So, what are the strategic considerations behind the latest U.S. ban? How would a draconian ban affect global chip supply? What kind of situation will China’s chip industry face? What does it mean for TSMC to set up a factory in the United States? What considerations will arise and what issues will be addressed?
“Voice of Hope” reporter Liang Xin specially interviewed two Taiwanese experts on these issues: Ms. Liu Peizhen, director of the Industrial Economics Database of the Taiwan Economic Research Institute, and director of the Taiwan Asia-Pacific Industrial Analysis Professional Association, and the director of the Second Institute of the Taiwan Economic Research Institute Dr. Hua Jiazheng.
U.S.-China tech war intensifies sharply in 2022
“The New York Times” columnist Thomas Friedman said about the chip technology war between the United States and China: “The fight with China is not very high-profile, and it does not shoot a single shot, because it is mainly through the number 1 and Transistors that switch between 0 and 0. But it will have as much, if not greater, impact on the global balance of power as the outcome of a war between Russia and Ukraine.”
In July 2022, it was reported that SMIC, China’s largest chip manufacturer, had produced a 7-nanometer chip, which made the US government, which was already discussing countermeasures against chips, more vigilant and stepped up the pace of relevant decision-making. In August, the U.S. Congress passed the “Chips and Science Act.” In October, National Security Advisor Sullivan delivered a speech on “National Security Strategy”, proposing the concept of “small courtyards and high walls” to protect key technologies. Utilize U.S. and allied technology to undermine U.S. and allied security.”
At the same time, the tense geopolitical situation has intensified the need for technology to counter the CCP’s ambitions. Under the leadership of the United States, the CHIP4 alliance was established, including Taiwan, Japan, South Korea and the United States, and these four economies together accounted for 82% of the total output value of the global semiconductor industry.
Ms. Liu Peizhen analyzed that the CCP’s live-fire military drills after the US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan have aroused geopolitical tension between the US, China and Taiwan. nerve.
In order to prevent the rise of the red supply chain and occupy absolute dominance in the emerging technology field in the future, the United States not only uses the additional clauses in the “Chip and Science Act” to restrict Chinese investment, but also uses the establishment of CHIP4 to block Chinese semiconductors. supply chain development. After successively imposing Huawei’s ban on China and controlling the entry of EUV and other cutting-edge semiconductor equipment into China, a new wave of comprehensive semiconductor control measures will be launched against China in the third quarter of 2022:
The U.S. Department of Commerce and the Bureau of Industry and Security pointed out that in view of national security considerations, four export controls on emerging and basic technologies will be implemented, including the fourth type of semiconductor material diamond, gallium oxide (Ga2O3), 3 nanometer The following electronic design automation (EDA) software, pressure gain combustion technology for rocket and hypersonic systems, etc. The above-mentioned four export prohibition orders are all about the fourth type of semiconductor materials that have not yet matured, or the 3-nanometer process that has not yet been introduced in China.
The U.S. Department of Commerce further announced new export restrictions in October, restricting the export of advanced artificial intelligence, supercomputer chips, and semiconductor manufacturing equipment to China.
Apparently, the U.S. has further upgraded its control measures on Chinese semiconductors and has extended to the stage of advanced deployment of the next technology. So far, the U.S.-China technology war has reached a new peak since 2019, and the U.S. is encircling all aspects of China’s semiconductor attacks.
Ms. Liu Peizhen believes that under the comprehensive technology control of the United States on China, China will face the huge challenge of localization of the chip industry. In the short term, the development of the semiconductor industry in the mainland will face internal and external troubles. At the same time, the problem of some people in China’s unscrupulousness also casts a shadow over large and important semiconductor investment plans.
In view of the continuous expansion of the U.S. embargo on China’s semiconductor equipment and materials, it is clear that the importance of chip localization has further highlighted for the mainland, although Chinese officials will increase the localization of IC equipment, components, materials, etc. in fabs. The strength of support, but the breakthrough of the core key technology still needs an opportunity, and the same results cannot be received with the investment of funds. Moreover, international players have an absolute monopoly and extremely high technical barriers in these fields. The level of development in China is far from that of the international market. In the short term, it may still rely heavily on foreign imports.
In addition, China is also facing the problem of insufficient supply of semiconductor talents, and there is a lack of practical generals and index teams. The shortage of chip talents in China is increasingly emerging. In 2022, China’s semiconductor professional talent gap will exceed 250,000, and by 2025 it will expand to 300,000.
In view of the above-mentioned factors, it is nowhere in sight for the mainland to achieve the 70% target previously set by the government by 2025.
The de-Taiwanization issue is not conducive to the stability of the international supply chain
Ms. Liu Peizhen analyzed that the effect of the United States’ frequent increase in the control of medium-term frequency may spill over to the global semiconductor supply chain; Voices of de-Taiwanization emerged.
Given the high proportion of Taiwan’s advanced process supply in the world, and the fact that other supply chains also occupy a place, once Taiwan’s shipments are short, it will undoubtedly cause serious damage to global technology and the economy. Therefore, the issue of de-Taiwanization of the supply chain is only It will put the global semiconductor operation in a more disturbed state, which is not beneficial to the stability of the international supply chain.
Then TSMC will expand its investment and build factories in the United States. Now the market will be more worried about whether de-Taiwanization will be triggered in the future, or Taiwan’s competitive advantage in the semiconductor field will be reduced. However, at the technical level, the United States and Taiwan still maintain a relationship of N minus 1. At the same time, we can also see that TSMC is still actively planning to produce some 2nm components in Taiwan in the future, and is looking for a 1nm production base. . So it can be seen that TSMC will still be the center of future production of the entire advanced manufacturing process or will be placed in Taiwan. After all, Taiwan still has quite a lot of overall advantages in the future, and engineers can be on call 24 hours a day, which will allow TSMC to advance in advanced manufacturing processes, whether it is related to the yield rate or the production capacity of Jinyuan OEM, its economic scale can maximize the benefit.
In terms of technology, it is in this part that we will still stay in Taiwan. Of course, in terms of technical protection, I believe that TSMC has done a very careful job in protecting the confidentiality of this aspect in the past. As for the talent part, of course, with TSMC going overseas to invest and set up factories in the future, it will also take away some of the outstanding talents of Taiwan Semiconductor.
But in the opposite direction, TSMC can make an active attack against the trend to recruit some excellent local talents related to semiconductors in various countries. For example, in the United States, in terms of chip design, or the excellent semiconductor talents who were mainly engaged in IDM-related business in the past, in contrast, they can form a relatively complementary advantage with TSMC. In this way, we can also attract excellent local semiconductor talents to have a relatively good interaction with Taiwanese talents and create a relationship of mutual matching.
Ms. Liu Peizhen said that the technology war between the US and China has not stopped at present, and the US may continue to upgrade some of China’s semiconductor-related controls, so the US government will also require the US chip design industry or IDM factories to carry out in the supply chain. Actively cooperate with the policy of de-sinicization.
So now we can see that Qualcomm has begun to cut orders from SMIC, so in the future there will only be reservations. Qualcomm said that the parts given to Chinese customers will be manufactured by SMIC. Then the foundry orders in other parts may be transferred to other manufacturers. Therefore, this part will indeed suffer another serious setback for SMIC and even the overall semiconductor experience in China in the future.
In other words, in addition to some policy issues that are stuck in the US government’s neck, at this stage, some companies related to US companies will continue to cut orders against China’s semiconductor industry. This will also reflect that China will face the threat of technology warfare in the future in the semiconductor industry. Then in the future, in addition to the blockage of technology flow and people flow, we will also face a situation of shrinking orders.
Dr. Hua Jiazheng, director of the Second Institute of the Taiwan Economic Research Institute, believes that the speed with which the current control of the United States is blocking China also increases its costs. For example, it can still produce 5nm and 3nm in the future, but the control is to delay its time and increase its cost. Perhaps China’s final product will cost 50% or 70% more than TSMC’s, and it will lose its competitiveness. The current situation is that people don’t think it can’t be done in the end, but to increase its development cost and make it lose its competitive advantage. The most important role of regulation is here.
You can see that 3nm can be produced in the United States, but its cost is much higher than that of TSMC in Taiwan. In the end, we believe that China can still invest a lot of resources to make it, and the yield rate is also a factor that determines the cost, so its cost will be less competitive internationally. The result is that it can only supply its domestic needs, and the international market will not pay for it, so the supply chain will naturally be separated.
The Influence and Effect of U.S. and Allies Cooperating to Control China
Liu Peizhen said that at present, in terms of semiconductor strategy, the United States mainly uses its allies to counter the rise of China’s semiconductor power in addition to American manufacturing. The goal of this strategy is also fairly obvious.
Well, although the semiconductor equipment manufacturers in the Netherlands and Japan have successively expressed their desire to give consideration to national and commercial interests, ASML in the Netherlands has been lobbied by the US government and has announced that it will join the US in fighting against China in semiconductor-related issues. some controls. Therefore, the next target of pressure from the United States will be transferred to the part in Japan.
Ms. Liu Peizhen believes that in the future, Japan may cooperate with the United States to jointly control the shipment of semiconductor equipment such as China. The probability of cooperation is relatively high, because the United States and Japan actually have a common hope to mass produce 2 in 2030. Nano’s production plan, coupled with the current combination of the United States and Japan in terms of military diplomacy and political power. Therefore, it seems that the current trade volume between Japan and China in semiconductors is not as close as that between China and Taiwan or China and South Korea. At the same time, we can see that Japanese companies are involved in China’s semiconductor-related business. The investment is not as big as that from South Korea. Therefore, in the future, the chances of Japan cooperating with the United States in semiconductor control are actually relatively high.
Director Hua Jiazheng said that the United States requires its allies to join in the control of China. Simply put, this influence actually slows down the improvement and development of China’s semiconductor equipment manufacturing process, which affects the development speed of its semiconductor equipment, because the application of semiconductors The range is wide. But when it comes to the method of control, what kind of control is used, we have not seen the specific content. But no matter what, we should be able to expect the United States to export to China in this regard in the future, and it must be more and more tightened.
For China, on the one hand, it will delay the development process; on the other hand, it will accelerate the investment of its own self-control ability. This is partly because it also knows that if the United States unites with other countries to participate in this export control, if other countries also join, then it will be forced to develop its own field faster, and it cannot always focus on technology or equipment. To rely on other countries. This will happen. In the long run, it will become what we mentioned, and the phenomenon of supply chain decoupling will become more and more clear.
Ms. Liu Peizhen said that President Biden, the Secretary of the U.S. Department of Commerce, and even the CEO of a heavyweight U.S. customer attended the move ceremony of TSMC’s first machine in Arizona on December 6. This means that the U.S. government attaches great importance to TSMC’s establishment of a local factory in the United States, and it also means that the cooperation between Taiwan and the United States will also enter a new milestone in the future. Then TSMC’s investment will increase from the previously announced nine-year US$12 billion to US$40 billion. This will be the largest investment in semiconductor manufacturing in the United States.
At the same time, for TSMC, it will start to introduce a 4nm process in early 2024, and its monthly production capacity will be more than the originally planned 20,000 pieces. At the same time, in 2026, it will also start to enter the mass production of the 3nm process.
According to Ms. Liu Peizhen’s analysis, I think these actions will actually be a mixed situation for TSMC in the future. The most important and favorable aspect is that TSMC has expanded its local investment scale in the United States. Of course, it can satisfy local customers’ local supply to TSMC, and the order volume in this area will continue to increase. Then this part can also solve doubts, including doubts from the client about the part of supply chain risk resilience. Of course, at this stage, TSMC is overwhelmingly overwhelming Intel and Samsung in terms of process technology, so compared to Intel and Samsung’s investment in the United States, it has not received much attention from the United States at present. On the contrary, TSMC’s investment in the United States this time has relatively become a link that President Biden attaches great importance to.
But on the one hand that is relatively unfavorable, what must be paid attention to in the future is that in the future, because TSMC’s investment in the United States will be relatively large in the future, the cost pressure of depreciation will gradually emerge in the future. At that time, I am afraid that there will be a little compression pressure on certain levels such as profitability. At the same time, setting up a factory in the United States will of course face some local problems including infrastructure, taxation, environmental protection, and related manpower shortages. I think this all depends on the official US government being able to fully assist TSMC in the future to solve these related problems faced by the factory. At the same time, it will also face the relative difficulties brought about by the current migration of the supply chain.
So it can be seen in the short term in the future. In fact, TSMC will still encounter some related problems in setting up factories in the United States, so this is what TSMC deserves attention in the future.
Ms. Liu Peizhen said that at present we see that TSMC and Intel (Intel) still maintain a relationship of both competition and cooperation. So Intel continues to visit Taiwan in order to consolidate its Jinyuan foundry orders, and also hopes to have a relatively stable supply of advanced manufacturing orders in the future. To a certain extent, this means that in the short term, Intel is still lagging behind in the advancement of advanced manufacturing processes, so it will still rely heavily on TSMC in this part.
But at the same time, on the other hand, TSMC is currently investing heavily in the United States, and even has a move to increase its investment. Of course, this part will still endanger the future. Then Intel is cutting into the foundry field, and it is bound to deepen the competition between Intel and TSMC in the North American market in the future, and it will continue to heat up. Therefore, in the future, whether in terms of technology or business, or even geopolitics, the two will become the focus of market attention.