[The Epoch Times, July 14, 2021](Reported by The Epoch Times reporter Emel Akan/Compiled by Takasugi) During the outbreak, the global semiconductor shortage has intensified the battle for technological dominance between the world‘s two largest economies. Supply chain shocks and growing tensions with China are forcing the U.S. government to join the subsidy war to protect the U.S. leadership in semiconductors and future technologies.
The microchip, which is smaller in size than a postage stamp, is the core of modern electronic technology. They are indispensable for many products, from smartphones and computers to automobiles and industrial equipment. They are also essential for artificial intelligence (AI), quantum computing, and advanced wireless networks such as 5G.
The United States remains a global leader in semiconductor design and research and development. American companies control nearly half of the global microchip sales market. However, over the years, most of their manufacturing has moved to Asia.
Today, approximately 80% of semiconductor manufacturing, assembly and testing operations are concentrated in Asia. Among them, Taiwan is in a leading position in the high-end chip market.
In contrast, China is at the low end of the semiconductor value chain. China only accounts for 5% of the market share in global sales, and its companies mainly produce low-end chips. Therefore, China is highly dependent on technology from other countries. In 2020 alone, China spent more than US$300 billion on semiconductor imports, becoming the world‘s largest chip importer.
However, the Chinese Communist Party is not satisfied with this situation and is doubling down on bets, investing billions of dollars in subsidies to catch up.
Beijing is investing more than US$160 billion to build new chip production plants, or expand production capacity in the next few years, and strive to achieve global leadership in this field. As part of the “Made in China 2025” industrial strategy, the Chinese government has set an ambitious goal that by 2030, 80% of China’s chip demand will be produced domestically.
But Stephen Ezell, vice chairman of the Information Technology and Innovation Foundation, commented that Chinese companies still face daunting challenges.
In an interview with NTD Television, Yi Zeer said: “It is clear that at present, in terms of semiconductor technology, companies in the United States and other foreign countries, such as South Korea and Taiwan, are one to two generations ahead of China’s.”
“I think it will take at least 15 years for China to catch up to where we are today.”
Seeing this gap, the Chinese Communist government has been actively seeking to acquire Western companies. In addition, it is also trying other shortcuts, such as recruiting talents from abroad and stealing trade secrets, which have been going on for many years.
It also targeted Taiwan, a democratic island about 75 miles (120.7 kilometers) from the coast of China. Taiwan is the base camp of Taiwan Semiconductor Manufacturing Company (TSMC). TSMC is the most important company in the industry because of its leading position in the field of advanced chips. Many American companies rely on TSMC and worry that Taiwan may not be able to protect their intellectual property rights.
The world‘s major chip manufacturers are racing to produce the smallest possible chips. At present, only TSMC and South Korea-based Samsung (Samsung) can produce 5nm cutting-edge standard chips, which are smaller than the virus.
Yi Zeer said that the best chip foundries in the United States are operated by Intel and can provide 10-nanometer products, while SMIC is the CCP’s leading chip manufacturer and can provide 14-nanometer products.
The CCP has claimed sovereignty over Taiwan and has been threatening to control Taiwan in recent months. Such a move will bring economic pain to many countries, because Taiwan produces 92% of the world‘s most sophisticated chips (less than 7 nanometers). The CCP military’s takeover will have a serious supply chain impact on many industries that rely heavily on Taiwan’s chips.
U.S. joins subsidy competition
According to a report from the White House, if the chips produced by the Taiwan factory are not available, it may cause electronic equipment manufacturers to lose nearly $500 billion in revenue. The report was released after US President Joe Biden ordered a 100-day review of the supply chain.
Yi Zeer said: “It will take at least three years or 350 billion U.S. dollars of investment to make up for the lost manufacturing capacity of the Taiwan factory.”
Washington recognizes this weakness and is now seeking to solve this problem. The U.S. Senate passed a bill against the CCP in June by a vote of 68 to 32. This legislation is called the “US Innovation and Competition Act” (US Innovation and Competition Act, USICA), will invest 52 billion US dollars to support domestic semiconductor research, design and manufacturing plans.
The House of Representatives is currently drafting a bill similar to the Democratic Party. Several Republicans opposed the bill’s downplaying of the CCP’s human rights and Taiwan issues. It is not clear when the bill will be submitted to the House of Representatives.
Industry experts said that government support is essential for US chip manufacturers to remain competitive. The industry is capital-intensive in nature, and many companies need to spend as much as 20% of their revenue on research and development.
US Secretary of Commerce Gina Raimondo (Gina Raimondo) stated on July 13 that insufficient semiconductor production is a “national security risk.”
She said that the proposed $52 billion capital increase plan will release private investment in this area. When she visited a Micron Technology factory in May, she said that this policy could bring about $150 billion in private investment and help build 7 to 10 new manufacturing plants in the United States.
Some chip manufacturers have announced ambitious expansion plans in the United States. In March of this year, Intel announced that it would invest 20 billion U.S. dollars to build two new manufacturing plants in Arizona; Samsung plans to invest 17 billion U.S. dollars to build a new plant in Austin to produce 5-nanometer chips; TSMC has begun building one in Arizona. A US$12 billion factory, and plans to build 5 more factories.
In the case of global chip shortages, TSMC is currently enjoying its pricing power and announced that it will raise prices by 20%. A report by Fitch Ratings shows that supply shortages have increased the bargaining position of many factories.
Fitch Ratings predicts that the beneficiaries of the US$52 billion plan will be large companies, including Intel, Samsung and TSMC. Other beneficiaries will be key equipment manufacturers such as KLA and ASML Holdings, which provide tools for advanced semiconductor manufacturing.
The epidemic has stimulated demand for consumer electronics, which in turn led to a shortage of chips this year. The automotive industry has been hit particularly hard in the chip supply crisis.
In addition to local giants such as Intel, Nvidia and Qualcomm, a new wave of semiconductor start-ups are joining the competition in order to benefit from the huge global demand. These companies have been quietly accumulating “large” venture capital in order to outperform existing semiconductor giants in designing next-generation chips.
According to data from private market data provider Pitchbook, in the first quarter of this year, venture capitalists, who traditionally avoided the semiconductor industry, invested a record $2.64 billion in this field. Although American companies have raised a lot of funds, as in previous years, 70% of the funds went to Chinese start-ups.
American start-up companies SambaNova Systems and Groq have joined the artificial intelligence chip race and attracted the largest venture capital this year.
Editor in charge: Ye Ziwei#
.