Development of Semiconductor Industry Taking Divergent Paths

President Joe Biden recently signed the CHIPS and Science Act (the Chip Act for short) into law in an effort to actively contain the Chinese semiconductor industry and promote the independent manufacturing of advanced semiconductors in the U.S. The CEOs of big American companies such as Micron, Intel, Lockheed Martin, Hewlett-Packard and AMD were present for the signing. Biden stressed that the law will help the U.S. “win the economic competition of the 21st century.”

One of the main reasons for House Speaker Nancy Pelosi’s recent trip to Asia was to ensure that the Chip 4 alliance, initiated by the U.S., was compatible with the Chip Act., as this will speed up the process of moving the U.S. semiconductor industry away from the influence of China.

The Chip Act provides about $52 billion in assistance for the semiconductor industry, as well as $24 billion in related tax credits and $200 billion in scientific research funding. However, if companies wish to benefit from this assistance, they must refrain from establishing factories and increasing investment in China for 10 years.

The so-called Chip 4 is an alliance led by the U.S. with Taiwan, Japan and South Korea. To date, Taiwan and Japan have already agreed to join, while South Korea has yet to commit since the industry cannot promise to give up the Chinese market. The U.S. set a deadline of Aug. 31 for South Korea to join. South Korean President Yoon Suk-yeol recently declined to meet with Pelosi to avoid discussing the chip issue, using a vacation as an excuse..

Former President Donald Trump imposed sanctions on the Chinese industries related to semiconductor manufacturing in 2019 in an effort to suppress the development of China’s semiconductor manufacturing,. Because U.S. sanctions on China are focused on advanced manufacturing processes, equipment and software manufacturers in the Netherlands and Japan cannot sell technology or equipment related to chip manufacturing to China. As a result, China cannot produce chips through advanced manufacturing and has shifted to mature manufacturing processes, investing heavily in these systems and making advancements that have drawn attention.

The advanced manufacturing process for chips is the technology process that reduces the size of integrated circuits. Due to rapid technological advancement, the definition of advanced manufacturing processes continues to change. Currently, those in the industry generally regard advanced processes to be less than 10 nanometers and mature processes to be greater than 10 nanometers.

New findings from the U.S. semiconductor industry association SEMI show that by the end of 2024, China will have 31 large semiconductor fabrication plants, all of which use mature manufacturing processes. Also by the end of 2024, Taiwan is scheduled to have 19 fabrication plants in operation, while the U.S. will only have 12.

Although advanced manufacturing processes require a higher level of technology and indicate the emerging strength of top industry players such as TSMC and Samsung, chips produced using mature manufacturing processes, such as those for automobiles, are used more broadly.

High-end chips manufactured through advanced manufacturing processes only account for 2% of the market, whereas there are greater commercial opportunities for mature manufacturing process chips. Therefore, large-scale investment has caused amazing growth in the number of Chinese semiconductor manufacturers who specialize in mature processes. According to a survey by SEMI, of the 20 fastest growing semiconductor companies in the world, 19 are in China; last year, there were only eight.

The China Semiconductor Industry Association says that China’s semiconductor industry sales grew by 18% in 2021, amounting to a total of $1 trillion yuan ($148 billion) — the largest sales record in history. The growth of China’s semiconductor market is not entirely due to domestic demand. According to SEMI, orders from overseas for China’s semiconductor manufacturers grew 58% last year.

Clearly, the global semiconductor industry has split. High-end chips and low-end chips each have different patterns of development. After China became “stuck” in advanced manufacturing processes, it quickly switched development strategies, throwing itself into mature manufacturing processes and developing the manufacturing advantages offered by the industrial clusters it has in this field. It has created a niche for itself, and on this foundation, has continued to diligently work on advanced manufacturing. Recently news that the Chinese company SMIC has successfully created a 7-nanometer chip has created a stir. Taiwan must remain vigilant and reflect on the strategic decisions the Chinese semiconductor manufacturing industry has made to break out of its constraints and achieve results.