A bill providing a $52bn boost to US semiconductor manufacturing is not just about America’s chipmakers. The crucial procedural vote this week could impose restrictions that affect funds and technology going to countries such as China. The vote could set the tone for global companies that export chipmaking gear and technology to Chinese chipmakers.
In turn, US chipmakers will focus on how restrictive any qualifying standards for these subsidies would be. These include whether companies do business with China — which would include most US chipmakers. At the same time, the Biden administration is reviewing export policies for sales of certain semiconductors to China. See this as an effort to tighten restrictions towards China’s tech industry.
All this only adds to a growing number of governments distancing their chip-related companies from China. Restrictions are already in place in Taiwan, home to huge chipmakers such as the Taiwan Semiconductor Manufacturing Company. Its government prohibits companies from building advanced foundries in China to protect any local technology. The Netherlands has had discussions with the US over blocking key Dutch semiconductor equipment supplier ASML from exporting its technology and gear to China.
Meanwhile, China’s local industry appears to be moving towards chipmaking self-sufficiency. Total sales from Chinese chip groups grew a quarter last year to a record Rmb1tn ($148bn), making it the fastest growing in the world. China’s largest chipmaker Semiconductor Manufacturing International Corporation (SMIC) reported record revenues last year and profits doubled.
But that growth is fragile. China’s chipmakers have become proficient in making lower tech chips — used mostly in simple electronics and cars. These manufacturers remain heavily reliant on US and European technology to make those. Also, local industry still needs external funds. Local groups, such as chip conglomerate Tsinghua Unigroup which has struggled to find a local buyer, need fresh capital and advanced technology to keep up operations.
While Chinese chip production volumes are growing, China remains a net importer of chips, especially more advanced models. Shares of local makers SMIC, Kingsemi and Advanced Micro-Fabrication Equipment are down a quarter in the past year despite surging earnings, reflecting the political risks that threaten production. Strict new US standards could mark the beginning of another round of financial woes for Chinese chipmakers.
