China’s Push for Dominance in Legacy Chip Production
In recent years, the United States has been actively working to curb Chinese production of high-end semiconductors, focusing on advanced chip production within its own borders. However, China has responded with its own strategy, specifically targeting the production of less advanced but widely used “legacy” chips. Recent data indicates that Beijing is making significant strides in this market segment, posing a potential threat to the global semiconductor industry.
According to a report by the Silverado Policy Accelerator, a nonprofit think tank, China is slated to establish three times more chipmaking capacity in 2024 alone compared to all other countries combined over the next three years. By 2027, the country is projected to control approximately 40% of overall legacy chip production, as per analysis by the Rhodium Group.
Sarah Stewart, CEO of Silverado, highlighted China’s aggressive tactics in the legacy chip market, which include providing below-market loans and various subsidies not offered by other nations. This approach has led to concerns that overcapacity in Chinese production could parallel the challenges seen in industries such as solar and steel, potentially leading to a global price collapse.
The impact of China’s efforts is already evident, with Chinese firms offering prices up to 30% lower than their non-Chinese counterparts. This aggressive pricing strategy has enabled companies like Semiconductor Manufacturing International Corporation (SMIC) and Hua Hong to gain market share at the expense of non-Chinese competitors.
Despite the focus on advanced chip production in the US, legacy chips play a crucial role in various everyday technologies, from smartphones to medical devices. While the Biden administration has allocated significant investments for advanced chip production, the emphasis on legacy chip manufacturing has been comparatively lower due to concerns over national security risks associated with supplying advanced technologies to China.
China’s rapid expansion in chip manufacturing is supported by initiatives such as the National Integrated Circuits Industry Development Investment Fund, which aims to further develop semiconductor fabrication and design capabilities. As China strengthens its position in the global semiconductor market, policymakers and industry leaders are increasingly alarmed by the potential implications of China’s growing dominance in legacy chip production.
In response to these developments, US lawmakers and industry leaders are calling for strategic measures to counter China’s semiconductor ambitions, emphasizing the need for policy support and collaboration among US allies. The European Commission is also taking steps to assess the impact of Chinese firms using older chips to undercut competitors.
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