"US Pressure to 'Increase Export Controls on Chinese Companies'... Will China's Semiconductor Rise Waver?"

[Asia Economy Reporter Su-yeon Woo] Recently, the United States has been showing signs of expanding export restrictions to include more Chinese semiconductor companies, intensifying its strategy to shake up China's semiconductor industry. As the U.S. raises its level of containment, news has emerged that China's leading semiconductor company Tsinghua Unigroup has filed for bankruptcy, raising concerns that China's 'semiconductor rise' plan may face setbacks.

On the 17th, according to multiple local Taiwanese media outlets, U.S. House Representatives Michael McCaul and Bill Haggerty recently sent a letter to the U.S. Department of Commerce requesting that the Chinese semiconductor company 'Yangtze Memory Technologies (YMCT)' be included in the export control list.

"Don't sell any technology to China" - U.S. moves to shake up Chinese semiconductors

Yangtze Memory is highly related to national projects in defense and aerospace sectors, and its executives have previously worked at the Chinese foundry company SMIC. Last year, the U.S. added SMIC to the export control list, citing concerns that technology exported to SMIC could be used for China's military purposes.

Additionally, the fact that Tsinghua Unigroup, the major shareholder of Yangtze Memory, is effectively under the influence of the Chinese government appears to have raised U.S. concerns. Headquartered in Wuhan, China, Yangtze Memory leads NAND flash production in China and succeeded in mass-producing 128-layer 3D NAND flash last year. However, with Tsinghua Unigroup, Yangtze Memory's parent company, recently filing for bankruptcy, the practical reality and impact of export restrictions are expected to be limited.

In April, at the White House Semiconductor Supply Chain Restoration Meeting, U.S. President Joe Biden emphasized the importance of the supply chain while holding a semiconductor wafer. Photo by AP and Yonhap News

Nevertheless, the fact that the U.S. Congress and government continue to attempt to broaden the scope of Chinese companies subject to export controls is clearly a burden for China. The U.S. has placed representative Chinese advanced companies such as Huawei and SMIC on the export control list and is applying comprehensive pressure on China's semiconductor rise strategy by strengthening alliances with allied countries.

The U.S. collaborated with the Dutch government to block the export of ASML's advanced extreme ultraviolet (EUV) lithography equipment to China and expressed displeasure, applying pressure on Taiwan's TSMC's plan to expand its foundry plant in Nanjing, China. Furthermore, the U.S. is actively blocking mergers and acquisitions (M&A) of global semiconductor companies by Chinese capital. Recently, the U.S. Committee on Foreign Investment in the United States (CFIUS) announced it would review the appropriateness of the acquisition of MagnaChip Semiconductor, headquartered in South Korea, by Chinese capital, effectively blocking the sale.

Will China's 'Semiconductor Rise' Collapse Despite Astronomical Funding?

As the U.S. raises containment levels through various means, there are claims that the realization of China's semiconductor rise strategy may be delayed beyond schedule. In 2015, China announced the 'Made in China 2025' strategy, planning to raise semiconductor self-sufficiency rates to 40% by 2020 and 70% by 2025.

However, as of last year, the domestic production self-sufficiency rate in China was only 15.9%. Of that, the proportion produced by Chinese semiconductor companies was just 5.8% (according to IC Insights). China's share in the global semiconductor supply chain remains minimal. According to the Semiconductor Industry Association (SIA) in the U.S., China accounted for 38% in assembly, packaging, and testing sectors, but has yet to make significant strides in wafer manufacturing (16%), materials (13%), and equipment (2%). In design, shares were limited to memory (less than 1%), discrete/analog/other semiconductors (7%), logic semiconductors (5%), and fabless (16%).

China has nurtured its semiconductor industry with massive funding. In 2014, it established the National Integrated Circuit Industry Development Investment Fund (Big Fund), raising $21 billion in large-scale capital, and in 2019, attracted over $35 billion to prepare ammunition for semiconductor industry development. Additionally, China formed more than 15 local government funds totaling $25 billion, providing direct financial support separate from government subsidies.

China's Share in the Global Semiconductor Supply Chain / Source: Semiconductor Industry Association (SIA)

China's Counterattack Card: Steady Investment and Securing Technological Capabilities

Recent news of Tsinghua Unigroup's bankruptcy filing is seen as an event revealing the limitations of China's semiconductor industry. Without advanced technological capabilities, no matter how much capital is poured in, survival in the global semiconductor market competition is impossible.

On the other hand, there is a view that this bankruptcy is part of the Chinese government's 'sorting out' of semiconductor companies. The government plans to withdraw support from companies lacking technological capabilities and concentrate investments on promising firms. Hyunwoo Do, a researcher at NH Investment & Securities, said, "Despite Tsinghua Unigroup's bankruptcy filing, China's semiconductor rise is expected to continue," adding, "Changxin Memory, GigaDevice, and SMEE, which have recently attracted China's attention, plan to launch new products through technological growth."

Chinese memory semiconductor company Changxin Memory (CXMT) produces DRAM using a 19nm process at its Hefei plant and is preparing to upgrade to a 17nm process in the second half of this year. GigaDevice also began mass production of DDR4 DRAM using a 19nm process from June.

To respond to U.S. semiconductor equipment export restrictions, China is purchasing large quantities of used equipment from Japan and developing its own semiconductor equipment technology. Shanghai Micro Electronics Equipment (SMEE) plans to release lithography equipment capable of 28nm production by the end of this year and is reportedly preparing to launch 14nm equipment by 2022.

Christopher Taylor, a researcher at Strategy Analytics, said, "I believe China will succeed in domesticating its own 14nm equipment by 2022," adding, "Although 14nm chips are not cutting-edge, they are widely used in many low-cost smartphones and other devices, and over 95% of currently consumed semiconductors are produced at 14nm process or above."

South Korea's Response Caught Between the U.S. and China... Ultimately 'Technological Capability'

As the U.S.-China hegemony battle intensifies in the global semiconductor market, concerns are also raised about South Korea's semiconductor industry caught in the middle. Experts say that in the short term, attention should be paid to the negative impact of U.S. sanctions on China on our industry, but in the long term, it is also necessary to check China's accelerating technological innovation.

They also emphasize that as U.S.-China conflicts deepen, pressure to choose between the two will increase, and securing 'advanced technological capabilities' is most important for South Korea's proactive decision-making.

Wonho Yeon, a senior researcher at the China Economy Division of the Korea Institute for International Economic Policy, said, "China's technological innovation productivity surpassed the U.S. as early as 2014 and is increasing productivity faster than South Korea," warning, "If we are overtaken by China even in innovation productivity, we will lose the opportunity to secure autonomous space for realizing national interests."

He added, "In an unpredictable changing trade order, developing our technological capabilities is the most important and urgent task," and "Ultimately, if we possess the 'technological capabilities' that the counterpart needs, we can also be respected."

This content was produced with the assistance of AI translation services.