What is the difficulty for China, the United States and the European Union to achieve "chip freedom"?

Latest update time：2022-05-30 09:23

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The Spanish Minister of Economy recently revealed that the country has approved a plan to invest 12.25 billion euros in the semiconductor and microchip industries by 2027. In recent years, governments around the world have introduced plans to support the semiconductor industry, competing for major companies to invest and build factories in their own countries. This economic and technological competition has entered a white-hot stage .

Starting in early 2021, China , the United States, and the European Union have once again made efforts to strengthen their independence in the semiconductor industry to alleviate the global chip shortage . In the short term, these industrial policy measures have stimulated large-scale investment in local chip manufacturing by major companies. The full impact of these policies and investments will be revealed when new chip factories are put into production in two to three years.

Build a nest to attract phoenixes

The United States, China, and Europe have introduced chip industry policies

USA

On February 4, 2022, the U.S. House of Representatives passed the $350 billion America COMPETES Act of 2022, which aims to fully counter China and strengthen U.S. competitiveness in multiple areas such as manufacturing and research and development. The bill will allocate $52 billion to the semiconductor industry to subsidize chip manufacturing and factory construction in the United States, which will help solve supply chain problems and ensure that more semiconductors are produced in the United States.

Image source: South China Morning Post

The Biden administration has also formulated policies to actively support Congress' efforts to bring chip manufacturing back to the U.S. On February 24, the White House released the "Plan to Revitalize American Manufacturing and Safeguard Critical Supply Chains," which aims to encourage domestic production of key projects and the return of strategic supply chains. Semiconductors are designated as key export sectors and will receive financing under the Export-Import Bank's domestic manufacturing program.

China

In March 2021, the National People's Congress adopted the 14th Five-Year Plan, elevating technological development to a national security issue. In the next five years, the total R&D funding investment in the whole society will increase by at least 7% , striving to increase the investment intensity higher than that in the 13th Five-Year Plan period, and identifying integrated circuits as a frontier scientific and technological research area.

Subsequently, the Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation jointly issued the "Notice on Import Tax Policies to Support the Development of the Integrated Circuit Industry and the Software Industry", which will exempt domestic manufacturers of logic and memory chips with processing nodes below 65nm from import tariffs on raw materials and equipment parts . In January 2022, the State Council issued the "14th Five-Year Plan" for the development of the digital economy, targeting strategic and forward-looking fields such as integrated circuits and new materials to improve basic research and development capabilities.

Image source: Xinhua News Agency

With the introduction of the 14th Five-Year Plan and the digital economy development plan, local governments have also taken quick action. In January 2022, the Shanghai and Zhejiang provincial governments announced IC industry subsidy plans and tax incentives, respectively . In the same month, the National Development and Reform Commission and the Ministry of Commerce announced plans to establish an international trading center for electronic components and integrated circuits in Shenzhen .

European Union

On February 8, the European Commission published a draft of the European Chip Act, which aims to ensure the EU's supply security, resilience and leading position in semiconductor technology and applications, enhance Europe's competitiveness and resilience, and promote digital and green dual transformation. The EU intends to work with member states and international partners to inject more than 43 billion euros into the semiconductor industry , formulate crisis management measures to deal with possible supply chain disruptions in the future, and realize the ambition of increasing the EU's share of the global semiconductor market from the current 10% to 20% in 2030 .

Image source: BBC

On May 24, Spain approved a semiconductor industry support plan to invest 12.25 billion euros in the semiconductor and microchip industries by 2027, of which 9.3 billion euros will be used to build chip manufacturing plants , 1.1 billion euros will be used for chip research and development , and 1.3 billion euros will be used specifically for chip design .

With the support of policies and financial subsidies and other means to support the local chip industry, this will undoubtedly have a significant impact on the global chip industry and have a huge impact on the global chip market structure .

Global semiconductor companies responded

China and the United States are popular, while the EU is ignored

Starting in early 2021, the United States made it clear that it would promote domestic semiconductor manufacturing, and private investment increased accordingly . In June 2021, TSMC began building a $12 billion chip manufacturing plant in Arizona , which will specialize in the production of advanced 5-nanometer chips . Intel followed suit and started construction of two new chip plants in Arizona in September 2021, with a total investment of $20 billion . Samsung joined its competitors in November 2021 and announced plans to build a $17 billion chip plant in Texas .

In January 2022, Intel announced an additional investment of $20 billion to build two new chip factories in Ohio, citing the continued chip shortage, strong consumer demand and favorable local subsidy programs.

Similar to the situation in the United States, China's recent efforts in the semiconductor sector have attracted a lot of corporate investment . In July 2021, TSMC confirmed plans to expand its Nanjing wafer factory, with plans to start 28nm mass production in the second half of 2022. In September 2021, SMIC announced plans to spend 56 billion RMB (8.87 billion US dollars) to build a new 28nm chip factory in Shanghai. In October 2021, SK Hynix began construction of a 2 billion RMB (310 million US dollars) "China-Korea Integrated Circuit Industrial Park" in Wuxi, Jiangsu Province. In the same month, SMIC finalized an agreement with the Shenzhen government to build a new chip factory using a 28nm process node.

In February 2022, Mitsubishi Gas Chemical announced plans to build a new plant in China to produce cleaning agents to remove fine particles generated during chip manufacturing.

Contrary to the enthusiastic response received by China and the United States, Europe has not been smooth in attracting semiconductor companies . For more than a year, Europe has been pushing the three major manufacturers in the semiconductor industry (TSMC, Samsung and Intel) to build a chip super factory in Europe to produce the latest generation of chips (down to 5 nanometers or smaller). TSMC, as a supplier to Apple, MediaTek and Qualcomm, is the most valued partner in Europe, but TSMC has not yet made any announcements about European investments . TSMC said it is in preliminary negotiations to set up an office in Germany, but in the past few months it has announced investments in Arizona ($12 billion), Japan ($7 billion) and China ($2.8 billion). Samsung is even more passive and has no intention of investing in large wafer fabs in Europe.

Only Intel has a slightly more positive attitude, saying in a statement that it is "considering increasing investment in Europe ." Although Intel announced the "Intel Foundry Services" strategy in March last year, this new business has not made significant progress.

Long and winding

The road to independence in the semiconductor industry

Highly globalized production chain

Semiconductor production is considered one of the most complex manufacturing processes in the world, involving more than 50 disciplines. Billions of transistor structures must be manufactured within a few millimeters .

ASML of the Netherlands is currently the only company in the world that can produce high-end extreme ultraviolet lithography machines . Among its 17 core suppliers, more than half are from the United States, and the rest are companies from all over Europe.

Image source: CNBC

The company is jointly owned by shareholders from dozens of countries and regions. Its official website shows that of the three largest shareholders, two are from the United States and one is from the United Kingdom. In addition, Taiwan's TSMC and South Korea's Samsung also hold shares in ASML, so these two manufacturers have the right of first refusal .

While ASML may dominate the chip lithography market, it is only part of a long chain of industries. The lithography machine lenses are made by Germany's Zeiss, the laser technology is owned by the US Cymer company, and the key valves are provided by a French company.

Jan-Peter Kleinhans, senior fellow and director of the Technology and Geopolitics Project at the Berlin think tank New Responsibility Foundation, said that no country can make chips without the technology of foreign companies . "ASML has spent more than 20 years relying on a network of about 5,000 suppliers to develop their machines. Without the participation of any of these companies, the entire global semiconductor chain will be broken ."

The conflict between costs and returns

Most of the 43 billion euro European Chip Act is existing research funding, which has been designated for the semiconductor industry. If the goal is to achieve independence for the semiconductor industry, this amount is probably far from enough.

Risto Puhakka, president of VLSI research, a well-known semiconductor market research company, said: "We believe that no amount of money will allow the EU to have technological sovereignty . We estimated a few years ago that it would cost about $500 billion in ten years for mainland China to become the fourth semiconductor manufacturing region (on par with the United States, South Korea and Taiwan). Now the price is higher." It is foreseeable that if the EU wants to catch up with its competitors and become a semiconductor manufacturing region of considerable scale, the cost will be far higher than that of mainland China.

Another issue is wage costs in Europe , where wages are relatively higher than in Asian companies that currently dominate the global semiconductor supply chain. Despite Infineon's new, sparsely staffed factory in Austria, the labor-intensive back-end processes for its semiconductors will still be carried out at Infineon's finishing plant in Malaysia. " The imbalance between extremely high upfront costs and relatively meager economic returns is at the heart of the problem ," concludes Bob Hancké, associate professor of political economy at the London School of Economics.

summary

Over the past two years, the United States, China, and the European Union have made extensive use of industrial policy tools (such as government subsidies, corporate incentives, R&D funding, etc.) to promote local semiconductor manufacturing. In response, semiconductor companies have enthusiastically built a large number of new chip manufacturing plants, most of which will begin operations in 2024. These huge investments face significant risks from geopolitics, demand fluctuations, and extreme weather events. However, given the importance of chips in Bitcoin mining, artificial intelligence, quantum computing, electric vehicles, and other cutting-edge technologies, global long-term semiconductor demand will remain strong. Looking ahead, the United States, China, and the European Union should make further investments in the chip industry.

References

1. Justin Feng, How are Washington and Beijing Utilizing Industrial Policy to Bolster Domestic Semiconductor Manufacturing? 2022.03.29.

2. Matthew Gooding: The €43bn European chips act may lack the finance – and focus – to succeed, 2022.02.09.

3. Laurie Clarke: Europe is still set on chip sovereignty despite the many challenges it presents, 2021.09.20.

4. John Xie, Can China Become Self-reliant in Semiconductors? 2020.12.11.

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This article is compiled and translated by "Xin Shiye". The content is for communication and learning purposes only. If you have any questions, please contact us at info@gsi24.com.