales of Shanghai Samsung Semiconductor, which sells semiconductors and display panels in China, stood at $16.26 billion in 2022, down nearly $8 billion from $24.6 billion in the previous year, according to an audit report of Samsung Electronics. SK Hynix's Chinese semiconductor factory in Wuxi, Jiangsu Province, faced a similar decline in revenue, raking in $7.25 billion in 2022, down 26.4 percent from 2021.
Concerns have also been raised within the U.S. The country's Semiconductor Industry Association (SIA) warned in a comment released on January 26 that the export control rules, unprecedented in scope and detail, have posed new challenges to the global semiconductor ecosystem and risk "unduly harming the commercial innovation that is essential to the American economy, national security and technological leadership."
"Unilateral export controls place the U.S. companies on an unequal playing field. They can also threaten the U.S. technological leadership by allowing international competitors, who are not subject to uncertainty, to execute more effective business planning," the SIA said.
Jon Bateman, a senior fellow with the Carnegie Endowment for International Peace, a nonpartisan international affairs think tank headquartered in Washington, D.C., shared similar views. He explained on the U.S. National Public Radio how these new rules could further disconnect China and the U.S.—technologically and economically speaking.
"It's getting harder for Chinese students and researchers and STEM (science, technology, engineering and mathematics) talent to come to the United States. We have more tariffs, more export controls, a growing set of financial controls and bans on Chinese technology," he added.
The way out
Can China break through the blockade thrown up by the U.S. and its allies in advanced chip technology and chipmaking equipment?
The global semiconductor industry chain stretches from the upstream sector, including EDA/IP—the design or verification unit that is pre-packed and available for licensing, on which chip design is based, chipmaking equipment and materials, the midstream of chip design, manufacturing, plus packaging and testing, to the downstream of different electronic products.
"Right now, the country's semiconductor industry chain is more vulnerable in its upstream sector, especially in equipment supply, such as that of lithography machines, with ASML being the leading supplier, and in materials, such as photoresists—essentially hydrocarbon polymers composed of a photoactive compound and an organic solvent. Both of them heavily rely on imports from overseas," Yang Shuiqing, a research fellow with the Institute of American Studies under the Chinese Academy of Social Sciences, told Beijing Review.
"The current underdevelopment of China's chip sector is due to insufficient investment in research and development (R&D)," she said.
In 2021, the revenue of the Semiconductor Manufacturing International Corp., a partially state-owned publicly listed Chinese pure-play semiconductor foundry company, was $5.18 billion, while R&D expenditure accounted for about 12 percent of its total revenue at $600 million; R&D outflow of Hangzhou Silan Microelectronics Co. Ltd., engaged in the design, manufacture and sales of electronic components, stood at some 9 percent and that of JCET Group, the world's leading integrated circuit manufacturing and technology services provider, was around 4 percent. By comparison, R&D expenses of American multinational corporation and technology titan Intel Corp. were more than $13 billion in 2021, accounting for 19.2 percent of its revenue, and telecommunications multinational Qualcomm's and Nvidia's were 21 and 23.53 percent of their total revenues, respectively.
"We need more investment and government support for semiconductor companies to enable them to compete on the international stage," Yang said.
"The U.S. effort to choke China in advanced technology has further pushed the country toward technological independence and left a huge domestic market wide open for Chinese companies. For instance, in 2017, U.S.-based Applied Materials and Japan's Ebara held 98.1 percent of the Chinese market share for chemical mechanical polishing equipment. Today, China Electronics Technology Group Corp.'s 8-inch polishing equipment has recaptured 70 percent of the domestic market," Gu Wenjun, an analyst at Chinese semiconductor research institute ICwise, told Global Times on January 31.
ASML Chief Executive Officer Peter Wennink also expressed his belief that U.S.-led export control measures could eventually push China to successfully develop its own technology in advanced chipmaking in an interview with Bloomberg News on January 25.
"If they cannot get those machines, they will develop them themselves. That will take time, but ultimately they will get there," he said.
(Print Edition Title: Time Will Tell)
Copyedited by Elsbeth van Paridon
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