Chinese Commerce Minister Wang Wentao has expressed concern over the US’s recent probe into American companies’ purchase of “legacy chips” made by China. Wentao also criticized the US for restricting third-country lithography exports to China and imposing sanctions on Chinese firms. The US Commerce Department announced in December that its Bureau of Industry and Security would launch a survey in January 2024 to identify US firms’ sourcing of current-generation and legacy chips.
The US has seen signs of Chinese practices that could expand PRC-based firms’ legacy chip production and make it harder for US suppliers to compete. Wang emphasized that addressing non-market actions by foreign governments that threaten the US legacy chip supply chain is a matter of national security. A recent study by the BIS Office of Technology Valuation revealed that the Chinese government has provided chipmakers with around $150 billion in subsidies in the past decade.
Beijing is concerned about the Biden administration’s survey of Chinese chips’ use in critical US industries, arguing that the US government’s’small yard, high fence’ approach is not about limiting China’s economic development but rather to safeguard national security and values without limiting trade and investment.
The House Select Committee on the Strategic Competition Between the US and the Chinese Communist Party has raised concerns that China may flood US and world markets with subsidized legacy chips to gain global dominance. The committee suggested implementing “component tariffs” on China’s legacy chips within finished products. If the US becomes dependent on China for foundational chips, its military and economic well-being may run the risk of being overly reliant on the Chinese Communist Party.
As of March 2023, US chip designers depend almost entirely on foreign foundries to manufacture 20-45nm chips, which are key for making microcontrollers for machines and autos. About 60% of worldwide manufacturing capacity for 20-45nm chips is located in China and Taiwan, with 27% in China alone. China currently controls about 30% of manufacturing capacity globally for 50-180nm chips, which is expected to grow to 35% within the next five years and 46% within a decade.
TrendForce predicts that by 2027, only 30% of global production capacity will be used for advanced chips below 16nm, with 70% for those above 28nm. China’s share in mature process capacity is expected to increase from 29% in 2023 to 33%, with Taiwan’s share decreasing.
A Henan-based IT columnist suggests that the US may have miscalculated earlier by placing its regulatory emphasis on slowing exports of cutting-edge US technology while leaving the booming legacy chips trade to the market. The US thought it could slow the Chinese economy by banning the export of high-end chips and chip-making equipment to China, but this move made China focus on the mature chip-making process. Without US curbs, China would not have achieved strong growth in the mature process. The US Commerce Department announced its chip export controls against China on October 7, 2022.
The Netherlands has banned the shipment of some of ASML’s immersion deep-ultraviolet (DUV) lithography machines to China, affecting the purchase of NXT:2050i and NXT:2100i. However, China can still purchase the NXT:1980 series, which can produce 38nm chips in single exposure and up to 7nm chips in multiple exposure.
Barclays analysts predict that China’s chipmaking capacity will more than double in five to seven years, with most of this additional production capacity expected to be added in the next three years. Global chip-making capacity is expected to grow to 30 million wafers per month in 2024, up 6.4% from last year, with 18 of the 42 new foundries being located in mainland China.
