TSMC’s Plan to Boost Chip Production in Chinese Factory Met With Opposition

May 3, 2021 Updated: May 3, 2021

Chip giant Taiwan Semiconductor Manufacturing Company (TSMC) recently announced its plan to add new production lines in its existing plant in Nanjing, China. However, an expert in China’s telecom industry penned an article to express his opposition, claiming that China may not obtain the technology it desires from TSMC, and Chinese companies will face more competition.

On April 22, TSMC convened an ad hoc board of directors meeting and approved an investment of $2.887 billion to install new production lines for 28-nanometer (nm) chips at its Nanjing plant in China, expecting mass production at a monthly output of 40,000 units by 2023, according to Taiwan’s Liberty Times.

An article by China’s telecom expert, Xiang Ligang, was published the next day and warned that TSMC’s plan will seriously hurt China’s chip industry, and called on local authorities in Nanjing to stop TSMC’s move.

China’s Chip Industry Hampered by US Sanctions

The United States has blacklisted leading Chinese semiconductor companies over security concerns–Huawei, SMIC, (Semiconductor Manufacturing International Corporation) and Feiteng, are restricted from exporting chips that are 10 nm and below. On April 16, two U.S. lawmakers sent a letter to the Secretary of Commerce, requesting chip manufacturers that use American tools should be prevented from selling 14 nm or better chips to Chinese companies.

Xiang pointed out in his article that TSMC is keeping the most advanced technology, such as 7 nm and below, as well as 90 percent of its production capacity in Taiwan. The 5 nm chip manufacturing project in Arizona, a $12 billion investment, is the only cutting-edge project of TSMC outside Taiwan.

In addition, TSMC complied with the sanction of the United States to ban export control of chip supplies to Chinese companies such as Huawei, SMIC, and Feiteng, Xiang said.

He stated that what China needs is advanced technology of 14 nm process and below, not 28nm process and above, which is mature technology.

‘China Won’t Be Able to Obtain Advanced Process Technology’

It is well-known that the Chinese Communist Party (CCP) obtains coveted key technologies from foreign countries, either by coercive technology transfer, stealing, or poaching talents.

In the past several years, China has poached hundreds of TSMC engineers, who brought trade secrets to state-owned companies. State-owned SMIC’s current vice chairman, Chiang Shangyi, and CEO, Liang Mong Song, are both former TSMC’s veteran and top experts.

However, Xiang is concerned that China won’t be able to obtain key technology from TSMC at this time.

“If we support TSMC’s production expansion in Nanjing, China won’t be able to obtain advanced process technology in chip manufacturing, and Chinese companies won’t obtain advanced chip products. Our chip industry will still be held back [by the U.S. sanctions],” Xiang wrote.

Xiang is also concerned that TSMC will crush China’s chipmakers by dumping, and hence dominating China’s market—a typical approach that CCP-controlled companies often use to crush foreign competitors.

SMIC Gets Huge Sum of State Funds

TSMC began mass production of 28 nm chips as early as 2011, and the current yield is as high as 90 to 95 percent. SMIC, China’s major chip processing company, produces a significantly lower amount of 28 nm chips compared to TSMC, according to Chinese state media. But no specific figures have ever been provided.

However, during SMIC’s publicity campaign in March, Chinese state media touted that in the manufacturing of 14 nm chips, SMIC’s yield has caught up with that of TSMC, which has achieved a 90 to 95 percent yield.

Xiang does not believe this claim, as he said TSMC could easily defeat Chinese chip companies.

The two recent large-scale production projects of SMIC are both backed by government funds. SMIC announced last month that the company and Shenzhen government would jointly invest in a $2.35 billion project for wafer production of 12-inch 28 nm and above, with a monthly output of 40,000 units, starting in 2022, according to Chinese news portal Sina. SMIC’s capacity is similar to TSMC’s projected production in its Nanjing plant and is one year earlier than TSMC.

In December last year, with the support of China’s ‘Big Fund’ phase II, SMIC invested a total of $5 billion to build a 12-inch chip manufacturing and packaging project in its Beijing plant. This project is expected to be completed in 2024, with a monthly output of approximately 100,000 wafers, Sina reported.

According to Sina, SMIC announced that from April 1 this year, the foundry price will be adjusted across the board, with price increases between 15 percent and 30 percent. A foundry refers to a semiconductor fabrication plant and its main business is to manufacture chips for other fabless IC (integrated circuit) companies. All U.S. companies are fabless companies and they rely on foundry companies in Taiwan to produce the chips they have designed.

China is currently heavily dependent on foreign chips for its tech manufacturing, though Beijing aims to domestically produce 70 percent of its semiconductor needs by 2025, under its industrial policy of “Made in China 2025.”

On Sept. 3, 2020, Beijing promised to spend an additional $1.4 trillion through 2025 to boost its semiconductor industry, according to Bloomberg, citing unnamed sources.