Lost $400 billion in profits? This chip war wants to lock Chinese chips in the domestic market

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2024-05-19 17:41Posted in Guangdong science and technology creators

Text/Wang Xinxi

According to Bloomberg, the United States has taken the lead in setting off a "subsidy frenzy" at a time when the United States has escalated chip export restrictions and tried to coerce allies to suppress Chinese semiconductors, and large economies led by the United States and the European Union have invested nearly $81 billion in R&D and mass production of next-generation semiconductors, and this is only the first batch of funds in place. Leading semiconductor companies such as Intel and TSMC have received nearly $380 billion in government subsidies around the world to boost production of more advanced chips.

According to Bloomberg, there is one potential danger that has cast a shadow over the surge in government subsidies around the world: chip "overcapacity".

After the sudden cancellation of Qualcomm and Intel's chip export licenses to Huawei, the purpose behind this new wave of chip subsidies and production expansion in the United States is to lock China's chip industry in the domestic market, and the research institute Market.us released a report predicting that the semiconductor market is expected to reach $673.1 billion in 2024. There is a view that if China suffers a heavy setback in this chip war, it may face a loss of profits of up to $400 billion.

But the United States may have miscalculated.

With one foot on the brakes and one foot on the accelerator, Lao Mei took the lead behind the chip subsidy competition

As early as 2022, U.S. President Deng signed the CHIPS and Science Act of 2022, committing to a total of $39 billion in grants for chipmakers, as well as an additional $75 billion worth of loans and guarantees and up to 25% tax credits, of which about $32.8 billion has been distributed. The Semiconductor Industry Association (SIA) predicts that by 2032, the United States is expected to account for 20% of the world's advanced logic chip production, second only to Taiwan Province in terms of market share.

Europe, Japan, South Korea, and South Korea have also heavily subsidized in the past two years, and the European Union has previously formulated its own 45 billion euro 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.

Since June 2021, the Japan External Trade Organization (JETRO) has raised about $25.3 billion for its chip activities. Of this amount, $16.7 billion has been allocated to two TSMC foundries in southern Kumamoto and another foundry in northern Hokkaido, Rapidus, a local Japanese company, with the goal of mass production of 2nm logic chips in 2027.

South Korea plans to build a large chip cluster south of Seoul by 2047. In June last year, South Korea's Ministry of Trade, Industry and Energy announced the establishment of a new fund worth 300 billion won for the chip industry. It is understood that the fund is funded from many sources. Among them, South Korea's two largest chip manufacturers, Samsung Electronics and SK hynix, pledged to invest 75 billion won.

The United States, Europe, Japan and South Korea have invested a lot of huge subsidies to make chips, which will bring overcapacity of chips, and they also know this truth. In order to avoid falling into oversupply, the West has already coordinated within the organization, exchanging information on the scale and content of support, and rationally allocating the types of production.

The exchange of information between Japan and the United States, as well as between the United States and the European Union, will begin to form a joint network of three countries and regions, and each country will work together to establish a stable supply chain. The sharing of information will provide a reference for which country produces which chips in order to ensure the required quantities in the event of an emergency.

What is the purpose of the United States pulling its allies to sanction China, a chip buyer, while subsidizing the expansion of chip production

Some netizens pointed out sharply: "It's like pressing the brakes with one foot desperately and pressing the accelerator with the other." Sooner or later, the car will be broken. ”

Can't they see this for themselves? Not necessarily, they know that the development of China's chips cannot be restricted in the long run, but they are more worried about the expansion of China's chip industry in overseas markets.

The United States, Europe and Japan subsidize the expansion of production, what is the calculation? I saw the threat of China's chip exports

According to public data, in the past three years, the mainland has spent an average of $400 billion a year to import chips. In 2021, the number of chips imported by the mainland will be 635.5 billion, and the orders of that year will eat up more than 60% of the production capacity of the global chip market.

However, due to U.S. sanctions, domestic chip imports are declining year by year, falling to $415.6 billion in 2022 and $349.5 billion in 2023.

Dropped to 349.5 billion US dollars, the demand for 100 billion US dollars that disappeared was replaced by domestic production.

In terms of domestic demand for chips, mature process chip products can be used in new energy vehicles, autonomous driving, home appliances, communications, as well as Internet of Things devices, routers and set-top boxes, which can basically meet 80% of the market demand.

In this case, the United States, Europe and Japan will increase subsidies and expand production in an all-round way, but will not sell to China, what is the calculation?

We know that whether it's Europe, Japan or the United States, they are all export-oriented countries, and they want to be free to give them a share of the cake in the chip market outside of China.

But in recent years, China has increased investment and R&D in chips. In 2023, the self-sufficiency rate of domestic semiconductor equipment will exceed 40%, and it is planned that by 2025, the self-sufficiency rate of mainland chips will reach 70%.

The data shows that in the quarters from January to March 2024, a total of 98.10 billion chips were produced in China, a year-on-year increase of 40%, and the output was three times that of five years ago.

At the same time, customs data shows that in the first four months, the amount of chips we exported was as high as 355.24 billion yuan, an increase of 23.5%, which also set a new record.

The export rate is higher than the import rate, which means that some of China's mature process chips are exported to overseas markets, which makes the United States feel threatened. On the one hand, it is necessary to limit the development speed of China's chip computing power. On the one hand, it is to unite its allies to expand the scale of chips, expand production capacity, and the price will naturally decrease, so that they have an advantage in the cost performance and performance of chips in overseas markets, leaving less space for Chinese chips overseas.

If China is unable to take the lead in advanced chips, then in the fields of AI computing power, electric vehicles and smartphones, the Western chip industry, led by American companies, can freely share the cake overseas.

The essence of the expansion is to lock China's chip industry in the domestic market

Market.us The global semiconductor market is expected to grow significantly and reach $673.1 billion in 2024, with a compound annual growth rate of 8.8% between 2023 and 2032. The semiconductor market is expected to grow to $1.3 trillion by 2032.

It is conservatively estimated that the average annual profit brought by the global overseas chip market to Chinese chips may reach hundreds of billions, which may bring temporary difficulties and blows to China's chip exports. The United States, together with Europe and Japan, has expanded production and restricted the flow of advanced chips into the Chinese market, which is essentially to lock China's chip industry in the domestic market.

China should remain vigilant about this, the purpose of this joint expansion strategy is not only to make China lose the ability to obtain advanced chips, but also to hinder industrial upgrading in many fields, and widen the technological gap with the other side. It also makes China unable to eat up the mature chip market in overseas markets.

However, in the face of interests, the United States, Europe, and Japan are not monolithic, and Japan and Europe have always had a strong demand for opening up trade with China. However, the United States, Japan and South Korea subsidize the expansion of production capacity, and the cake that major enterprises can get is limited, and it is becoming more and more difficult to maintain the growth momentum.

Therefore, when the mass production of chips does not have enough market and profits, the distribution of interests and differences between countries will become larger, the profits within the enterprise will shrink, and their alliance interests will be difficult to maintain. In the past, some European countries were also building chip factories with China.

Judging from the gradual decline in chip imports and the gradual expansion of chip exports, in China, the concept of "making is better than buying" has been eliminated, in the field of artificial intelligence chips, American manufacturers Nvidia, Qualcomm and Broadcom are in a leading position, but China now has more semiconductor factories than anywhere else in the world, and while producing traditional semiconductors, China's local enterprises have accumulated professional knowledge and talents, China's huge demand is forcing out more possibilities, especially to promote the inflow of chip talents and investors.

Over the past 20 years, Europe's big tech companies, especially semiconductor and telecom equipment manufacturers, have lost more than 30,000 skilled workers, most of whom have chosen to return to China, according to the data.

Therefore, the United States wants to lock Chinese chips in the domestic market, but it is likely to miscalculate. The alliance is not monolithic, China's production capacity is large enough, to fight a price war, China has never been afraid of any opponent, trying to expand production by uniting allies, joint efforts to lower market prices, and prevent China's development in overseas markets, this kind of calculation is likely to fail, we will wait and see.

Author: Wang Xinxi, Senior Reviewer of TMT This article is not reproduced without permission

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