As US seeks to impose new sanctions on China's chip sector, huge Chinese state investments are expected to drive down global chip prices, raising international economic tensions.

Robert Clark, Contributing Editor, Special to Light Reading

March 22, 2024

3 Min Read
Black and blue microchip.
(Source: Andrew Berezovsky/Alamy Stock Photo)

The US-China chip war looks just about ready to crank up again, with signs Washington is planning new sanctions on Chinese firms. In the latest development, a senior Commerce Department official said China's SMIC had "potentially" broken US law by making 7nm chips for Huawei's smartphone.

In testimony to Congress Thursday, Under Secretary of Commerce for Industry and Security Alan Estevez said that although he couldn't go into specifics, the department had "concerns" about the Chinese chipmaker.

Earlier this month, Bloomberg reported that the Commerce Department was targeting a "secret network" of firms believed to be working with Huawei to circumvent US sanctions. 

These include chipmakers Qingdao Si’En Integrated Circuits and Shenzhen Pensun Technology Co, memory specialist SwaySure, and China's biggest memory chipmaker, ChangXin

Also likely to be targeted are equipment-makers Shenzhen Pengjin High-Tech and SiCarrier, who are suspected of helping Huawei to obtain blacklisted chip-making gear. Huawei denies the claims.

The existence of this clandestine supply chain was revealed in a presentation by the chief US chip trade body, SIA, last August, also reported by Bloomberg.

$150 billion in state investments 

Huawei, backed by $30 billion in government funding, is said to have acquired two existing chip fabs and built several more as part of this national effort to create China's own advanced chip-making capabilities. Huawei is also alleged to be lending its expertise and financial support to smaller companies in the supply chain.

While the intention of US officials seems quite clear, they are moving slowly as they try to craft new rules that are targeted and enforceable and also cause minimal blowback on chip companies in the US and allies like South Korea and Japan.

Their rhetoric has shifted from ‘decoupling’ to describing the sanctions regime as 'high fence and small yard', aimed at targeting just strategic and advanced chip technologies. 

Not everyone agrees with this approach – some argue it is still too broad. However, most experts do think it was inadequate enforcement that allowed Huawei and SMIC to create the breakthrough 7nm chip last year.

But an emerging problem for the US and its global chip coalition is the possibility of a semiconductor glut and price war as a result of China's heavy state investment.

Chinese authorities have just raised around 200 billion Chinese yuan (US$28 billion) from government agencies and SOEs for their latest semiconductor fund that will drive the development of the national chip industry. 

The Economist Intelligence Unit (EIU) estimates that the Chinese state has tipped more than $150 billion into the industry since 2014.

The EIU says it expects China's chipmaking processes will remain several generations behind the global cutting edge, but warns that the huge level of investment will expand the production of mature chip products and drive down global prices.

"China's state-driven investment in mature-node production will pressure the prices of 'legacy' chips worldwide, through both oversupply and cost advantages," the EIU said in a research note.

This would "pose downside price risks to markets heavily involved in that space," including firms in other Asian markets as well as Chinese companies, it said. 

Additionally, it cautioned that the Chinese government's financing push would also exacerbate international tensions over its state-led economic model.

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About the Author(s)

Robert Clark

Contributing Editor, Special to Light Reading

Robert Clark is an independent technology editor and researcher based in Hong Kong. In addition to contributing to Light Reading, he also has his own blog,  Electric Speech (http://www.electricspeech.com). 

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