US Sanctions Strengthened Resilience... China's Semiconductor Rise

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] Despite various U.S. sanctions, China’s “semiconductor rise” remains unbroken. On the contrary, China is actively pursuing technology development and investment to achieve semiconductor self-sufficiency. Not only is it vigorously nurturing semiconductor technology startups, but cases of poaching technology and talent from neighboring countries are also becoming more frequent.

According to market research firm TrendForce on the 23rd, among the top 10 companies by revenue in the foundry (semiconductor contract manufacturing) market, Chinese companies such as SMIC, Hua Hong Group, and Nexchip recorded a combined market share of 10.2%, an increase of 0.9 percentage points compared to the previous quarter. This is the first time that Chinese foundry companies have surpassed a 10% market share. SMIC, which was placed on the U.S. Department of Commerce’s sanctions list in 2020, also achieved record-high performance last year.

The reason Chinese companies have been able to grow like this lies in their aggressive capital investment. According to the Semiconductor Equipment and Materials International (SEMI), China’s orders for semiconductor production equipment from overseas suppliers increased by 58% last year, making China the “big spender” in the semiconductor equipment market for two consecutive years. Chinese semiconductor companies have been stockpiling used semiconductor equipment for years to circumvent U.S. sanctions, driving up the prices of secondhand equipment as well.

Chinese semiconductor startups are also growing at a frightening pace. According to Bloomberg, among the 20 fastest-growing semiconductor companies worldwide over the past four quarters, 19 were Chinese companies, an increase of 11 compared to the previous year. Most of the companies on the list were startups or fabless (semiconductor design) firms.

However, U.S. sanctions still pose a significant obstacle to China’s semiconductor technology advancing to cutting-edge processes. In semiconductor design and equipment sectors, China lags significantly behind the U.S. and Europe, and in foundry, there is a considerable gap compared to Samsung Electronics and TSMC. This gap is difficult to close through investment expansion alone. To overcome this, China frequently engages in poaching technology and personnel from neighboring countries.

A representative example is the extreme ultraviolet (EUV) lithography equipment from Dutch semiconductor equipment maker ASML, which is essential for ultra-fine processes below 5 nanometers (nm; 1 nm = one billionth of a meter). Chinese companies have been unable to obtain this equipment because the Netherlands, at the request of the U.S., has not granted export licenses to ASML. Meanwhile, Bloomberg reported earlier this month that ASML included claims in its February earnings report accusing China’s Dongfang Jingyuan Electron (DJEL) of intellectual property infringement. DJEL is effectively the same company as U.S.-based Crystal (XTAL), which was previously ordered to pay damages for stealing ASML’s technology. ASML believes that Chinese engineers who once worked for the company established these two firms to steal technology back to China.

Recently, it was also reported that semiconductor cleaning equipment technology developed by Semes, a subsidiary of Samsung Electronics, was transferred to Chinese companies by former researchers, leading to the prosecution of former Semes researchers.

Taiwan is also on high alert due to China’s talent poaching. TSMC has significantly increased employee salaries to retain its workforce. The Taiwanese government requires advanced technology personnel to undergo government screening when seeking employment in China. The South China Morning Post (SCMP) recently reported that fierce competition is also taking place within China to secure graduates from semiconductor-related departments first.

Eric Schmidt, former CEO of Google, and Harvard professor Graham Allison recently warned in an op-ed published in the Wall Street Journal (WSJ) that “the U.S. is on the verge of losing the semiconductor competition,” and “if China establishes durable advantages across the entire semiconductor supply chain, it will create breakthroughs in fundamental technologies that the U.S. cannot follow.”