The United States's ruthless move to control new core automotive technologies

With the development of the four major trends in automobiles, represented by electrification and intelligence, automotive chips, power batteries, etc. have begun to become a new focus of competition in the core technologies of the global automotive industry.

The latest data released by the Semiconductor Industry Association (SIA) of the United States shows that 1.15 trillion chips were sold worldwide in 2021, with sales reaching a record high of US$555.9 billion, a year-on-year increase of 26%. Among them, sales of automotive ICs increased by 34.3% year-on-year to US$26.4 billion.

As the birthplace of semiconductor chips and integrated circuits, the United States' achievements in the chip field are mainly concentrated in the field of chip research and development and design, while the proportion of local manufacturing in the field of chip production has dropped significantly. Due to the high labor costs in the United States and the poor quality of high-end chip manufacturing, high-end chips of companies such as Qualcomm, Apple, and Intel are all handed over to Samsung in South Korea and TSMC in Taiwan, China to complete.

According to research data from Research and Markets, the global lithium-ion battery market was valued at approximately US$40.5 billion in 2020, of which power lithium batteries accounted for the majority of production share, reaching 70.8%.

In the field of power batteries, the United States has advantages in research and development, resources, trade and financing, but its domestic battery supply chain is relatively weak. The U.S. Department of Energy's battery supply chain assessment found that currently, the United States has less than 10% of the global market share in terms of manufacturing capacity for all major battery components and battery manufacturing.

As the automotive industry shifts toward electrification, intelligence, and networking, the United States has fallen behind in the development and supply chain of new core technologies such as chips and power batteries. It is now using various means, including legislation, strategy, and corporate cooperation, to regain its leading position.

On March 28, Eastern Time, the U.S. Senate passed the America COMPETES Act of 2022 with 68 votes in favor and 28 votes against, aiming to provide more funding for U.S. scientific research and the semiconductor industry. Its main content includes large-scale investment aimed at promoting the U.S. semiconductor manufacturing industry.

This includes approximately $52 billion in grants and subsidies to the semiconductor industry, and $45 billion to strengthen the supply chain for high-tech products in an attempt to "better compete with China" globally.

Since China surpassed Japan to become the world's second largest economy in 2010, it has been regarded as a strong rival by the United States. At that time, China's GDP was 5.78 trillion US dollars, while the US GDP was 14.99 trillion US dollars, and China's was only 39.42% of that of the United States.

Peng Xiaoguang's article "Sino-US Relations Towards Qualitative Change" published in the 10th issue of "Global Finance" in 2010 pointed out that the reason for judging that Sino-US relations are "heading for qualitative change" is that, based on the next 10-15 years, China is the only country in the world whose total economic scale is likely to exceed that of the United States (although China will still be a developing country and its comprehensive national strength will be weaker than that of the United States by then), and China is also an independent political and military power; the second reason is that locking on the "number one challenger to hegemony" is the instinct of all hegemonic countries in human history, and the United States is no exception, and the target that the United States can only lock on is China, which is catching up with itself.

In 2021, my country's GDP totaled 114.3 trillion yuan, or about 17.72 trillion U.S. dollars, which is 77% of the U.S.'s 23.03 trillion U.S. dollars, and its growth rate far exceeds that of the U.S. Therefore, it is not surprising that the United States is taking various measures to curb China's development.

US President Biden stressed: "We must take advantage of the recent 'chip shortage' to increase investment in the semiconductor industry and win the semiconductor competition with China."

In addition to introducing the bill, the United States is also attempting to establish a chip alliance against China to curb the development of China's chip industry.

Chip Alliance to Exclude China

The chip industry has a very deep and broad industrial chain, and the United States occupies an important position in the upstream and midstream, but it cannot completely monopolize the chip industry chain.

Currently, the globalization of the chip industry is the most obvious. The entire industry chain is distributed all over the world, and each has a clear division of labor. The value of the industry chain is increasingly flowing downstream, with R&D expenses in the manufacturing link accounting for 25% of the entire chain, while value output accounts for 45% of the entire chain.

Source: BCG, SIA ▼

75% of the world's chip manufacturing capacity is concentrated in East Asia, and this proportion is increasing rapidly. The chip manufacturing industry in mainland China has made extremely rapid progress. Although the process is not advanced enough, the chip capacity share has reached 15% in 2021, of which the chip capacity of local manufacturers in mainland China accounts for only about 8%, and the other 7% of the capacity comes from branches established by foreign companies in mainland China. The capacity of chip factories in the United States accounts for only 12% of the world.

According to the Global Fab Forecast Report released by the Semiconductor Industry Association (SEMI) in June 2021, 29 new chip fabs will be built in the world in the next two years, including 19 in 2021 and 10 in 2022. Among them, 16 new chip fabs will be built in mainland China; 6 new chip fabs are planned in the Americas; 3 in Europe and the Middle East, and 2 each in Japan and South Korea.

In addition to the rapid growth in production capacity, the size of China's semiconductor market is also rising rapidly.

According to research by IC Insights, a well-known semiconductor market research organization, China has been steadily growing in size since it became the world's largest IC market in 2005. In 2021, China became the world's largest regional market with semiconductor sales of US$192.5 billion, accounting for 34.6%; the year-on-year growth rate was 27.1%, second only to the United States (27.4%) and Europe (27.3%).

In addition, according to a previous speech by Ye Tianchun, chairman of the Integrated Circuit Branch of the China Semiconductor Industry Association, among the top ten wafer manufacturing companies in mainland China from 2016 to 2020, the overall share of sales revenue of domestic companies decreased from 44% to 27.7%, and the remaining share was contributed by foreign and Taiwanese companies.

It can be seen that although China's technology in the semiconductor industry is not the most advanced, it has large production capacity, fast growth, and its product market size ranks first in the world. It also has very close relations with major semiconductor giants. Therefore, the United States must make full use of its industry influence while it still has it in its hands to slow down China's development.

According to a report by South Korean media Seoul Economy on March 28, the US government proposed to form the "Chip 4" with South Korea, Japan and Taiwan. The intention behind this is to use this organization to exclude mainland China from the global semiconductor supply chain.

The "Chip 4" alliance has invited the top chip companies in Asia, including Samsung and SK Hynix from South Korea, Toshiba, Renesas, and Tokyo Electron from Japan, and Applied Materials, Intel, Qualcomm, Micron, and Broadcom from the United States. From design, manufacturing to packaging and testing, the entire chip industry chain is covered, including chip design companies, raw material and consumables companies, foundry capacity, and packaging and testing companies. However, chip companies from mainland China were not invited at all, intending to exclude China from the global chip supply chain.

In the eyes of the United States, if South Korea, which has world-class level in the chip field, TSMC, the world's largest wafer foundry, and Japan, which has a strong presence in semiconductor materials, components, and equipment technology, can be united, a "semiconductor barrier" can be built to surround China.

For those well-known semiconductor companies, the US "Chip 4" proposal will become an extremely difficult choice - if they close their factories in China, their production capacity will inevitably be greatly reduced, and they will give up the market to their competitors in vain; if they do not close their factories in China and open new factories in the United States at the same time, there may be overcapacity and waste of investment.

Take South Korea for example. China is a very important market for South Korean semiconductor companies. Samsung established a joint venture as early as 1993. SK Hynix also established a memory chip factory in Wuxi in 2004. Its products occupy a significant share in the global market. Therefore, the South Korean government and companies may find it difficult to accept the US proposal. The Asia Daily said that the "Chip 4 Alliance" proposed by the United States will impose a heavy burden on the South Korean government and semiconductor companies.

According to Taiwan’s Economic Daily, a Taiwanese manufacturer privately revealed that the establishment of the “Chip 4” alliance is quite difficult. In addition, based on the “co-opetition” relationship, it is not easy to form a close alliance. It is expected that the main purpose of the United States should still be to curb the development of China’s semiconductor industry from the equipment and EDA tool end.