US Experts Concerned About China Cornering Market for Older Chip Technology

The Semiconductor Manufacturing International Corp. (SMIC) headquarters in Shanghai, on March 23, 2021. Qilai Shen/Bloomberg via Getty Images

With Chinese firms increasingly focusing on boosting the production of older-generation semiconductors, experts in the United States and the Western world are concerned that the development poses a significant international security threat.

The older-generation chips are still critical for various technologies. For instance, 28-nanometer chips have been in use since 2011 in weapons, vehicles, internet of things devices, and so on. The importance of such chips to the global economy has become evident in recent years as a shortage led to widespread global disruption in the manufacturing of consumer electronics and cars.

In the past, China has used its dominance in key technologies to flood international markets with cheap products while crushing the competition.

China could do the same with older chips, pointing to how the nation dominates 5G telecom equipment and solar panel markets, Matt Pottinger, former deputy national security adviser during the Trump administration, said in an interview with Reuters.

“It would give Beijing coercive leverage over every country and industry—military or civilian—that depend on 28-nanometer chips, and that’s a big, big chunk of the chip universe,” Pottinger said.

China’s largest chip maker, Semiconductor Manufacturing International Corp. (SMIC), which has the backing of Beijing, has announced four new fabrication facilities since 2020. When the facilities become operational, it could more than triple the firm’s production output, according to Samuel Wang, Gartner chip analyst.

“All this will start to have an impact from early 2024 and will be full-blown by 2027,” Wang told Reuters.

Worries about China using advanced chips to its advantage prompted Washington to institute new export control measures in October. The restrictions cut off China from certain advanced semiconductor chips and cutting-edge chip-making equipment made with American technologies.

In September 2020, the U.S. Department of Commerce wrote to U.S. companies stating that exports to SMIC posed an “unacceptable risk” of being diverted for “military end-use.”

Washington is concerned about the Chinese Communist Party’s (CCP’s) military-civil fusion strategy, which seeks to leverage cooperation between the private and military industries to boost innovation.

“The CCP is implementing this strategy, not just through its own research and development efforts, but also by acquiring and diverting the world’s cutting-edge technologies—including through theft—in order to achieve military dominance,” the U.S. State Department stated in 2020.

WTO Case, Acquiring Western Chip Plants

China has opened a trade dispute against the United States at the World Trade Organization (WTO) for its chip control measures. Beijing is accusing Washington of acting against Chinese interests and threatening the stability of global industrial supply chains. However, Washington has dismissed such claims as being invalid at the organization.

“We have received a request for consultations from the [People’s Republic of China] related to certain U.S. actions affecting semiconductors,” Adam Hodge, spokesman for the U.S. Trade Representative’s office, said in a statement to Reuters.

“As we have already communicated to the PRC, these targeted actions relate to national security, and the WTO is not the appropriate forum to discuss issues related to national security.”

China is trying to acquire semiconductor assets in the West but is facing challenges, as many governments aren’t keen on allowing Beijing to have control over such a critical industry.

In November, the UK government ordered a Chinese-owned Dutch company to sell most of the stake it had acquired in a Welsh semiconductor plant. The government concluded that the takeover breached the country’s national security laws.

Last month, Berlin blocked the sale of a microchip factory to a Swedish subsidiary of a Chinese-owned company.