The Law of the Jungle in the Semiconductor Industry

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Regarding the United States and other countries restricting China’s semiconductor industry, the recent statement of the China Semiconductor Industry Association has sparked public discussion. Among them is a point of view that has won many approvals: the world obeys the law of the jungle, and there is no need to expect anyone’s kindness.

When the United States discusses subsidizing domestic semiconductor companies, it always uses the name of “solving the chip shortage problem”, but in essence, the purpose of the United States is to break away from its dependence on Asia, especially mainland China and Taiwan. The cost of building a “fab” in the United States is 40% to 70% higher than overseas, and subsidies are the only answer for the United States to reverse its 40-year decline in semiconductor production. The American media said that it is time to realize that the United States is no longer a “seller” who can afford high corporate taxes, strict regulations and no investment incentives. The U.S. is now a desperate buyer, and the U.S. government will have to help pay for fabs built there.

The “Chip Act”, which was finally passed, did not arouse the enthusiasm of American semiconductor companies as it did at the beginning. One reason for this is that the CHIP Act prohibits companies from buying back stock if they are subsidized. If a chip company gets $3 billion from the Commerce Department to help offset fab costs, it will need every penny to cover the higher operating and capital expenditures it will face in the U.S., leaving shareholders with nothing. Such an effect forced the U.S. government to “overweight” other methods to develop its own semiconductors, so the United States began to cooperate with other countries to restrict semiconductor exports to China.

This kind of operation logic is not difficult to understand: the difficulty of developing one’s own industry is too high, it is better to “slow down” the speed of others. The United States first formed the Chip4 alliance, and in 2023, it once again united with Japan and the Netherlands to restrict the export of semiconductor equipment to China. Although all countries seem to comply with the request of the United States, who is the abacus for?


Dilemma between the Netherlands, Japan and South Korea, “Yang Feng Yin Yin Violation”

“Maintaining multilateralism” Dutch export of lithography machines is restricted

Dutch semiconductor manufacturing equipment manufacturer ASML has a 100% market share in EUV (extreme ultraviolet) lithography machines. In January 2023, ASML said that rules on export controls to China were “in the process of being finalized”. As of press time, there is no official explanation or refutation of the details of the so-called agreement.

This move has triggered discussions in China’s semiconductor industry. After all, if ASML’s lithography machines cannot be exported, it will greatly hit China’s semiconductor manufacturing process, especially China’s semiconductor catch-up in advanced manufacturing processes. But then the Dutch operation seems to indicate that there is still room for cooperation with China.

On February 18, Wang Yi, member of the Political Bureau of the CPC Central Committee and director of the Office of the Central Foreign Affairs Commission, met with Hoekstra, Deputy Prime Minister and Minister of Foreign Affairs of the Netherlands while attending the Munich Security Conference. Hoekstra said that the world is interdependent, and all parties have the responsibility to firmly uphold multilateralism and support multilateral mechanisms and international rules. It is great to see that China has overcome the epidemic, its economy has recovered strongly, and it has quickly resumed foreign exchanges and cooperation. Looking forward to close exchanges and expanding cooperation with China. The Netherlands is willing to continue to be a reliable and stable cooperative partner of China.

Regarding whether the Netherlands will choose to “follow” the United States wholeheartedly, Dutch experts said that “the Netherlands will not blindly follow the United States.” In fact, Europeans do not want to see the United States isolate China. Take the “Inflation Reduction Act” introduced by the United States as an example. According to this act, the US government can provide high subsidies for local industries. American products will gain a competitive advantage, while other countries’ products will lose their foothold due to the lack of a level playing field. Indeed, the EU recently announced potential countermeasures against the Inflation Cut Act.

Japan wants to maintain cooperative relations with China

In addition to the Netherlands, Japan, which has many semiconductor manufacturing equipment manufacturers, has also been wooed by the United States. The Biden administration of the United States has strongly demanded that Japan cooperate to strengthen controls, so it is reported that the Japanese government will start to control the export of advanced semiconductors. Japan’s advantages are mainly in the fields of semiconductor manufacturing equipment, wafer manufacturing and materials. According to the forecast of the American Semiconductor Industry Association, Japan’s global market share of semiconductor manufacturing equipment will reach 27% in 2021, and the market share of wafer manufacturing and materials will be about 16%. and 14%. Against the backdrop of the U.S.-China competition for technological supremacy, concerns are growing that the manufacturing equipment and materials industries will move overseas as U.S. manufacturing returns home. Japanese media have noticed that most Japanese semiconductor companies have been negatively affected by Japan’s follow-up of the United States in restricting exports to China. The proportion of Tokyo Electron’s operating income from China may drop to 22%, a year-on-year decrease of about 5 percentage points.

China and Japan have an unceasing relationship between their economies. In the cracks between the U.S. and China, Japan must balance. In order not to over-irritate China, Japan intends not to name China in the control measures. According to the analysis of Japanese industry insiders, this is because “as long as they are caught, it is difficult to deny that they will be resorted to the World Trade Organization or other industries will suffer.” At present, based on the “Foreign Exchange Law”, the export of some manufacturing equipment needs to apply for a license, and the restricted objects may be expanded in the future. Content in Japan is expected to be moderate compared to controls in the United States.

Japanese Prime Minister Fumio Kishida called on China to establish a “constructive and stable relationship”. “For Japan, the United States is the most important ally, but I think Japan cannot be consistent with the policy of the United States in some respects. It is impossible for Japan to separate China, its largest trading partner.”

South Korea asks the United States for a pardon and wants to sell China

South Korean media published an article saying that the aftermath of the United States’ restrictions on semiconductors in China is being transferred to the South Korean equipment industry. It is difficult for core semiconductor equipment manufactured in the United States, Japan, and the Netherlands to enter China, so the export of South Korean equipment used together is also blocked.

In terms of equipment, what South Korean companies provide to China is not necessary process equipment, but more auxiliary process equipment systems, such as adding additional functions in the evaporation process or equipment for thermal control of main equipment, measurement, inspection, and cleaning equipment wait. In addition, South Korea has sold a lot of packaging and testing equipment to China. With the problems in the operation of Chinese chip factories, the sales of Korean equipment companies will also be affected.

A Korean semiconductor equipment company said: “Although some people predict that due to the restrictions of the United States, the vacancies of global equipment companies will be filled by Korean companies, but as the Chinese market itself shrinks, opportunities are being lost.” It will also affect enterprises upstream of semiconductor manufacturing equipment, such as semiconductor materials, semiconductor equipment parts and other fields. Because Korean semiconductor equipment companies mainly purchase a large number of raw materials and parts in Korea. A representative of a Korean semiconductor consumables company said: “The aftermath of the semiconductor restrictions in the United States has been felt since the second half of last year. Korean small and medium-sized enterprises will inevitably be affected.”

For Korean semiconductor companies, not only small and medium companies are nervous, even semiconductor giants like Samsung Electronics and SK Hynix cannot leave the Chinese market. In February, Korean media said that executives of Korean companies went to the United States, hoping to win exemption from the “Chip Act” and continue to ship to China. South Korean media also stated that the South Korean government expressed support from the side for the urgent dispatch of executives from the two major South Korean companies to the United States.

It is not difficult to see that even if the three countries agree to some of the demands of the United States, they cannot draw a clear line with the Chinese market.

The semiconductor jungle is already “all trees and trees are soldiers”

In fact, at the moment when various countries are increasing their efforts to develop semiconductors, all countries are in the midst of semiconductor anxiety.

The United Kingdom, which has already left the European Union, needs to create a level playing field with players such as the United States, the European Union and China, which puts a lot of pressure on local British companies. British chipmakers have been calling on the British government to act for months, with British chip companies including Pragmatic Semiconductor, IQE and Paragraf expressing dismay at the government’s failure to come up with plans to fund the region’s semiconductor industry. British chipmakers have threatened to shift their operations to the United States or Europe if the British government does not act and publish a long-awaited semiconductor strategy.

Some countries want to remain neutral and develop quietly; some countries hope to embrace the “thigh” of the United States.

The Indian Electronics and Semiconductor Association (IESA) and the American Semiconductor Association have announced plans to form a private sector working group to strengthen cooperation between the two countries in the global semiconductor ecosystem. Specific objectives of the working group include: developing a ‘readiness assessment’ on the Indian semiconductor ecosystem; bringing together industry, government and academic stakeholders to identify near-term industry opportunities and facilitate long-term strategic development of complementary semiconductor ecosystems; Advise on the opportunities and challenges of its role in the global semiconductor value chain, including chip manufacturing; identify and facilitate workforce development and networking opportunities to benefit both countries.

“We are delighted to launch this new initiative with our counterpart IESA in India, already a major hub for semiconductor research, chip design and device engineering, but with even greater future potential,” said John Neuffer, SIA President and CEO. The task force will help identify tangible ways to unlock this potential by strengthening U.S.-India collaboration in the global chip ecosystem.”

While the U.S. appears to be giving India the ticket, a 2021 study published in the journal Sustainability shows that much of the waste from the electronics industry in developed countries is accumulating in India. Their research cites data from the United Nations Environment Program (UNEP) showing that only 10 percent of the e-waste generated in the world today is recycled in developed countries, with the remaining 90 percent sent to developing countries around the world. The Indian media believes that in the end, India may just be a “waste dumping ground” used by developed countries to divert electronic pollution.

In the jungle of the semiconductor industry, we can only fight on our own.


China’s semiconductor out of the “dark forest”

The “ferrosilicon curtain” is triggering a crisis, and China is the one most directly affected. When the United States promulgated the “Chip and Science Act” and used state power to suppress Chinese companies, free trade did not exist.

What about Chinese semiconductors? The development of basic science may be the fundamental way to get rid of this situation.

Recently, an article in the Proceedings of the Chinese Academy of Sciences pointed out that basic research on semiconductors is scarce, and we have entered a “dark forest”. Even if a large amount of investment is carried out for localized substitution, it can only achieve internal circulation or narrow the gap with the United States. The article suggested that strengthening the basic capabilities of semiconductors, stabilizing a group of semiconductor basic research teams, conducting theoretical innovations at the source and bottom layer of semiconductor technology, and laying out patents in advance at the bottom layer of chips that cannot be bypassed is to solve the key core technology of semiconductors. An effective strategy for the “stuck neck” problem.

An article published by the Chinese Academy of Sciences mentioned that my country’s basic semiconductor research and development investment has long been less than 5% of that of the United States. This comparison reminds China’s semiconductor industry that it is time to go beyond the gorgeous numbers of listed companies and the amount of financing to face the essential gap. To achieve high-level self-reliance and self-reliance in science and technology, it is necessary to strengthen basic research. Strengthening basic research means improving the scientific research system and the training platform for high-level basic research talents, which may be a new starting point.

The development of semiconductors is a long and difficult road. The darkness before dawn is the hardest, but the sky will always be bright.

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