[Chip Talk] China's Semiconductor Growth Unfazed by US Aggressive Measures

Despite the strong stance of the Joe Biden administration, China has once again stepped up its support for its domestic semiconductor industry. Even as the U.S. blocks the import of equipment for advanced semiconductor production in China and restricts global semiconductor companies' investments in China using subsidies as leverage, both the central and local governments are pouring investments and accelerating technological development.

Chinese President Xi Jinping Photo by Reuters

◇China's Dream of Semiconductor Dominance Remains Unfazed

According to a report by Bloomberg on the 5th (local time), citing materials from the Chinese government’s official website, China’s government fund, the “National Integrated Circuit Industry Investment Fund,” plans to invest 12.9 billion yuan (approximately 2.45 trillion KRW) in Yangtze Memory Technologies Co. (YMTC), the country’s largest memory semiconductor company.

This fund was established in 2014 by the Chinese government to foster the domestic semiconductor industry. With $45 billion secured, it has heavily invested in over 100 Chinese semiconductor companies involved in manufacturing, design, packaging, testing, equipment, and materials, including leading foundry companies such as Semiconductor Manufacturing International Corporation (SMIC) and YMTC. However, last year, senior officials within the fund were arrested and investigated for misconduct, and with the Biden administration’s export restrictions on China continuing, there had been speculation that China’s semiconductor investments might be slowing down.

Bloomberg evaluated, “Looking at the scale of this investment in YMTC, it confirms that the Chinese government is trying to ramp up investments in its semiconductor industry, which is under heavy pressure from U.S. sanctions.”

Not only the central government but also local governments in China have been actively fostering the semiconductor industry this year. According to Hong Kong’s South China Morning Post (SCMP), Suzhou City in Jiangsu Province aims to increase its semiconductor industry output by 20% this year. The city plans to expand the sales revenue of more than 300 semiconductor companies from 100 billion yuan last year to 120 billion yuan this year.

Additionally, city authorities have reportedly set goals to launch 2 to 3 core technology research projects, nurture 10 leading innovative companies, and produce more than 3 publicly listed companies within this year. Suzhou currently hosts semiconductor factories of Samsung Electronics and the U.S. semiconductor company AMD. Jiangsu Province, where Suzhou is located, announced in January that it would provide financial support for research, equipment purchases, semiconductor design, and packaging, pledging to invest at least 500 million yuan annually over the next three years.

Not only Suzhou but also Guangzhou City in Guangdong Province announced last month that it would invest 200 billion yuan over the next three years in advanced manufacturing sectors such as semiconductors and renewable energy. Hangzhou City in Zhejiang Province, known as the “hometown of Alibaba,” also promised last month to support the integrated circuit (IC) industry by simplifying tax procedures and other measures.

◇Intensifying U.S. Pressure

Despite U.S. pressure, these investment moves are interpreted as the Chinese government’s determination to continue its dream of semiconductor dominance. The Chinese government has criticized and opposed the U.S. measures as “blatant hegemonism against science and technology.” Some expect that during the ongoing Chinese “Two Sessions” (Lianghui) from the 4th to mid-month, science and technology-related budgets will be significantly increased, considering President Xi Jinping’s emphasis on self-reliance in core technologies.

[Image source=Reuters Yonhap News]

The U.S. government has been continuously attacking to exclude China from the supply chain to block its semiconductor ambitions. In October last year, it announced export restrictions on semiconductors to China, controlling the export of semiconductor equipment to Chinese companies producing DRAM below 18 nm (nanometers; 1 nm = one billionth of a meter), NAND flash with 128 layers or more, and logic chips below 14 nm.

As a result, Japanese Nikkei reported that equipment imports for new semiconductor factories being built by YMTC and Changxin Memory Technologies (CXMT) have been halted, causing setbacks.

The China Semiconductor Industry Association (CSIA) criticized last month Japan and the Netherlands for joining the U.S. in restricting semiconductor equipment exports to China, stating, “This not only causes serious damage to China’s semiconductor industry but also harms the global economy,” and added, “In the long term, it harms the interests of consumers worldwide.”

Furthermore, the U.S. government recently proposed a condition for companies receiving subsidies to build semiconductor production facilities domestically: they must not expand investments in China for the next 10 years. Detailed guidelines are expected to be announced soon.