China’s Accelerated Expansion into Legacy Chip Production Raises Concerns and Debates among US and European Officials
China’s growing push into the production of older-generation semiconductors has sparked concerns and debates among US and European officials. While President Joe Biden implemented controls to restrict China’s access to advanced chips powering artificial intelligence models and military applications, Beijing has responded by investing billions in factories for legacy chips that have not been banned. These legacy chips are vital components used in various industries, including smartphones, electric vehicles, and military hardware.
The increase in China’s production of legacy chips has raised fresh fears about the country’s potential influence and prompted discussions about reining in its expansion. US officials are determined to prevent chips from becoming a point of leverage for China. Commerce Secretary Gina Raimondo recently acknowledged the issue, stating that the amount of money China is pouring into subsidizing excess capacity of mature and legacy chips is a concern that needs to be addressed.
There is currently no timeline for action, and information is still being gathered. However, all options are being considered by senior officials in the Biden administration. Both US and European officials are worried about China’s drive to dominate the market for legacy chips due to economic and security reasons. They fear that Chinese companies could flood global markets with these chips, potentially driving foreign competitors out of business, similar to what has happened in the solar industry.
There is also concern that Western companies may become dependent on China for these critical tech components, which could pose national security risks, particularly if the chips are used in defense equipment. Researchers Robert Daly and Matthew Turpin from Stanford University’s Hoover Institution think tank argue that the US and its partners should be vigilant in mitigating any nonmarket behavior by China’s emerging semiconductor firms, as it could lead to new dependencies on China-based supply chains.
The significance of legacy chips was highlighted during the Covid pandemic when supply shocks affected companies like Apple and car manufacturers, causing them billions of dollars in lost sales. Simple components such as power management circuits are essential for products like smartphones, electric vehicles, and military gear. To reduce reliance on Asia, both the US and Europe are focusing on building up their domestic chip production. Public funds have been allocated to support local factories, such as the $52 billion CHIPS and Science Act introduced by the Biden administration.
However, domestic chip producers may hesitate to invest in facilities that would have to compete with heavily subsidized Chinese plants. To gauge Western companies’ willingness to invest in such projects, the Biden administration and its allies are assessing the situation before deciding on any course of action.
Although US regulations introduced last October slowed down China’s development of advanced chipmaking capabilities, they did not restrict the use of older techniques. This has led Chinese firms to construct new plants at a faster rate than anywhere else in the world. According to the trade group SEMI, China is forecasted to build 26 fabs by 2026, using 200-millimeter and 300-mm wafers, compared to 16 fabs for the Americas.
Chinese companies’ heavy investments have allowed them to continue supplying the West despite rising tensions. Semiconductor Manufacturing International Corp., China’s chipmaking champion, even received about 20% of last year’s sales from US-based clients, including Qualcomm Inc., despite being blacklisted by the US government.
Peter Wennink, CEO of Dutch chipmaking equipment supplier ASML Holding NV, highlighted the importance of mid-critical and mature semiconductors, emphasizing that China is leading the way in this field.
While US and European officials are concerned about China’s expansion into legacy chip production, discussions and evaluations are ongoing to determine the best course of action. The goal is to ensure that chips do not become a point of leverage for China and to reduce dependencies on Chinese supply chains. By addressing these concerns and finding effective strategies, US and European officials aim to protect their technological interests and maintain strategic autonomy.
