Why Did the US Mention '28nm and 14nm' in Its Targeted Strike on Chinese Semiconductors? [US Precision Strike on Chinese Semiconductors]

How Is US Biden Targeting Chinese Semiconductors?

President Joe Biden [Photo by AP News]

[Asia Economy Reporter Jeong Hyunjin] The United States is precisely targeting China, which is accelerating its "semiconductor rise." As China builds its semiconductor capabilities based on legacy (older) processes and expands its market share to establish its position, the U.S. is increasingly tightening the noose to meticulously check China. A representative example is the recent "CHIPS and Science Act," which passed the U.S. Congress, setting a specific condition to curb China at 28 nanometers (nm; 1 nm = one billionth of a meter) and introducing new export control conditions such as 14 nm related to semiconductor equipment where the U.S. exerts influence.

◆ Despite Trump's 'Crackdown'... China's Semiconductor Industry Continues to Grow

The background to the Biden administration's early attacks on China's semiconductor industry lies in China's rapid growth in this sector. Since around 2010, China has introduced policies to foster its semiconductor industry and set goals through "Made in China 2025" to achieve a 40% semiconductor self-sufficiency rate by 2020 and 70% by 2025. Subsequently, the Trump administration focused on advanced semiconductors, blacklisting Chinese semiconductor companies and restricting their access to necessary equipment and components. China's semiconductor industry struggled to grow at the desired pace, and last year, Western media outlets assessed that China's semiconductor ambitions had stalled.

However, the situation has changed. The growth momentum of China's semiconductor industry, once thought to be slow, is now gaining noticeable strength. While the U.S. imposed sanctions centered on advanced processes, China sought alternative ways to develop its semiconductor industry, focusing on legacy sectors and gradually enhancing its technological capabilities. As China emerges as a major player in the global semiconductor market and expands its footprint, the U.S. government finds it necessary to precisely target the areas where China is growing while protecting its own companies from harm.

[Image source=Reuters Yonhap News]

SMIC, a Chinese foundry company that was blacklisted during the Trump administration, primarily focuses on legacy processes and recorded record-high revenues last year and in the first quarter of this year. Recently, reports emerged that SMIC succeeded in developing a 7 nm process by circumventing U.S. semiconductor equipment export controls. The global market share of Chinese foundry companies, including SMIC, surpassed 10% for the first time in the first quarter of this year.

YMTC, a Chinese memory semiconductor company showing growth in the NAND flash market, announced plans to begin mass production of 232-layer 3D NAND by the end of this year, a technology not yet mass-produced by domestic companies. Although there are criticisms that YMTC is exaggerating, given it has no experience even in mass-producing 176-layer NAND and has halted plans for 192-layer NAND mass production originally scheduled for this year, the market views its growth as significant. Recent reports suggest that Apple might source NAND for iPhones from YMTC, indicating improved technological capabilities.

◆ U.S. CHIPS Act Bans Below 28 nm

The U.S. House of Representatives passed the "CHIPS and Science Act" on the 28th of last month (local time), including guardrail provisions aimed at targeting China in the overall semiconductor market. The law, which mentions China 11 times, provides $52 billion (about 68 trillion KRW) in subsidies and tax benefits to companies building semiconductor manufacturing facilities in the U.S., but imposes restrictions on eligibility.

Specifically, the U.S. prohibits "foreign countries of concern," including China, from building advanced semiconductor facilities or making additional investments in existing facilities for the next ten years. However, an exception is made for existing factories producing semiconductors using mature legacy processes of 28 nm or larger. This is interpreted as a message to effectively block processes below 28 nm in China.

[Image source=Reuters Yonhap News]

One nanometer refers to the semiconductor circuit line width, and the smaller this width, the faster the information processing speed. The 28 nm and above processes mentioned by the U.S. are older processes used to manufacture microcontroller units (MCUs) that control automobiles and electronic components, as well as power supply semiconductors used in cars, smartphones, and other electronic devices. According to consulting firm IBS, China is focusing on legacy processes to the extent that it is expected to produce 40% of the world's 28 nm semiconductors by 2025.

Clon Kitchen, senior researcher at the American Enterprise Institute (AEI), wrote on the day the bill passed Congress that "28 nm is a process 20 years behind the current level," and noted that currently, the only meaningful semiconductor production restriction in China is the Wassenaar Arrangement banning exports of extreme ultraviolet (EUV) lithography equipment needed for 5 nm production. He predicted that the 28 nm restriction would impose much greater constraints.

Prior to the bill's passage, on the 18th of last month, Intel and the Semiconductor Industry Association (SIA) lobbied to soften the language to allow more flexible application of the law rather than specifying "28 nm," according to U.S. political media Politico. However, the provision was ultimately included as is. Following the report, White House Press Secretary Karine Jean-Pierre expressed support for "strong guardrails," indicating that the government's determination to strengthen national security by curbing China's semiconductor industry expansion outweighed the industry's hopes for economic benefits.

◆ Block Semiconductor Equipment Inflow to China

The U.S. is also rolling out measures to prevent semiconductor equipment, a core part of manufacturing facilities, from flowing into China. The U.S. holds over 40% of the semiconductor equipment market share, and if it blocks exports, producing semiconductors with advanced equipment becomes practically difficult. Japan, the second-largest player with about 30% market share, is also joining the U.S. in pressuring China. Although China is a major buyer in the overall semiconductor equipment market due to its lack of equipment technology, U.S. restrictions are tightening. According to the Semiconductor Equipment and Materials International (SEMI), China recorded $7.57 billion in semiconductor equipment sales in the first quarter, ranking first. Previously, China was the world's largest semiconductor equipment sales country for two consecutive years from 2020 to 2021.

[Image source=Reuters Yonhap News]

The most representative semiconductor equipment the U.S. is blocking from entering China is EUV equipment. This equipment is essential for advanced processes, and the Dutch company ASML is the only manufacturer worldwide. Major semiconductor companies like Samsung Electronics, TSMC, and Intel line up with money to purchase it due to high demand. Since the Trump administration, the U.S. has pressured the Dutch government by inviting officials to the White House to request that ASML not grant export licenses to China, and this restriction remains in place.

Large box-shaped EUV equipment (Source=ASML)

In early last month, reports emerged that the U.S. is lobbying the Netherlands to also ban exports of deep ultraviolet (DUV) lithography equipment, an older version of EUV equipment, to China. Currently, over 90% of memory semiconductors use DUV processes, and since China is focusing on memory semiconductors, this move aims to prevent China from expanding its market share using this equipment. Nikon in Japan also manufactures similar equipment, and it is reported that a request was made in June to halt sales to China.

Additionally, Bloomberg reported on the 29th of last month that the U.S. Department of Commerce recently sent letters to domestic semiconductor equipment companies such as Lam Research and KLA, instructing them not to export equipment applying manufacturing technologies finer than 14 nm processes to China. Considering that under the Trump administration, selling equipment for processes below 10 nm to SMIC, which was blacklisted, required government approval, this represents an expansion of restrictions.

The U.S. noose is expected to extend even to NAND equipment for memory semiconductors. The U.S. government is reportedly considering banning shipments of U.S.-made semiconductor equipment used in NAND manufacturing plants in China. It is anticipated that exports of equipment necessary for producing NAND with 128 layers or more will be prohibited. Equipment from U.S. companies Lam Research and Applied Materials is mainly used for producing NAND with 128 layers or more. Earlier, the White House mentioned in a June report last year that domestic NAND producers Micron and Western Digital are facing price pressure in the NAND market due to YMTC's low-cost competition, calling it a "direct threat."