America has banned sending advanced semiconductor chips to China. China's dominance in the field of semiconductor chips used in everyday things has increased. America and the European Union are particularly worried about this.
Semiconductor chips that are 28 nanometers or larger are called legacy chips. They are used in everything from washing machines, TVs and cars to medical equipment. These chips are not as capable as modern semiconductor chips with artificial intelligence features. However, due to China's dominance in the legacy chip market, the concerns of America and the European Union (EU) are increasing.
America has already banned the export of modern chips designed in Western countries to Chinese companies. America hopes that this will delay China's desire to become a superpower in the field of technology. In such a situation, the attention has now shifted to the legacy chip. Nearly one-third of all legacy chips manufactured worldwide are made in China alone.
China's access to modern chips has been limited. In such a situation, China has significantly increased investment in preparing advanced chip technology. In September last year, the Chinese government had announced an investment fund of four trillion dollars to promote domestic semiconductor production. After which the demand became stronger that western countries should take steps to promote their chip manufacturing companies.
Joanne Chiao is an analyst at Taiwan's chip research house TrendForce. He says, "Currently US export restrictions apply only to modern technology. The impact of these restrictions on mature technologies is limited."
America and EU will review Chinese dominance
In December last year, the Biden administration ordered a review of the entire semiconductor supply chain. So that Chinese dominance in the legacy chip market can be assessed. This week a meeting of the 'EU-US Trade and Technology Council' was held. After this, a decision may be taken by the European Commission to review the supply chain.
A statement from the council after the meeting hinted at a possible review. It was said that EU and America can take some action together, so that attention can be paid to the adverse effects of legacy semiconductors on the global supply chain.
Malcolm Penn is an analyst in the semiconductor sector. "There is pressure to do something, but the question is how effective the sanctions will prove to be," he told DW.
Semiconductor industry experts warn that if China floods the market with cheap legacy chips, Western chip companies could be driven out of the market. They say that China had similarly filled the market with cheap solar panels. Brussels says that China got unfair advantage from this.
Lam Research and Applied Materials are the two largest legacy chip companies in America. Penn says, "If companies like these lose half their market share, they will have to reduce their size. Because these companies have prepared themselves to meet the needs of a market twice the size."
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According to TrendForce data, China's legacy chip manufacturing capacity could grow at a rate of 39 percent of the total market in the next three years. The credit for this goes to the subsidy given by China.
Gavekal Dragonomics has also made a guess. According to this, this year China will increase its chip production capacity more than the rest of the world together will be able to increase. Compared to last year, this year 1 million more legacy chips will be made in China every month.
Germany ready to take the lead in chip making race
India also wants to make its place in this region. Due to this, the global capacity of chip making may be much more than required. India's Tata Group is investing 110 million dollars to build its chip factory. This factory will be built in Dholera, Gujarat.
Currently, Taiwan's chip companies have almost half of the world's chip production capacity. These companies have also changed their plans. They are now working to meet the demand for modern chips like America, South Korea and Japan.
TrendForce had made a forecast in December. According to this, due to increasing Chinese investment in the semiconductor sector, the total market share of Taiwan's chip companies may decrease.
Is there a security threat due to over - dependence on China ?
Too much dependence on China is also a matter of concern. If Western chip companies are unable to compete with Chinese companies and reduce their size, the US and the EU may become too dependent on China. Especially for those semiconductors which are used in everything from household electronic goods to military hardware and critical infrastructure.
To dominate the market, China could use economic pressure to prevent sufficient legacy chips from reaching Western countries. The outcome would have been worse than the chip shortage that occurred during the Covid pandemic. There was a delay in the delivery of vehicles and gadgets due to shortage of chips during the pandemic. It also had an impact on Apple Company's new iPhone. All this was blamed on the lack of legacy chips, not the lack of modern chips.
Semiconductor chip on display at Taiwanese chip company Halblighter
The majority of semiconductor chips used worldwide are made in Taiwan.
TrendForce's Chiao says, "Legacy chips are more valuable to customers than modern chips with AI. Despite being in the news, AI chips account for less than 1 percent of global semiconductor consumption."
For example, a shortage of legacy chips made in China could pose a problem for German car companies. These companies are already facing huge competition in the field of electric vehicles.
Restrictions , subsidies and imports from allied countries
There is agreement that America and EU should do something. But there are also concerns that the sanctions could also hurt Western chip companies.
Penn is the CEO of UK-based chip consultancy firm Future Horizons. He says, "This is the wrong solution to the right problem. Sanctions will delay China's dominance, but they will not stop it."
Penn explains, "After Russia's attack on Ukraine, restrictions were imposed on exports from Western countries to Russia. But even after this, exporters and Russian buyers found routes through other countries."
He warns, "In case of a ban, China may also impose counter-sanctions. This may lead to a reduction in chips coming from China. Companies in western countries did not increase their chip production fast enough to meet this shortage. Will get.”
Paine explains, "Even if you decide to invest more in domestic production today, chip production won't begin until three years from now. It's possible it may take longer than that, too, if the factory There should be no delay in construction and skilled workers should be available to do the work."
US and EU officials may consider imposing further sanctions on China. Industry insiders believe that export restrictions are more likely to be imposed on equipment that helps in the production of legacy chips.
America and European Union can also adopt the policy of friendshoring. Under this, production and import will be done with other geopolitical partners including India. So that their dependence on China ends.
Western countries can also give additional subsidies. So that domestic factories are encouraged to make more legacy chips. Also, it can compete with Chinese chips in terms of price also. Under the two recently passed Chip Acts, the US and EU have promised to provide subsidies worth $86 billion to the semiconductor sector over the next decade.
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