In October last year, construction plans for a large semiconductor factory owned by a large state-owned company in central China were thrown into disarray. The Biden administration has escalated the technology trade war, cutting off China’s access to the Western tools and skilled workers it needs to manufacture the most advanced semiconductors.
Some employees with U.S. citizenship left the company. Three U.S. equipment suppliers stopped shipments and service almost immediately, and Europe and Japan are expected to do the same soon.
The facility belongs to Yangtze Memory Technology Co. (YMTC), the memory chip company hailed by President Xi Jinping as a banner bearer of China’s march toward self-reliance. Now the chipmaker and its peers are scrambling to overhaul supply chains and rewrite business plans.
Nearly seven months later, U.S. trade barriers have accelerated China’s push for a more independent chip industry. Western technology and money have exited, but state money is pouring in to foster home-grown alternatives to less advanced but still profitable semiconductors. China hasn’t given up on making high-end chips: Manufacturers are trying to use older parts from abroad that aren’t blocked by U.S. sanctions, as well as less advanced equipment at home.
The tough U.S. restrictions stem from warnings of what officials in Washington see as the threat posed by China using its technology companies to upgrade its military arsenal. National security adviser Jake Sullivan recently described the sentiment as part of a “new consensus” in Washington that decades of economic integration with China have not been entirely successful, adding that the new controls are “Carefully tailored” to deal with China’s most cut-edge semiconductors.
Under the October rules, U.S. companies and citizens can no longer help any Chinese company build chip technology that meets a certain complexity threshold. Those controls go beyond the Trump administration’s trade restrictions targeting specific companies, such as Chinese telecom giant Huawei.
During earlier trade tensions, Beijing mobilized large sums of money to foster alternatives to local chipmakers. But the availability and higher quality of foreign components has discouraged many Chinese companies from making changes.
Those reservations about using material from China appear to be easing. Chinese tech companies upstream and downstream in the supply chain are evaluating how to replace Western chips and related components, even those not affected by U.S. controls. State-owned electric vehicle maker GAC Group, explain In February, it aimed to eventually buy about 1,000 chips in its cars from Chinese suppliers. Currently, 90% of its chips are purchased from overseas.
“China’s goal in many areas is to de-Americanize supply chains,” said Paul Triolo, senior vice president for China at strategy firm Albright Stonebridge Group.
Dozens of Chinese chip companies are finalizing plans to raise capital through public offerings this year.They include Hua Hong Semiconductor, China’s second-largest chipmaker, and a chip tool maker Support Huawei.
The technology dispute between the world’s two largest economies shows no sign of abating. New rules, drafted but not yet released by the Biden administration, would limit U.S. venture capital investment in advanced Chinese chip companies. Foreign investment in China’s semiconductor industry has plummeted to $600 million this year, the lowest since 2020, according to PitchBook, which tracks private financing. Officials are considering tighter controls on technologies such as quantum computing or chip-making equipment.
U.S. curbs led Beijing to activate a state fund that had been dormant due to waste and graft: The government’s “big fund” poured some $1.9 billion into Yangtze Memory Storage in February to bolster its response to U.S. curbs . The fund has also recently invested in chip equipment and material suppliers, state media reported.
The new subsidies are aimed at removing Western components from Chinese supply chains.The southern city of Guangzhou has designated more than $21 billion This year for semiconductors and other technology projects, including those trying to displace Western chip equipment suppliers. Purchase orders for Chinese-made equipment have surged in recent months, according to company reports and press statements.
Xi Jinping has been outspoken about what he believes Western countries are trying to impose “all-around containment” on China. At a key legislative meeting in March, China’s president interrupted a representative of a Chinese crane maker.Extensive exchange Report Official media: “Are the chips in your cranes sourced locally?” Mr. Xi asked. Yes, said the representative.
So far, less than 1% of all semiconductors in China are at the high end of the industry, which is controlled by the US, according to estimates by market research firm Yole Group. The rest, according to Jean-Christophe Eloy, chief executive of Yole Group, are less advanced or “mature” semiconductors, found in everyday consumer electronics and cars, and are “absolutely irrelevant.” most of the business”. The chips, largely unaffected by the Biden administration’s controls in October, are now enjoying a surge in investment, he added.
China’s two largest chipmakers, state-backed SMIC and Hua Hong Semiconductor, each announced multibillion-dollar investments this year to expand production of mature chips, according to public announcements.
However, Handel Jones, chief executive of consultancy International Business Strategies, said that in the long run, China’s lack of access to the world-class tools it needs to make chips could hamper its efforts in areas such as artificial intelligence and aerospace. Advances in many advanced industries.
Last August, YMTC aimed to triple its share of global chip production to 13% by 2027, challenging chip incumbents such as Micron Technology of the United States, according to Yole Group estimates. Faced with difficulties building a second factory, the Chinese memory chipmaker’s output will drop, slipping to just 3% market share by 2027.
International companies that had previously invested in China’s semiconductor industry are shifting their investments elsewhere. Samsung and TSMC, South Korea and Taiwan’s leading chipmakers, are investing billions of dollars in new production in the United States. The Taiwanese chipmaker is applying for U.S. subsidies for its plant in Arizona, forcing it to limit investment in China for a decade.
Meanwhile, experts say waning foreign influence in China’s chip industry is creating opportunities for domestic players. Last month, a semiconductor equipment maker listed in Shanghai. Shares of the company Crystal Growth & Energy Equipment have risen 30% since it went public.
“It is because of the sanctions that there is room in the market now,” said Xiang Ligang, director of a technology consortium in Beijing who has advised the Chinese government on technology issues. “Now we have the opportunity to grow.”
A recent surge in state funding could increase China’s share of global production of low-end chips. According to a report co-authored by Rhodium Consulting and Berlin-based think tank Stiftung Neue Verantwortung, within the next decade, China could account for roughly half of the world’s mature Class I semiconductor production capacity.
This could create new supply chain vulnerabilities for foreign companies, said Jan-Peter Kleinhans, a co-author of the report.
“It’s a stupid idea to put all your eggs in one basket,” he explained. “It’s a bottleneck that can be exploited.”
anna swanson Contribution report.
