Introduction
China’s aggressive pursuit of legacy chip production has raised alarm among U.S. and European officials, who fear the country’s growing influence in the global economy. Legacy chips, despite being older-generation semiconductors, remain critical components in various industries, including smartphones, electric vehicles, and military hardware. As President Joe Biden implemented controls on China’s access to advanced chips used in AI and military applications, China responded by investing heavily in legacy chip factories, sparking concerns about potential leverage and influence. The U.S. and Europe are now considering strategies to contain China’s expansion in this market to safeguard economic and national security interests.
China’s Focus on Legacy Chips
Beijing’s decision to invest billions in factories producing legacy chips has raised fresh fears about China’s influence and market dominance. These chips, manufactured with 28-nm equipment or above, are still vital for multiple sectors worldwide. The concern is that Chinese companies might flood global markets with these legacy chips, undermining foreign competitors and creating dependencies on China for essential technology components.
The Economic and Security Implications
European and U.S. officials are increasingly worried about the economic and security implications of China’s dominance in the legacy chip market. They fear that Chinese firms might resort to nonmarket behaviors, similar to what happened in the solar industry, which could have severe repercussions for Western companies. Relying on China for critical tech components, especially in defense equipment, may pose significant national security risks.
Read more: China’s Bold Move Shakes Up Microchip Industry
Supply Chain Disruptions During the Pandemic
The Covid-19 pandemic underscored the importance of legacy chips, as supply shocks caused disruptions for companies like Apple and car manufacturers. The shortage of these chips resulted in substantial financial losses for businesses across different industries. Legacy chips, such as power management circuits, are integral to the functioning of smartphones, electric vehicles, and military gear like missiles and radar.
Efforts to Decrease Reliance on Asia
The U.S. and Europe have taken steps to bolster domestic chip production and reduce reliance on Asian markets. Initiatives like the Biden administration’s $52 billion CHIPS and Science Act aim to support local chip factories. However, concerns arise about the reluctance of domestic producers to invest in facilities that would compete with heavily subsidized Chinese plants.
Impact of U.S. Rules on China’s Chipmaking Capabilities
Although U.S. rules implemented in 2020 slowed down China’s development of advanced chipmaking capabilities, they did not significantly affect China’s use of techniques older than 14-nanometers. As a result, Chinese firms have been building new plants faster than anywhere else globally, with forecasts predicting the construction of 26 fabs using 200-millimeter and 300-mm wafers by 2026.
China’s Continued Supply to the West
Despite rising tensions between the U.S. and China, heavy investments by Chinese companies have allowed them to maintain their supply to the West. Semiconductor Manufacturing International Corp., China’s leading chipmaker, managed to secure about 20% of last year’s sales from U.S.-based clients, including Qualcomm Inc., even after being blacklisted by the U.S. government.
Conclusion
The accelerated push by China into the production of legacy chips has sparked concerns among U.S. and European officials about the country’s potential influence and leverage. To safeguard economic interests and national security, these nations are considering new strategies to contain China’s expansion in the legacy chip market. As the global economy becomes increasingly reliant on such critical technology components, the issue requires careful consideration and cooperation between nations and companies alike.
