Where Does China's Confidence in Cutting off Intel, AMD Come from? – BusinessKorea
The global community is on edge following reports that China plans to eliminate products from American companies Intel and AMD. This move surpasses mere retaliation against the United States’ intensified semiconductor export restrictions, indicating China’s confidence in its own technological development.
China is the world’s largest semiconductor market, with a 31% share (approximately US$180.3 billion) of the global semiconductor sales amounting to US$573.5 billion in 2022. However, the country heavily relies on imports, with semiconductor imports significantly exceeding exports.
In response to the U.S.-China conflict that intensified in 2019, China, which declared a semiconductor surge in 2014 and outlined a mid-to-long-term development strategy with “Made in China 2025” in 2015, faced setbacks. The U.S. has been blocking advanced technology by controlling exports of advanced semiconductors and equipment to China.
To counteract these challenges and achieve self-sufficiency in semiconductor production, China launched its “14th Five-Year Plan” in 2021, prioritizing semiconductor development as a core national security concern. In 2019, China established a second semiconductor industry fund worth 204.1 billion yuan (US$28.72 billion), following the first fund of 138 billion yuan, investing in the localization of materials, components, and equipment.
Through continual investment, China has made progress in the domestic production of some semiconductors and equipment. According to the Semiconductor Industry Association (SEMI), China’s semiconductor equipment localization rate reached 35% in 2022, marking a 14% increase from the previous year. The Chinese semiconductor equipment market has grown by an average of 27% annually in 2021 and 2022.
Despite this progress, China’s semiconductor production capabilities were mainly limited to low-specification chips. Market research firm TrendForce reported that China holds a 31% market share in the low-specification semiconductor market, lacking significant achievements in high-specification areas.
However, the situation began to change when Huawei, a Chinese company, launched a smartphone utilizing the latest 7 nm technology in August last year, causing concern in the U.S. SMIC, the Chinese semiconductor manufacturer that developed the 7 nm technology, has built a new production line in Shanghai aiming to produce more advanced 5 nm chips.
The Financial Times (FT) noted, “Although the 5 nm chips are a generation behind the current state-of-the-art 3 nm chips, this progress demonstrates that China’s semiconductor industry is gradually advancing despite U.S. export controls.”
Signs of change emerged last year as China’s semiconductor self-sufficiency started bearing fruit. According to the Ministry of Industry and Information Technology of China, the country’s integrated circuit (IC) production volume increased by 6.9% year-over-year to 351.4 billion units. Import expenditures dropped by 15.4% to US$349.4 billion, indicating a reduction in dependency on foreign semiconductors.
The critical question remains how quickly China can catch up with leading semiconductor technologies. Analysts estimate that China is approximately two years behind in NAND the flash technology and about five years behind in advanced foundry sectors.
Despite restrictions on the export of advanced semiconductors to China, the number of local semiconductor design companies (fabless) has surged from 681 in 2014 to 2810 in 2021, rapidly closing the gap. Companies like Huawei and Alibaba are already considered competitive in designing high-performance advanced semiconductors, with Huawei maintaining the top spot in international patent applications for seven consecutive years since 2017.
The Economist stated, “Even if China succeeds in producing 5 nm chips, it will still lag significantly behind South Korea’s Samsung and Taiwan’s TSMC. However, China is steadily reducing its dependence on foreign semiconductor technologies. Although China’s substantial subsidies may be less efficient than relying on the global supply chain, they are deemed worthwhile for national security.”
The growth of China’s semiconductor industry is not unrelated to Korea. China has emerged as a formidable competitor in Korea’s mainstay areas, such as memory semiconductors, and is also a major export market for Korea. If China succeeds in semiconductor localization, a reduction in exports to China and a blow in the global market are inevitable.
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