The largest chip manufacturer in China, SMIC (0981.HK), is increasing production of ten-year semiconductor technology that is essential to the supply chains of many industries, raising concerns in the US and driving some lawmakers to attempt to stop them.
Dan Hutcheson, the chip economist at TechInsights, warned that if China unveils a trillion yuan ($144 billion) aid package for its semiconductor industry, as was reported on Tuesday, the United States and its allies may impose even more restrictions.
The United States has been pulling the noose on China’s high-tech ambitions ever since the Trump administration took office. Through a set of regulations this year, it cut off the supply air to China’s sophisticated chip manufacturing as well as the U.S. market and innovations from the largest telecoms company in the world, Huawei Technologies.
But why be concerned with outdated chip technology?
China has a history of controlling critical technologies by inundating the market with less expensive items and eliminating global competition, claim China observers. China owned 9% of the world semiconductor industry in 2020.
Matt Pottinger, a senior deputy national security advisor for the United States even during the Trump administration who has been researching chip policy at the Hoover Institution, said they did it with solar panels plus 5G telecom equipment and could do it with older tech chips.
He elaborated it would offer Beijing coercive weight over every nation and business, whether military or civilian, that depends on 28-nanometer chips, which make up a sizable portion of the semiconductor industry.
The term “2 nanometres” describes a semiconductor technology that has been in use since 2011. Hutcheson said it is still frequently employed in the internet of things’ explosives, weaponry, and automobile industries.
Semiconductor Manufacturing International Corp (0981.HK) as well as other chipmakers in China may exploit government subsidies to sell chips at a low price, according to Hutcheson, who has tracked chip production capacity for 40 years. Additionally, a potential fresh round of financial assistance from Beijing would boost chip output even more.
He suggested that the Chinese may just saturate the market with this technology. Because they can’t generate enough revenue to compete at those levels, typical businesses cannot.
These worries have prompted some lawmakers to utilise budgetary measures for the military to impede SMIC.
The annual National Defense Authorization Act 2023, which includes a section forbidding the U.S. government from utilising chips from SMIC and two more Chinese memory chip makers, is anticipated to be passed by U.S. Senators this week, despite the fact that the proposal is weaker than originally proposed. What effect the ban, which takes effect five years after it is passed into law, will have on SMIC is unclear.
SMIC, which was established in 2000 with funding from Beijing, has long battled to join the ranks of the top chip producers worldwide.
However, it is a behemoth in more ancient technology, including chips that control how electricity flows through devices. Due to the global chip scarcity, its sales in the third quarter of this year were close to $2 billion, or about double that of last year’s.
To develop sophisticated chips, which are prohibited by U.S. export laws, SMIC has announced the construction of four additional factories, or fabs, since 2020. Samuel Wang, a chip researcher at Gartner, said when they go online, the company’s output will more than triple. He claimed that the number of new semiconductor fabs in China is rapidly increasing.
According to Wang, all of this will begin to have an effect in early 2024 and be fully realised by 2027. Wang also added that the rise in chip supply will put downward pressure on chip costs.
In 2021, the industry was reminded of the value of earlier chip technology when a lack of certain chips halted the production of millions of automobiles and consumer devices.