Semiconductors Emerge as Battleground in US-China Race to Make Global Tech Norms in Their Image

Chinese chipmakers dealt blow by US sanctions and alliances
By Jessica Mao
Jessica Mao
Jessica Mao
Jessica Mao is a writer for The Epoch Times with a focus on China-related topics. She began writing for the Chinese-language edition in 2009.
August 7, 2022 Updated: August 8, 2022

News Analysis

As every aspect of modern life becomes more and more digitized, not just the economies of nations but their sovereign influence will rely more and more on the command of technology.

Although the United States and China are not engaged in traditional warfare, they are engaged in a war of ideas, trade, and technology, especially in semiconductor hegemony, where both sides are battling for supply and advancement.

In recent years, the United States has made a series of moves to hinder and outpace Chinese development in semiconductors, including persuading Asian semiconductor powerhouses to join its alliance, passing a massive spending bill to aid domestic chip production, and banning exports of high-end chipmaking equipment to China.

In late July, the United States expanded its bans on exports to China of equipment that can make semiconductors up to 14 nanometers in size, according to major U.S. chipmaking equipment suppliers, such as Lam Research Corp. and KLA, who were notified by the government about the expanded restrictions.

Previously, the United States had banned the sale of equipment that can produce chips of 10 nm or smaller to Chinese chip manufacturers.

Generally in semiconductor fabrication, the smaller the process technology, the more advanced the chip. The smaller the technology node, the higher the transistor density and the lower the chip power consumption, resulting in higher performance. However, the smaller manufacturing process requires more advanced material and equipment, and will incur a greater cost in R&D and production.

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Semiconductors are seen on a circuit board that powers a Samsung video camera at the Samsung MOBILE-ization media and analyst event in San Jose, Calif., on March 23, 2011. (Justin Sullivan/Getty Images)

The development follows a historic $52 billion bill passed by U.S. congress on July 27 to aid domestic chip makers in research, development, and production volume. One of the conditions is that the companies receiving the funds will not increase advanced chip production in mainland China.

The U.S. Department of Commerce said the tightening policies impair “PRC efforts to manufacture advanced semiconductors to address significant national security risks to the United States.”

Meanwhile, the United States is also reportedly planning to ban the exports of U.S. chipmaking equipment that produces advanced NAND chips to major Chinese chipmakers, such as Yangtze Memory Technologies Corp (YMTC).

YMTC is a state-owned company and China’s only storage NAND flash memory manufacturer competing with major U.S. manufacturers. Its global market share is about 5 percent. In a report released by the White House in June 2021, YMTC was identified as the “national champion” enterprise of the Chinese regime, having received $24 billion in subsidies from the Chinese government.

NAND chips are used to store data in a wide range of electronic devices such as smartphones and personal computers, as well as in the data centers of companies such as Amazon, Facebook, and Google.

If the NAND chip initiatives are officially issued, they will be the first time that the United States uses trade restrictions to contain China’s ability to produce non-military use memory chips, broadening the scope of protecting the U.S.’s national security and dealing a massive blow to Chins’s memory chip industry.

On Aug. 1, U.S. senators, including Senate majority leader Chuck Schumer (D-N.Y.), requested that the Department of Commerce add YMTC to the U.S. trade blacklist.

The move could further hamper the growth of China’s semiconductor industry and protect American companies; the only two U.S. memory chip makers, Western Digital and Micron Technology. The two account for about a quarter of the NAND chip market share.

According to a Bloomberg report, the United States is also pushing the Netherlands and Japan to stop the chipmaking equipment suppliers, ASML and Nikon, from selling lithography machines to China. The move could potentially deal a severe blow to major Chinese chipmakers such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor Ltd.

US CHIPS Act

On July 26, the U.S. Senate voted to advance its Chips and Science Bill aimed at boosting domestic semiconductor production and improving technological competitiveness with China.

The bill was later passed in the U.S. House of Representatives on July 28 and sent it to Biden’s desk for signature.

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Senate Majority Leader Chuck Schumer (D-N.Y.) speaks alongside a bipartisan group of U.S. Senators, including (L-R) Roger Wicker (R-Miss.); Mark Warner (D-Va.); Todd Young (R-Ind.), and Maria Cantwell (D-Wash.), following the passage of the CHIPS Act, providing domestic semiconductor manufacturers with $52 billion in subsidies to cut reliance on foreign sourcing, at the U.S. Capitol in Washington, D.C., on July 27, 2022. (Saul Loeb/AFP via Getty Images)

The legislation will provide $280 billion in funding to prop up and kickstart domestic semiconductor manufacturing and research; the price tag is far above previous legislation that aimed to provide just $52 billion to manufacturers.

Officially dubbed the CHIPS [Creating Helpful Incentives to Produce Semiconductors for America] Act of 2022, the measure would provide tens of billions of dollars in subsidies and tax breaks to technology corporations in an effort to spur new market growth, as well as funding for government-backed tech research.

Proponents of the legislation have long said that it’s necessary in order to maintain a competitive edge with China, which is pouring money into its own domestic chip production.

The legislation also clarifies that entities receiving U.S. government funding are prohibited from engaging in transactions involving substantial expansion of semiconductor manufacturing in China or any other foreign country of concern for at least ten years after the Act takes effect.

These restrictions are designed to prevent chipmakers from significantly expanding the production of chips more advanced than 28nm in China within the next decade.

Even though the 28-nanometer chips are a few generations behind today’s advanced semiconductors, they are still widely used in cars, lower-end smartphones, appliances, and more.

Chip 4 Alliance

The United States has also been working to persuade Asian semiconductor powerhouses to participate in its “Chip 4″ alliance.

The U.S.-led alliance aims to strengthen cooperation in the semiconductors industry among the United States and the East Asian powerhouses of Taiwan, South Korea, and Japan to build a secure supply chain that excludes China.

Taiwan and Japan have already agreed to participate in the Chip 4 alliance proposed by the United States this March, pending South Korea’s decision to join.

The United States has reportedly given South Korea a deadline to decide whether it will join the “Chip 4″ alliance by Aug. 31, according to local South Korean reports citing unnamed sources in Washington.

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U.S. President Joe Biden shakes hands with South Korean President Yoon Suk-yeol as they visit the Samsung Electronics Pyeongtaek campus in Pyeongtaek, South Korea, on May 20, 2022. President Joe Biden arrived in South Korea on Friday for his first summit with President Yoon Suk-yeol on a range of issues, including North Korea’s nuclear program and supply chain risks. (Kim Min-Hee /Pool /Getty Images)

Despite mounting pressure from China, its biggest trading partner, South Korean experts and public opinion say the country is likely to participate in the proposed chip alliance.

“The United States is leading the equipment and software segments of the industry, Taiwan is the very foundry leader, Japan is taking the lead on the component and material sides, and South Korea cannot produce chips without them,” a South Korean expert told Business Korea in a July 15 report.

During the recent U.S.–South Korea summit, Biden and President Yoon Suk-yeol pledged to strengthen semiconductor alliances among the world’s largest chipmaking countries to ease global shortages.

As part of the economic partnership, South Korea also formally announced participation in the U.S.-led Indo-Pacific Economic Framework (IPEF), a framework outlining the United States’ key priorities to align with allies and partners to compete more effectively against communist China in the race to lead global technology development and norms.

China’s ‘Big Fund’ Plan

For many years, the Chinese Communist Party (CCP) has invested heavily in solving the problem of its disrupted semiconductor supply.

In 2014, Beijing pledged to invest between $100 billion and $150 billion in public and private funds to enable the country to overtake the world’s leading companies in semiconductor technology, including chip design, assembly, and packaging, by 2030.

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An employee makes a chip at a factory of Jiejie Semiconductor Company in Nantong, in eastern China’s Jiangsu province, on March 17, 2021. (STR/AFP via Getty Images)

In September 2014, the regime established China’s National Semiconductor Industry Investment Fund, known as the “Big Fund.” The initial investment was 138.7 billion yuan (about $22.19 billion), focusing on integrated circuit manufacturing, including equipment, materials, sealing, and testing.

In October 2019, facing U.S. sanctions on Chinese technology companies, a second “Big Fund” was announced, with a scale of 204.1 billion yuan (approx. $32.66 billion).

However, according to Liu Pei-chen, a researcher at the Taiwan Institute of Economic Research, the CCP’s semiconductor development process is still slower than expected despite massive government investment, especially in advanced manufacturing processes or independent R&D.

Liu told The Epoch Times that China’s slow development was primarily due to European and American sanctions, making obtaining key semiconductor equipment and chips difficult or near-impossible.

Beijing’s “Made in China 2025” plan calls for the domestic production of Chinese chips to reach 70 percent by 2025. However, it is almost impossible to achieve that goal at the current pace of development, Liu added.

China Relied on Poaching Chip Talent from Taiwan

“China is still not capable of making advanced chips,” Ren Zhengfei, the founder of Chinese tech giant Huawei, said in September 2020 during a public speech.

Ren said the domestic industry could not produce the advanced chips that the company designed, and it can’t make products and chips at the same time.

“The biggest obstacle for China to achieve self-sufficiency in semiconductors is not the lack of funds, but the long-term lack of talents in the industry,” Zhang Rujing, the founder of SMIC, China’s largest chip foundry, said in a public statement in November 2021.

For decades, China has responded to its talent shortage in high-tech industries by poaching talent from Taiwan, often through illegal means.

“The illegal poaching of Taiwan’s high-tech talent by Chinese companies has severely impacted our international competitiveness and endangered our national security,” Taiwan’s Ministry of Justice Investigation Bureau said on May 26.

The security of the chip industry has become a primary concern of authorities in the tech powerhouse of Taiwan, which makes the majority of the world’s most advanced semiconductor chips, an indispensable part of everything from mobile phones to military jets.

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest and most advanced contract chipmaker. It is by itself responsible for producing more than half of the world’s semiconductors.

TSMC factory
A factory of Taiwanese semiconductors manufacturer TSMC at Central Taiwan Science Park in Taichung, Taiwan, on March 25, 2021. (Sam Yeh/AFP via Getty Images)

Despite its leading position, the company has had to grapple with a brain drain to China. Taiwan lost an estimated 3,000 semiconductor engineers—accounting for one-tenth of the island’s talents in the chip industry—to China, according to a 2020 research published by Taiwan’s Mainland Affairs Council.

China’s efforts to secure chip engineering talent primarily from Taiwan have intensified in recent years after the CCP set a goal of achieving self-sufficiency in advanced chips, an objective under a 10-year economic program known as Made in China 2025, accompanied by the “Big Fund.”

In response, Taiwan’s Investigation Bureau has launched investigations into around 100 Chinese companies suspected of illegally poaching semiconductor engineers and other tech talents, according to an April report by Reuters, citing a senior bureau official.

On May 20, Taiwan’s legislature passed amendments to its national security act and a law governing relations with China. The amended national security legislation criminalized “economic espionage,” setting out a punishment of up to 12 years in prison and a fine of up to $3.4 million for people illegally transferring core technology from the island.

Taiwan has prohibited Chinese investment in some parts of the semiconductor supply chain, including chip design, and requires reviews for other areas such as chip packaging.

Alex Wu, Andrew Thornebrooke, and Dorothy Li contributed to this report.

Jessica Mao
Jessica Mao is a writer for The Epoch Times with a focus on China-related topics. She began writing for the Chinese-language edition in 2009.