The US government is finalising a list of Chinese chipmaking facilities that are specifically targeted by export restrictions. This list is designed to assist companies in complying with US measures aimed at restricting the transfer of advanced semiconductor technology to China. The initiative is informed by consultations with industry insiders and is expected to be publicly released in the upcoming months.
Background and Implications of 2022 Restrictions
In 2022, the US Commerce Department imposed restrictions on American firms, prohibiting them from supplying equipment to Chinese entities engaged in manufacturing advanced semiconductor chips, which triggered in response a surge in smuggling and transhipment activities. Additionally, these restrictions boosted domestic chip manufacturers in China, such as SMIC. This raises the question of the efficacy of the existing US export controls on China prior to the implementation of further restrictions.
International tech export control
his move is part of a broader strategy to curtail China’s technological progress in areas deemed sensitive to US national security. The US strategy relies in part on allied export control in order to contain China’s military and high-tech growth. Japan and the Netherlands joined the attempt to limit China’s access to minerals used to create advanced computer chips, but are now reluctant to move forward with their restrictions until they can assess the effectiveness of the current ones.
Challenges in identification
The semiconductor industry has reported difficulties in determining which Chinese facilities are involved in the production of advanced chips, complicating efforts to comply with US restrictions. US officials recognise the industry’s need for more clarity regarding these restrictions. While the upcoming list is not expected to be exhaustive, it aims to identify facilities that pose significant concerns to US national security interests.
The U.S. Department of State and the Government of Mexico are collaborating to assess and potentially enhance Mexico’s semiconductor ecosystem. This partnership falls under the International Technology Security and Innovation (ITSI) Fund, which was established by the CHIPS Act of 2022 to bolster the global semiconductor ecosystem.
The initial phase involves conducting a comprehensive assessment of Mexico’s semiconductor industry, including analysing existing infrastructure, regulatory framework, workforce, and identifying potential areas for growth and improvement. Key stakeholders in Mexico’s semiconductor ecosystem, such as state governments, educational institutions, research centres, and companies, will participate in the analysis, with the involvement of the Secretariat of Economy of Mexico.
The collaboration underscores the significance of a resilient semiconductor supply chain for various industries, including automotive and healthcare. It builds on existing cooperation between the US and Mexico under initiatives like the High-Level Economic Dialogue and the North American Leaders Summit process, while also supporting efforts to enhance regional competitiveness in semiconductors, including workforce development, through initiatives like the Americas Partnership for Economic Prosperity. The CHIPS Act of 2022 allocated funding, creating the ITSI Fund with $500 million over five years to promote secure telecommunications networks and semiconductor supply chain security and diversification.
Vietnam’s Prime Minister, Phạm Minh Chính, in a statement encouraged hi-tech and semiconductor investments in the country by offering incentives and infrastructure provisions. PM Chính emphasized the significance of sci-tech and innovation in Vietnam’s strategic partnerships with the US and Republic of Korea. He also mentioned their goal to train 50,000-100,000 engineers by 2030 to fulfil business needs of the sector.
The statement was delivered during a reception in Hanoi, where Lam Research, a US semiconductor company, and South Korea’s Seojin announced their partnership to establish a $1-2 billion semiconductor plant in Vietnam. Karthik Rammohan, Group VP of Global Operations at Lam Research, foregrounded the need for mutual growth of both the companies through R&D and technology transfer. In addition, he expressed keen admiration in Vietnam’s policies and programs aimed at bolstering the domestic semiconductor supply chain.
Vietnam appears to be a promising destination for semiconductor companies seeking to establish and diversify their production facilities in Asia. Industry leaders like Samsung, Intel, and Foxconn have already set foot in Vietnam, with numerous global firms considering future investments.
U.S. Commerce Secretary Gina Raimondo has indicated that most chip manufacturers will receive less government aid than requested, due to an oversubscription of $28 billion funding allocation, as advanced production firms have requested over $70 billion. The Chips and Science Act of 2022 with a budget of $52.7 billion, incorporates a $39 billion plan to support chip production and supply chain developments, thereby facilitating factory construction and production augmentation.
Secretary Raimondo is advocating for companies to accomplish more with fewer resources to facilitate more project funding. As chip companies typically request billions in assistance, Raimondo informed them they may receive less than half of their requested amount, emphasising the need for fiscal discipline.
The department is prioritising projects expected to be operational by 2030. The aim is to boost US production to 20% of global supply, up from none at present. Despite over 600 expressions of interest, Secretary Raimondo clarified that the majority, including many meritorious projects, will not receive funding. The funding awards may comprise grants, loans, and guarantees, covering up to 35% of the project’s total expenses. GlobalFoundries was announced as the inaugural recipient of a substantial $1.5 billion grant.
Taiwan’s TSMC is set to open its latest chipmaking foundry on Japan’s Kyushu island on February 24th, according to chairman Mark Liu. This move is part of the company’s plan to expand its global manufacturing footprint. TSMC, which serves clients such as Apple and Nvidia, controls over half of the world’s silicon wafer production.
During an investors’ call, chairman Mark Liu revealed that the long-awaited Japan foundry will utilize advanced process technology, including 12- and 16-nanometre and 28- and 22-nanometre process technology. The official opening ceremony will take place on February 24th, while volume production is expected to commence in the fourth quarter of 2024.
In November, Japan’s government announced plans to spend $13 billion to enhance domestic semiconductor production and generative AI technology, including a second TSMC plant in Kumamoto. While discussions with the Japanese government are ongoing, no definitive decision has been reached yet.
Apart from the Japan foundry, TSMC also plans to build its first fab in Europe, in Dresden, Germany, with construction expected to commence in the fourth quarter of this year. The TSCM CEO C.C. Wei remains optimistic about the company’s growth, citing the increasing demand for generative AI technology that depends on high-quality silicon wafers.
The Japanese government aims to triple sales of domestically made microchips by 2030, as part of its efforts to reduce reliance on foreign technology. The goal is to achieve greater self-sufficiency in technology, particularly in light of supply chain disruptions caused by the COVID-19 pandemic, Russia’s invasion of Ukraine, and China’s growing economic power.
According to data from SEMI, a global association of chipmaking equipment producers, to achieve this goal, Japan is anticipated to invest US$7 billion in fabrication equipment next year, representing an 82% increase from the current year, and making it the world’s largest increase in this category.
The initiative is part of a larger effort by Japan to strengthen its technology sector and compete with other major players in the industry, including the USA, Taiwan and China. Japan’s semiconductor industry has faced challenges in recent years due to the rise of competitors in Asia and the global shortage of chips.
Economic self-sufficiency was echoing messages during China’s two-session events. In particular, China insists on being self-sufficient in the production of microchips.
It is part of new digital geopolitics with US export restrictions on chips and technologies for thier produciton.
Chinese vice-premier Liu He recently announced the ‘China Chip Act’plans to boost the local chip industry via both state and market power for growth.
The memorandum is intended to establish a collaborative mechanism between the two governments on semiconductor supply chain resiliency and diversification. It is further aimed at facilitating commercial opportunities and the development of semiconductor innovation ecosystems. Cooperation is also envisioned on matters related to research and development, and talent and skills development.
The Netherlands announced it would require licenses to export technologies, including Deep Ultra Violet (DUV) immersion lithography and deposition, produced by Dutch microchip equipment maker ASML.
ASML produces lithography machines that use lasers to print minuscule patterns on silicon as part of the manufacturing process of microchips.
According to Dutch Trade Minister Liesje Schreinemacher, this measure has been taken on national and international security grounds.
However, it is not a completely new development. Back in 2019, ASML stopped exporting to China the latest technology. US-China relations have already been impacted due to the restrictions imposed by the US on semiconductor exports from China, which the Netherlands’ decision will further exacerbate.
T-Head, the chip unit of Alibaba Group Holding, is investing in RISC-V chips to become self-sufficient in the semiconductor space due to US sanctions.
Alipay, a payment service under affiliate Ant Group, and T-Head are jointly developing RISC-V chips to enable secure payment functions on wearable devices.
T-Head has launched an initiative to encourage 150,000 developers to learn about and gain credentials on the open-source chip design architecture.
China is pushing RISC-V as a means of reducing dependence on foreign technologies. T-Head has already launched eight RISC-V processors and is bringing commercial applications into both consumer and industrial fields.
Issues with high costs and algorithm compatibility remain challenges for adopters of the architecture.
