【Global Times special correspondent Han Wen, Global Times reporter Zheng Xuan】TSMC is communicating with the United States on chip subsidy rules and expressing concern about the terms of subsidies - TSMC made this statement on April 10, 10 days after the US chip subsidy application began. According to the Chips and Science Act of 2022, Washington will provide more than $50 billion in industry subsidies to chip companies, inviting them to build factories in the United States, and Washington will also provide them with investment tax credits. However, this seemingly generous policy is actually full of "poison pill clauses", so that South Korean semiconductor companies such as TSMC and Samsung Electronics dare not speak out, and are in a dilemma under the high pressure of the United States. How is the "chip subsidy trap" in the United States set? Can chip companies escape?
In addition to the golden jade, the "poison pill" is among them
According to media reports such as the Wall Street Journal and South Korea's Hanmin Ilbo, on August 9, 2022, US President Joe Biden signed the $280 billion Chip and Science Act of 2022 (hereinafter referred to as the "CHIP Act") into law, of which about $200 billion will be used for scientific research, $52.7 billion will provide subsidies to the chip industry, and about $24 billion will be used for chip enterprise investment tax credits. The remaining about $3 billion is spent on projects to develop cutting-edge technologies and wireless supply chains. Of the $52.7 billion in subsidies for the chip industry, about $39 billion will be used to fund new construction and expansion of chip manufacturing facilities, and $13.2 billion will be used for technology research and development and workforce training.
U.S. President Joe Biden speaks at the groundbreaking ceremony of a chip factory in Ohio on September 9, 2022. (Visual China)
On March 21, the United States released proposed rules aimed at preventing subsidies for the chip industry from being exploited by "countries of concern" such as China. A week later, the United States issued a "detailed guide" for companies building semiconductor production facilities in the country to submit information when applying for subsidies. These rules and guidelines are not only lengthy and complicated, but also contain many "poison pill clauses", including that when applying for subsidies, companies must submit not only general business information such as overall investment financing plans, but also sensitive core trade secrets such as semiconductor "yields". Some of the rules are also quite rogue, such as for companies that receive more than $150 million in subsidies, if profits exceed expectations, the United States will recover some subsidies, up to a maximum of 75% of the total subsidy. In addition, the United States hopes to improve the quality of its labor force and requires subsidized companies to provide employees with high-level childcare services. At the same time, Washington has also advised subsidized businesses to use U.S. building materials and renewable energy.
According to the Carnegie Endowment for International Peace, a U.S. think tank, the U.S. has zero manufacturing capacity for cutting-edge logic chips (5 nanometers and below), while 67 percent of the chip's manufacturing capacity is located in Taiwan, China, and 31 percent in South Korea. The United States not only wants to create at least two manufacturing clusters of advanced process chips by 2030 through the subsidy program, but also hopes to curb the development of the Chinese mainland chip industry and economy. The relevant subsidy plan stipulates that the advanced semiconductor production capacity of enterprises receiving US subsidies in the Chinese mainland next 10 years shall not increase by more than 5%, and the expansion of existing general semiconductor production capacity shall not exceed 10%; If a company jointly researches or shares a technology license with a "country of concern" such as China, the full subsidy must be refunded.
According to the relevant plan, from March 31, enterprises that want to build cutting-edge semiconductor production facilities in the United States and receive subsidies can submit applications to the US government; Starting June 26, companies that want to build other types of semiconductor production facilities in the United States can submit applications. After submitting a letter of intent to invest, applying in advance, relevant materials, formal application and other stages, the United States will select the subsidy recipients. The Commerce Department said that selected companies after evaluation will receive a direct subsidy of 5 to 15 percent of the amount invested. Direct subsidies plus loans and loan guarantees can support up to 35% of the total investment.
The cost is high and the potential loss is large, and it is difficult for the applicant company to profit from it
After the introduction of the US chip subsidy rules, many global chip industry giants, including TSMC and Samsung Electronics, were full of concern and even anger about the relevant regulations. In the final analysis, this is because the chip subsidy rules introduced by the United States can be described as completely harmful to others, and it is difficult for applicant companies to profit from them.
First of all, compared with the tens of billions of investment in the chip industry, the $52.7 billion in subsidies in the United States is not large. South Korea's Samsung Electronics is expected to invest USD 17.3 billion in a plant in Texas, and TSMC in Arizona USD 40 billion. According to the US consulting firm Gartner, global chip companies will invest $146 billion in building new production capacity and developing new technologies in 2021, of which TSMC, Samsung Electronics and Intel account for nearly 3/5. At the beginning of 2022, TSMC set a capital expenditure budget between $40 billion and $44 billion. The U.S. government wants to increase the country's share of the semiconductor market. TSMC founder Zhang Zhongmou previously bluntly said that it is absolutely not enough for Washington to achieve this goal by subsidizing tens of billions of dollars. According to government data, U.S. semiconductor production now accounts for only 12 percent of the global market, compared to 37 percent in the '90s.
Second, the cost of building and operating chip factories in the United States is higher than that in Asia, and the higher costs are offset by subsidies provided by the US government, and whether relevant companies can get real benefits needs to draw a big question mark. "100 to 78", this is the comparison calculated by the Semiconductor Industry Association of the United States and the cost of operating a cutting-edge semiconductor factory in the United States and Asia (Taiwan and South Korea) for 10 years. In other words, if you need 100 won in the United States, you will need 78 won in South Korea and Taiwan, and only 63 won in Chinese mainland. This also means that the operating costs of cutting-edge semiconductor factories in the United States are about 25% higher than in South Korea and Taiwan. Zhang Zhongmou said in a conversation with Miller, author of "Chip Wars", on March 16 that he had previously estimated that the cost of semiconductor production in the United States was 50% higher than that of Taiwan, and later felt that this was still an underestimate, "It may be doubled!" ”
High inflation in the United States will also further push up costs for these companies and dilute the benefits offered by U.S. subsidies. Reuters recently quoted three people familiar with the matter as saying that because of the impact of inflation, Samsung Electronics' chip factory in Texas was originally planned to invest about $17 billion, but the final investment may exceed $25 billion, $8 billion higher than expected. In comparison, Samsung's factory can receive between $850 million and $2.55 billion in direct subsidies from the U.S. government, and may receive up to $5.95 billion if credit and other support is included. In other words, in addition to various subsidies and funding from the US government, Samsung Electronics' investment in this factory will "lose" about $2 billion due to inflation alone. South Korea's "Chosun Ilbo" quoted analysts as saying that because of inflation, there may be a situation where the more factories are built in the United States, the greater the loss.
Third, even if chip companies profit from their investments in the United States, they will face the problem of sharing profits with the U.S. government and leaking secrets. "This so-called profit-sharing clause is actually taking away what they give [through subsidies]," Kim Yangpeng, a senior researcher in the semiconductor field at the Institute of Industrial Economics and Trade, a South Korean think tank, told the Wall Street Journal. A South Korean chip industry source said it was unclear how the U.S. would calculate the profits of companies applying for subsidies that exceeded expectations, "When the business is booming, they (the United States) want to take a part of our profits; But when the industry is at a low point, they won't return our money." Kim Sun-woo, an analyst at Seoul-based Meritz Securities, pointed out that given the importance of the technology gap between chip companies, leaking confidential information could be fatal for semiconductor manufacturers.
Finally, the United States stipulates that subsidized companies cannot Chinese mainland "substantially expand production capacity" for 10 years, and the potential losses caused by this to companies with large investments in China such as Samsung Electronics are difficult to calculate. In the semiconductor field, South Korea's exports to China are close to 40%. Samsung Electronics' China factory accounts for 30 to 40 percent of the company's total chip production. Samsung Electronics has invested a total of 33 trillion won (1 yuan about 192 won) to operate a chip factory in Xi'an since 2021, and its NAND flash memory chips account for 40% of the company's total production. South Korea's SK Hynix, the world's second-largest memory chip maker, produces nearly half of the company's DRAM chips at its Wuxi factory.
They do not want to be siphon by the American "semiconductor black hole"
"The United States demands sacrifices from its allies in an attempt to become a 'semiconductor black hole.'" South Korea's "Hanmin Ilbo" commented that in order to win the technological competition with Chinese mainland, the United States has been tying South Korea, Japan, and Taiwan to promote the so-called "semiconductor alliance". The United States is trying to reorganize the global semiconductor division of labor. In this system, the design is dominated by the United States, production is dominated by South Korea and Taiwan, and parts and materials are dominated by Japan. It can be seen that the United States hopes to attract South Korean and Taiwanese companies to the United States through subsidies, and eventually expand the US semiconductor production capacity. However, the United States, which has always emphasized its alliance, has pushed the South Korean semiconductor industry as a whole into a dilemma, and Washington is likely to force South Korean semiconductor companies to make life-and-death choices and concessions.
Liang Xiangzi, who has worked for Samsung Electronics for nearly 30 years, said in an interview with Fortune magazine that she is worried that South Korea will become a "technology colony" of the United States. Liang Xiangzi helped Samsung Electronics dominate the global memory chip manufacturing field. There are also South Korean media fears that the country will repeat the mistakes of Japan in the 80s of the last century. South Korea's "Herald Economy" said that in the 80s of last century, the Japanese semiconductor industry began to decline because of restrictions by the United States. "Is it really necessary to go to the U.S. when the attractiveness of investing in the U.S. has actually dropped significantly? Plans to build a U.S. production base should be revisited. "There are also more and more voices in the Korean semiconductor industry questioning investment in the United States.
U.S. chip subsidy rules put South Korean companies in a position where they need to weigh complex functional relationships. In this context, South Korean companies have not actively applied for chip subsidies in the United States. SK Hynix CEO Park Jung-ho said that the US chip subsidy application process is quite difficult, the company in the United States to build a factory is for packaging, which makes it impossible to further calculate the total production information required by the US government, so in the future will be more careful to consider whether to apply for subsidies from the US government. The Korea Times said Samsung Electronics is cautious about U.S. chip subsidy rules, saying it is too early to decide whether to apply for subsidies. A Samsung Electronics spokesman said the company is currently reviewing U.S. subsidy rules.
Like South Korean companies, TSMC is hesitating. According to Taiwan's Zhongshi News Network reported on March 31, TSMC Chairman Liu Deyin said that some chip subsidy regulations in the United States are unacceptable, and in the matter of technology export control, the operation of manufacturers in Taiwan cannot be negatively affected, so it is still discussing subsidy rules with the US government. Taiwan's former "legislator" Guo Zhengliang said that TSMC's US chip production line has just broken ground and has been attached to a large number of conditions, and TSMC has no reason to build a second production line in the United States.
There is no other way?
However, the "Korean National Daily" believes that although the subsidy rules in the United States are very strict, it is difficult for South Korean companies to refuse to apply for subsidies or interrupt investment in the United States. South Korean companies' investment in the U.S. goes beyond simply adding production facilities and is included in the U.S.-centered semiconductor supply chain strategy. South Korean companies can only carefully analyze the impact of the various conditions proposed by the United States, and hope for the negotiating power of the Yoon Seok-hyeol administration.
Du Zhigang, a researcher at the Institute of Northeast Asia of the Heilongjiang Academy of Social Sciences and chief expert of the Northeast Asia Strategic Research Institute, said in an interview with the Global Times that South Korean companies are actually facing "helpless choices." Although the United States seems to give South Korean companies the freedom to choose whether to apply for subsidies, because most of the operating software and core raw materials of the chip industry are in the hands of the United States, Japan and the Netherlands, if Korean companies do not apply for subsidies, the United States will join other allies to restrict South Korean companies, and they will fall into a more passive situation.
Some analysts said that at present, South Korean companies are entangled in whether to apply for US chip subsidies, both operational and technical factors, as well as geopolitical, economic security and industrial containment and suppression, among which non-economic factors account for a larger proportion. South Korean companies can chart a way out on technical and commercial issues, but when it comes to geopolitics, their ability to respond is greatly reduced.
A South Korean semiconductor industry source said that for the country's companies, there is no other way but to consider the time and size of investment according to the conditions of the United States. What happens if South Korean companies are finally forced to accept U.S. conditions? Du Zhigang believes that the competitiveness of South Korea's overall chip industry will gradually weaken. At the micro level, every move of South Korean companies, including the technology research and development process, will be tightly controlled by the United States. From the meso level, with the expansion of the industrial chain and investment of Korean companies in the United States, Korean companies will have to concentrate research and development in the United States, while shrinking the industrial scale of some countries that the United States does not like, and the core competitiveness of Korean chip companies, although it will not collapse overnight, will gradually decline.
Du Zhigang said that the layout of the chip industry of Korean companies in China may also be impacted, which is reflected in the scale of investment, trade scale and the advancement of technical cooperation, "high-end chip research and development is likely to be withdrawn, just like TSMC was moved away, leaving behind may be relatively traditional or conventional chips." In addition, the application of South Korean companies for US subsidies will also cause damage to Sino-South Korean relations. Since the establishment of diplomatic relations between China and South Korea, although there have been twists and turns in the development of relations, the overall trend has been positive, and if the decision of Korean enterprises is not favorable to China, the level of cooperation between China and South Korea will be affected.
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