EU Chip Act subsidy policy raises concerns

The European Commission announced the long-planned "Chip Act" on the 8th, hoping to increase chip supply to four times the current level by 2030 by increasing investment and strengthening research and development to enhance industry autonomy.

CHIPS Act announced

The Chip Act proposed by the European Union on the 8th includes a package of measures aimed at helping the EU implement green and digital transformation while ensuring its leading position in chip manufacturing.

According to Deutsche Presse-Agentur, under the bill, the EU intends to use more than 45 billion euros (about 51 billion U.S. dollars) of public and private funds to double the EU's market share in the chip field to 20% by 2030. About 30 billion euros of the funds are already in the EU budget or member state plans, and the other 15 billion euros are new funds. These funds will be mainly used to build new factories and conduct related research and development. The key content of the "Chips Act" also includes relaxing restrictions on subsidies to certain member states.

European Commission President Ursula von der Leyen said in a speech that day that the emphasis on the chip industry will ensure that the EU will not miss this new industrial revolution. In the short term, this move will help predict and avoid disruptions in the chip supply chain and enhance resilience to future crises; in the long run, the Chip Act may achieve knowledge transfer "from laboratory to wafer fab" and position the EU as a "technological leader in the downstream innovative market."

Von der Leyen said that the EU has set a goal of occupying 20% ​​of the global market share. Considering the growing global demand, to achieve this level means increasing the supply to four times the current level. Von der Leyen said that chips are at the core of global technological competition and the cornerstone of the modern economy. Von der Leyen said that Europe's "Chips Act" will help connect various links such as research and development and testing, and help coordinate investment between the EU and its member states.

Thierry Breton, the EU commissioner for industrial development, urged the EU to set as ambitious a goal as possible to reach a scale comparable to that of the US. Breton said that without chips, it would be impossible to complete the digital and green transformation, nor to lead in technology. Ensuring supply security in the most advanced chip field has become an economic and geopolitical priority.

Subsidy policy raises concerns

The EU's proposed Chip Act still needs to be approved by EU member states and the European Parliament. Foreign media reports show that there may still be differences of opinion among member states.

Deutsche Presse-Agentur reported that since the construction of new large-scale chip factories often involves huge investments, state subsidies from EU member states play a very important role. Therefore, the content of the chip bill on relaxing state subsidy restrictions has become one of the most important parts, and it may also become the most controversial and difficult part of the bill.

The EU believes that subsidies can make it easier for EU governments to provide funds to chip manufacturers. As many countries and regions hope to speed up the internal supply of chips, some large chip manufacturers are choosing the most suitable locations for their new factories around the world, and state subsidies are also one of the considerations.

Intel plans to make a large-scale investment in Europe, but has not yet decided on the final location. Germany, France and Italy are all possible countries that it may consider. Intel CEO Pat Gelsinger recently told German media that the final decision will depend not only on the right location and employees, but also on what kind of subsidies can be obtained when building the factory.

However, some member states may oppose any form of expansion of state subsidies because they worry that excessive subsidies will hinder market competition and stifle innovation.

Henning Fopper, head of the European Policy Centre, said that by restricting competition and free trade, the EU is pursuing a dangerous industrial policy that will jeopardize the EU's fundamental principles.

Von der Leyen said that Europe needs advanced production plants, which means huge upfront investment, so it is also necessary to change the rules of state subsidies, and stressed that strict conditions will be attached. The European Commission promised that every project supported by the chip bill will be subject to strict anti-competitive review.

In addition, Reuters reported that some smaller EU economies are also uneasy about relaxing restrictions on state subsidies, fearing that a "subsidy race" will give larger economies such as Germany and France an advantage.

AFP reported that some critics have doubts about an emergency mechanism in the EU's Chip Act, which would restrict chip exports in emergency situations such as sudden supply shortages.

Strengthening the autonomy of the chip industry

Chips are increasingly used in areas such as automobiles and smart devices. Once there is a shortage of supply, the impact will be huge. After the epidemic disrupted 2020, the chip supply continued to be in short supply, and the automobile industry, an important industry in Europe, was hit hard: manufacturers such as Volkswagen had to frequently cut production; automobile production in some EU member states even fell by one-third; due to lack of inventory, some European consumers have to wait for months or even a year to pick up their cars. This highlights the EU's over-reliance on overseas chip suppliers.

In the 1990s, the EU occupied more than 40% of the global chip market. However, the EU currently accounts for about 10% of the global chip market, and chip supply mainly relies on imports. According to Deutsche Presse-Agentur, in order to strengthen its autonomy in the chip industry, the European Commission hopes to further integrate the chip research and development industry, build its own production capacity, and achieve supply diversification with partners such as Japan and the United States.

The Associated Press reported that Europe's current natural gas shortages and dependence on Russian energy are showing the risks of economic dependence, and Europe is accelerating its actions through its Chip Act to enhance economic independence in the key semiconductor sector.

There are also views that the scale of the EU's "CHIP Act" is not sufficient, and most of the funds are for existing projects, not new funds.

Agence France-Presse reported that Europe is under considerable pressure to take quick action to develop its chip industry. Asian countries and regions such as South Korea are also planning to invest a lot of subsidies to accelerate the development of their chip industries. In comparison, the EU's investment seems insufficient.