Drop $81 billion! The United States and Europe have heavily subsidized chips, and the US media: the industry may face a "potential danger" of oversupply

Source: Global Times

[Global Times reporter Chen Zishuai, Global Times special reporter Ren Zhong] "The global chip battle is intensifying, and $81 billion in subsidies is 'surging'. Bloomberg recently reported that large economies, led by the United States and the European Union, have invested nearly $81 billion in research and development and production of next-generation semiconductors, thus "intensifying competition with China in the field of cutting-edge technology, a key turning point that could shape the future of the global economy."

The Commerce Department announced last month that it would provide $6.4 billion in subsidies to South Korea's Samsung to support its construction in Texas. The picture shows Samsung's Austin semiconductor factory. (Visual China)

Most of the U.S. subsidies go to top companies

According to Bloomberg, the U.S. subsidy program has reached a critical juncture. U.S. officials announced late last month a $6.1 billion subsidy to Micron Technology, the largest U.S. memory chip maker. In early April, the U.S. Department of Commerce also announced a $6.6 billion direct funding subsidy for TSMC and a $5 billion low-interest government loan. In March, the U.S. Department of Commerce and Intel signed a non-binding preliminary memorandum of term to provide Intel with $8.5 billion in direct funding subsidies and $11 billion in federal loan guarantees to advance the construction of its projects.

Opening the floodgates of this funding is the CHIPS and Science Act signed by US President Joe Biden in 2022. The bill commits a total of $39 billion in grants to chipmakers, complemented by $75 billion worth of loans and guarantees, as well as tax credits of up to 25 percent. This is one of Biden's important moves to revive the domestic semiconductor industry and provide society with a large number of new factory jobs.

Wu Quan, president of Huaxin Jintong Semiconductor Industry Research Institute, told the Global Times reporter on the 15th that most of the U.S. subsidies flow to Intel, TSMC, Samsung, Micron, which are already in the leading position in the entire semiconductor field and subdivision track, and the relevant subsidies will further improve the industry discourse and industrial competitiveness of these enterprises, thereby consolidating the dominant position of the United States in this field. He further said that although the subsidies in the United States do not specifically point to which chip application fields to support, from the perspective of the construction and orders of semiconductor manufacturers such as Intel and TSMC, key chips, automotive chips, and artificial intelligence chips will be the "beneficiaries" of these subsidies.

According to the report, these subsidies of the United States are not only to "counter Chinese mainland", but also to narrow the gap with Taiwan and South Korea in advanced semiconductors. The "subsidy boom" has also intensified competition between the United States and its European and Asian allies, all of which want to take a slice of the growing demand for chips at a time when artificial intelligence and quantum computing are rapidly evolving.

At the same time, the United States has pressured its European and Asian allies to impose export controls on cutting-edge equipment. According to the report, the Biden administration is now trying to "fill other loopholes", including chip equipment repairs, etc., which has put pressure on chip equipment exporters such as the Netherlands and Japan. Wu Quan believes that the United States intends to enhance its competitiveness in the semiconductor industry, but in the process, it will also invisibly squeeze or hit the industries of allies such as Japan and South Korea, weakening the latter's capabilities.

Jimmy Goodrich, senior advisor for China strategic technology at the RAND Corporation, said, "There is no doubt that we [the United States] have 'crossed the Rubicon' when it comes to competing with China in technology, especially in the semiconductor sector." Both sides regard this as one of their most important national strategic objectives. ”

Countries join the 'subsidy race'

The EU has previously developed its own €45 billion ($48.8 billion) plan. The European Commission estimates that public and private subsidies in this area will total more than US$108 billion, mainly to support large manufacturing bases. However, some experts believe that the EU's subsidy program is not enough to meet the goal of 20% of global semiconductor production by 2030.

Japan is not far behind. Last month, Kishida's government approved subsidies of up to $3.9 billion to Japanese semiconductor company Rapidus. The company aims to mass-produce 2-nanometer chips in 2027. According to Korea Business Week, Japanese Prime Minister Fumio Kishida aims to invest $64.2 billion in semiconductors.

But as previously reported by Nikkei Asian Review, an important source of Japan's semiconductor subsidies is the GX bonds issued by the Japanese government to achieve net-zero greenhouse gas emissions by 2050. However, during the implementation of the bond, the demand was less than expected, which made it difficult to secure the related semiconductor subsidy funds. So far, the actual amount of financial support for Japan's semiconductor industry is less than 500 billion yen (about 3.22 billion US dollars).

On May 12, South Korea's Ministry of Finance announced that it would soon unveil a $7.3 billion chip plan to further advance the field. Minister of Trade, Industry and Energy Ahn De-geun said earlier this month that it would be difficult for South Korea to introduce direct subsidy support packages, but the government is working hard to create an environment conducive to long-term investment.

In addition, some emerging economies have also begun to join the global chip "subsidy race". In February, India approved a $15.2 billion investment plan for semiconductor manufacturing plants. Saudi Arabia's Public Investment Fund is considering an unspecified "large-scale investment" this year to enter the semiconductor sector.

A potential hazard

However, Bloomberg reported that in the context of the surge in chip subsidies, the industry may face "a potential danger", that is, some chips are oversupplied. Sarah Lasso, an analyst at research firm Bernstein, said that these investments are all driven by government investment, rather than primarily market-driven investment, which could ultimately lead to an oversupply. However, the longer time it takes for planned new capacity to come online reduces this risk.

According to reports, at present, in the field of artificial intelligence chips, American manufacturers such as Nvidia, Qualcomm and Broadcom are in a leading position. But there is debate about how big that lead is. Some experts believe that China is catching up in this regard. They argue that China now has more semiconductor factories than anywhere else in the world, and that while producing traditional semiconductors, local Chinese companies have built up the expertise needed to make the technological leap.

In addition, Bloomberg quoted Paul Triolo, a former U.S. government official and China technology policy researcher at Albright Stonebridge Group, as saying: "The U.S.-led crackdown has provided a tremendous incentive for Chinese companies to improve their capabilities, upgrade their value chains, cooperate with each other, and push the government to provide more support for the development of the industry." ”