Thinking about China's semiconductor countermeasures: Negative list for foreign companies needs to be established

Thinking about China's semiconductor countermeasures: Negative list for foreign companies needs to be established

Source: ChipMoney Research

On March 2, the U.S. Department of Commerce added 28 Chinese entities to the "Entity List". These include server manufacturer Inspur Group and domestic CPU manufacturer Loongson Zhongke. On February 13, the Chinese Ministry of Commerce issued an announcement on the working mechanism of the unreliable entity list, deciding to include Lockheed Martin and Raytheon Missiles and Defense, which participated in arms sales to Taiwan, on the unreliable entity list. So a commonplace question arises: should China put Martin and Raytheon in the semiconductor industry on the "negative list", especially those foreign companies that have a negative impact on the development of China's semiconductor industry. This article will discuss and analyze the establishment of a "negative list" for foreign semiconductor companies.

Phenomenon

Unlike the US "blacklist", the Chinese blacklist is forced and targets companies that have a bad impact. During the rise of China's semiconductor industry, some foreign companies were forced or took the initiative to "de-Sinicize". Behind the US government's escalating suppression and sanctions on China's semiconductor industry, some US companies are important promoters. Their incitement has made the US government's means more meticulous, so as to achieve precise sniping of specific areas of China's semiconductors.

The first type is "instigators". In the field of advanced manufacturing, the Biden administration has announced that American technology companies that have received federal government funding are prohibited from building advanced technology factories in China within ten years. Some major American wafer manufacturing companies have even tried to expand this ban to prohibit American design companies from taping out wafers on the mainland. Obviously, the US government's trade protection in advanced processes can no longer satisfy the appetite of some companies. In the market competition for mature processes, they cannot compete with Chinese companies, so they whisper in the US government's ear. They talk about patriotism of "preventing the loss of talent and technology", but in fact they use judicial power to suppress competitors and seek their own interests.

The second type of "ungrateful person". In October 2022, the US government imposed targeted export controls on China's memory industry, stopping the technological evolution of China's memory industry at its current stage. Yangtze Memory's 3D NAND technology is limited to less than 128 layers, and Hefei Changxin's DRAM technology is limited to more than 18nm. The precise delineation of the export control process is highly targeted, and behind it is the planning of relevant US companies for their own interests. This American company enjoys huge commercial benefits in the Chinese market, but its behavior is like a "ungrateful person". Not only are there very few investments and factories in China, but they have also done everything they can to suppress China's memory industry. He is two-faced, a "ungrateful person", and still dreams of eating alone.

The third type is the "vanguard". In January this year, Dell announced plans to exclude all chips produced in China (including chips produced by foreign companies in China) from Dell products by 2024, and to move 50% of its production capacity out of mainland China by 2025. This is the first international terminal company with significant interests in China to take the initiative to de-Sinicize without clear political pressure. As an international terminal company with extensive influence, Dell took the lead in de-Sinicization and was willing to be the "vanguard" of the US government to wave the flag for de-Sinicization. Dell only wants to make profits from the Chinese market and does not want to bear the responsibilities it should bear. No country can tolerate Dell's actions.

The "active and proactive" behavior of the three types of companies has had a negative impact on the development of my country's semiconductor industry. This trend of only making money from China but not taking on the responsibilities that companies should have, and even eating China's food and smashing China's pots, must be curbed. If our country does not stop the development of such phenomena in a timely manner and counter such companies, it will cause other companies and even other industries to follow suit. At that time, the window for China's technological progress will be closed, which will have a huge impact on Chinese companies and will not be conducive to the development of the local industrial chain, and will further affect my country's economic development. Therefore, it is very necessary to establish a semiconductor entity list, which will have the following benefits.

necessity

Faced with a series of restrictions imposed by the United States on the development of China's semiconductor industry, the international semiconductor enterprise group is also divided into political and market groups. Political enterprises stand with the US government, exaggerate the Chinese semiconductor threat theory, and promote US sanctions on Chinese semiconductors, acting as accomplices. Market enterprises advocate the role of market orientation, mediate with the US government, and are partners for Chinese enterprises to continue to participate in the global semiconductor industry.

First, for politically affiliated companies, China's "blacklist" can serve as a warning to others. These companies are gradually losing their advantages in normal market competition with Chinese companies. So they choose to use political power to attack Chinese competitors to strengthen their own competitiveness. China has issued a "negative list" to punish typical politically affiliated companies, so that other companies with the same intentions will not dare to act rashly.

Second, for the market faction, China's introduction of a "blacklist" can help international companies promote cooperation with China. First of all, it should be made clear that China's "blacklist" is not aimed at international companies, but a measure that China has to take under pressure from the United States. China's introduction of a "negative list" is a clear attitude and a backing for international semiconductor-friendly companies. China's attitude is conducive to international companies persuading decision-makers to continue to conduct business in China.

Influence

China's blacklist mechanism was not established proactively, but is a self-protection behavior. Without this mechanism, the following major impacts will occur:

First, it has triggered foreign companies to follow suit in de-Sinicization. In recent years, the United States has stepped up sanctions and suppression on China, and the means have become more precise and meticulous. Carrots and sticks work together. In addition to achieving decoupling from China through policy means, forcing and restricting corporate cooperation, the United States has also actively attracted and wooed international companies to de-Sinicize through subsidy policies and other means. In the past year, more and more companies have left the Chinese market and moved to Southeast Asian countries such as Vietnam and Thailand. Large international companies have a strong influence and demonstration effect. Many foreign companies that were originally hesitant and hesitant have also begun to "boldly" try. It is reported that the biggest task of an international packaging company in 2023 is to transfer international orders from Chinese factories to Vietnamese factories. At the same time, China's huge market attraction has also made many international companies wait and see about decoupling from China. The most direct and effective way to prompt these waiting companies to make a choice is to seize an industrial chain and set up a typical example of de-Sinicization.

Second, it has a great impact on China's terminal ecology. China's economic prosperity in the past few decades has benefited from its population advantage and the development of its manufacturing industry. Under such a high-speed development, technological innovation and huge market demand have been spawned. At present, the entire electronic information industry is inseparable from the upstream supply chain. The problem of chips has a great impact on China's electronic information, especially during the period of chip shortage. If some foreign companies trip up the upstream supply chain of China's chips and "actively" hinder China's cooperation with the international supply chain, the supply chain of domestic terminal companies will suffer serious problems. For China, terminal companies are huge companies, and they even affect the increase or decrease of local GDP.

Third, decoupling Chinese industries will shut Chinese companies inside the country. Looking back, the rapid rise of China's manufacturing capabilities, in addition to occupying market advantages, is inseparable from joining the international supply chain and the international market. The significance of industrial division of labor lies in reducing production costs and improving production efficiency. There is no doubt that China is currently the world's most efficient and largest manufacturing plant, as well as the world's largest chip market. International companies taking the lead in de-sinicization can be said to be killing one thousand enemies and hurting eight hundred of their own. The first to be pushed into a dilemma are suppliers. If they do not follow the de-sinicization, they will lose orders. If they follow the de-sinicization, they will face high factory transfer costs and time costs.

For Chinese industries, if international giants choose to de-Sinicize and withdraw from China, small and medium-sized enterprises in the ecological chain will lose their survival support. This will have a huge impact on the industrial chain and supply chain system established by China in the past decade. The West is pressing for de-Sinicization step by step, with systematic and comprehensive methods, from de-Sinicization of terminal manufacturing, to de-Sinicization of parts and supply chains, and then to de-Sinicization of chips and chip production capacity. The semiconductor industry is a product of global division of labor and international cooperation. Its supply chain is international. Only in international exchanges can it accurately match market demand and the direction of technological progress. The misalignment and delay of any leg are destined to make the industry move with difficulty.