When US President Joe Biden signed into law the Chips and Science Act, most in the tech industry saw it as good news. This is not the case in China, however. In China, economists and tech executives say the law creates challenges for them that could cripple the country’s semiconductor industry. Some have even gone so far as to call the chip law an unfair trade policy, which is absolutely hilarious when taken in the context of how China itself has pushed its own semiconductor industry.
Chinese tech leaders claim ‘insurmountable challenges’ caused by US chip law
The new law hopes to bring more semiconductor manufacturing back to the United States. It offers grants, tax credits and other financial incentives to companies that build semiconductors using domestic factories and resources. According to You Xiekang, vice president of the China Semiconductor Industry Association (CSIA), a Beijing-backed trade group, this is not good for their business.
Xiekang says the new law will cause problems for Chinese semiconductor makers that they simply cannot overcome on their own. During a recent panel discussion, the AMSC went so far as to call the Chips Act a “violation of fair trade”. He warned of “chaos” in global supply chains.
It’s quite hilarious, actually, as well as hypocritical. China has faced its own accusations of violating fair trade ideals. US chipmakers have recently expressed concern about how China refuses to play nice in the semiconductor industry. They claimed that Chinese companies were paying above-market rates for the manufacturing equipment needed to produce semiconductors.
How do they pay these above market rates? Apparently using Beijing government funding, according to Gartner analyst Gaurav Gupta.
They encourage domestic chipmakers to buy more, get all you can right now, because you never know when the US might impose more restrictions. Even if they need one tool, they will order three or four. Money doesn’t seem to be a problem.
China’s semiconductor industry depends on imports
The problem China’s semiconductor industry is facing is one of the country’s problems. Due to its persistent stance of stubborn opposition to Western ideas and morals, the country (and much of its tech makers) is seen as a security threat.
Therefore, Washington and other countries are hoping to bring home more high-tech manufacturing for more than economic reasons. The latest US law seeks to deter foreign investment, it is true. US law already imposes many restrictions on the export of technology to China, and the Chips Act goes even further. Recipients of funding under the law can no longer invest in China, except for “old semiconductors”.
That means chips made with 28-nanometer or larger processes for at least a decade. Understand that chips used in Macs, iPhones, and iPads are already using 5-nanometer manufacturing with a move to 3-nanometer production expected soon.
China isn’t the high-tech hub it wants to be, and that can work in everyone’s favor
Make no mistake, China will still be able to maintain a strong presence in the high-tech sector. However, it may not be able to become the high-tech center it wants to be. Currently, the country is extremely dependent on Western technology to build computers, smartphones and tablets.
Chinese electronics makers end up spending more on integrated circuit (IC) imports than the country imports oil. While a handful of manufacturers produce their own advanced semiconductors, most do so using Western-licensed technology.
In fact, Chinese semiconductor manufacturer Zhaoxin is the only company producing x86 processors. In the smartphone industry, Huawei and Tsinghua Unigroup have subsidiaries that produce logic chips, but these use core intellectual property licensed from a UK company.
For the most part, the Chinese tech industry designs memory chips, not more advanced logic chips. Frankly, as long as the Chinese government insists on maintaining its aggressive tone toward global democracy, maybe that’s for the best.
We already have a big authoritarian government invading and trying to subjugate a nation struggling for democracy. We certainly don’t need to help another country build a technological base to do the same.