China’s Automotive Chip Supply Shortfall Will Reach 20 Percent Due to US Sanctions, Outdated Technology: Trade Group

By Jenny Li
Jenny Li
Jenny Li
Jenny Li has contributed to The Epoch Times since 2010. She has reported on Chinese politics, economics, human rights issues, and U.S.-China relations. She has extensively interviewed Chinese scholars, economists, lawyers, and rights activists in China and overseas.
January 30, 2022Updated: January 31, 2022

China’s chip supply will remain tight this year, and the automotive chip supply shortfall will widen to 20 percent, the country’s car manufacturing trade group said. The regime’s own experts have revealed that the key reason for China’s chip shortage is not the pandemic, but China’s outdated chip technology and U.S. sanctions against the Chinese Communist Party (CCP).

Luo Junjie, a spokesman for the Ministry of Industry and Information Technology of the CCP, said on Jan. 20 that the shortage of chips last year had the greatest impact on the auto industry, and many domestic auto companies experienced production cuts or short-term shutdowns.

In 2022, the shortage of chips in China looks set to continue to worsen. Data fed back by foundries and chip manufacturers show that this year, the automotive-grade microprocessors, storage, logic, and analog chips produced can only meet the production needs of 4 million new energy vehicles in China.

The China Association of Automobile Manufacturers (CAAM) predicted at the end of December 2021 that the sales of new energy vehicles in China will reach 5 million in 2022. Compared with the supply of auto chips, China’s new energy vehicle market will face a 20 percent demand gap.

Luo blamed the pandemic and the “sanctions and suppression” of the United States for the tight supply of chips in China. However, Yuan Chengyin, general manager of China’s National New Energy Vehicle Technology Innovation Center, told Bloomberg in January 2021 that the main reason for the shortage of automotive chips in China is not the impact of the pandemic, but the lack of domestic technical knowledge and ongoing geopolitical tensions. Yuan believes that if Chinese companies cannot produce their own semiconductors, the domestic supply chain will continue to be affected by international factors. He predicted that the shortage of automotive chips will continue for 10 years.

Hong Kong-based electronics industrialist Yuan Gongyi said in an interview with The Epoch Times that the threat of U.S. sanctions has made it difficult for Chinese companies to obtain chips.

“When the world is short of supply, all chip factories outside China will certainly put China at the bottom of their list. Why? The U.S. policy is changing every day. They say they want to sanction Chinese companies, so no one dares to help China. Most of these chips are custom chip fabrication. For example, the delivery may take place after six months. During the waiting period, if the U.S. government imposes sanctions, the chip products will not sell.”

The chip industry has become at the forefront of wrangling between the United States and China. The United States has sanctioned China’s telecom giant Huawei twice, once in 2019 and again in 2020, blocking Huawei’s access to chips. When explaining the U.S. sanction against Huawei, former U.S. Attorney General William Barr said in a speech at the Center for Strategic and International Studies in February 2020 that since the 19th century, America’s technological prowess has guaranteed its prosperity and security.

Yuan Gongyi said that the United States is now in a military confrontation with the CCP, and chips are an important component of weapons.

“Now you see that China has some supersonic missiles, and other high-tech weapons, all of which must have chips. Didn’t Japan have a meeting with the United States recently? In fact, it is about the materials used in the CCP’s chips. Many materials are Japanese manufactured … I think there is a great chance of actual military conflicts on the western side of the Pacific Ocean, especially in the Nansha district. Therefore, the United States must stop [the exports of] all equipment and raw materials related to chips. So this is not just a car problem, it is a problem regarding all of China’s chip supply.”

At the China Automobile Forum in June 2021, Ye Shengji, chief engineer and deputy secretary-general of the CAAM said that China’s semiconductor self-sufficiency is at 15 percent, of which the auto chip self-sufficiency is less than 5 percent. Among all kinds of chips, MCU control chips are the shortest in supply, and China’s MCU control chip companies are the weakest.

Microcontroller units, also known as microcontrollers or single chips, integrate peripheral interfaces such as memory, timers, USB, analogue to digital conversion and LCD driver circuits on a single chip, forming a chip-scale computer.

Today, an average car requires more than 40 chips. With the rise of new energy vehicles, the demand for chips has greatly increased. According to Deloitte survey data, the average demand for chips for fuel vehicles is 934, while the demand for new energy vehicles is 1,459.

In addition to low production capacity, Chinese chips’ technological level is also far behind Europe and the United States. State-funded media outlet “Chen Bo Observation” stated that Chinese chips are at least three generations behind the international level. At present, the most advanced mass-produced chips in the world are 5-nanometer chips, and the manufacturers are Taiwan Semiconductor Manufacturing Company (TSMC), Samsung of South Korea, and Intel of the United States.

TSMC and Samsung are working on 3-nanometer technology, which is expected to be launched in the first half of 2022.

China’s Semiconductor Manufacturing International Corporation started mass production of 14-nanometer chips in 2020. The next-generation technology after 14 nanometers is 10 nanometers, then 7 nanometers, and finally 5 nanometers. Therefore, Chinese chips are three generations behind the leading international level.

Mario Morales, vice president of technology and semiconductors at the International Data Corporation, also believes that Chinese chips may be “three to four generations” behind the world’s cutting-edge level.

Over the past three years, the Chinese regime has invested $2.3 billion in at least six major chip construction projects in China, including the Wuhan Hongxin and the Jinan Quanxin project, but all have failed.

Yuan Gongyi said: “The fundamental problem is that there is no individual creativity, so it will never catch up … All the things we see today are made by talented people, not by money. Why is the United States so successful? There are many independent thinkers in the United States.”