Semiconductor companies seeking U.S. federal subsidies under the Chips Act may face a difficult choice: Accept Washington’s help to expand in the U.S., or retain the ability to expand in China?
The Biden administration last week proposed new rules detailing restrictions on chip companies’ operations in China and other concerned countries if they accept taxpayer funding.
Industry executives, lawyers and national security analysts say some of the proposed restrictions, dubbed the “China Fence,” are tougher than they expected. The measures target not only cutting-edge semiconductor factories that make chips used in advanced military weapons systems, but also factories that make so-called legacy chips used in consumer electronics.
“It’s going to make quite a few companies think twice regarding whether they want to accept funding from the Chip Act,” said Angela Styles, an attorney at law firm Akin Gump, which advises semiconductor companies.
The restrictions are especially troublesome for East Asian companies with large operations in China, where they have invested billions of dollars. These include South Korea’s Samsung Electronics Co. (005930.SE ) and SK Hynix Inc. (000660.SE ), the world’s two largest memory chip makers, and Taiwan, the world’s largest contract chipmaker. Taiwan Semiconductor Manufacturing Co., 2330.TW, referred to as TSMC.
Before the U.S. Department of Commerce proposed the details of the guardrail provisions of the “Chip Act”, South Korea’s Minister of Trade and Negotiations, Ahn Duk-geun, recently said in Seoul that the U.S. restrictions on advanced process chips and chip manufacturing equipment exported to China will make South Korea It is more difficult for companies to continue investing in China.
Andergen said that decisions regarding investing in China will be made by South Korean companies themselves.
U.S. Commerce Secretary Gina Raimondo said the Biden administration is not seeking to decouple economically from China.
“We want American companies to continue doing business in China, to continue doing business with China. And vice versa,” she said in an interview with The Wall Street Journal. “But we do have to keep our eyes open and alert to the risks facing the United States.”
Raimondo also said China had made clear it wanted to acquire the most advanced U.S. technology to integrate into the country’s military capabilities, “and we cannot allow that to happen,” she said.
Raimondo said she may visit China this fall to keep the lines of communication open and ensure U.S. businesses can operate on a level playing field.
So far, some of the largest companies considered likely to receive the Chip Act subsidies have made little public comment.
Samsung said it had been “discussing closely with relevant government agencies in the U.S. and South Korea” and planned to determine its next steps following evaluating details of the funding.
Samsung is building a $17 billion advanced-process chip fab in Tyler, Texas; last year it floated plans for a possible future investment of up to $200 billion in a chip fab in Texas.
Hynix Semiconductor has disclosed plans to build a new advanced-process chip packaging plant in the United States, where the final steps in the semiconductor manufacturing process will take place. The company said that through talks between the South Korean and U.S. governments, uncertainties have been removed and the company will closely monitor the announcement in Washington.
TSMC declined to comment. The company plans to spend $40 billion to build a plant in Arizona to produce advanced-process chips.
The Chip Act, signed into law by U.S. President Joe Biden last August, is aimed at reviving U.S. leadership in advanced semiconductor technology and fending off competition from China. The Act prohibits companies from entering into major transactions involving substantial expansion of cutting-edge and advanced semiconductor production capacity in relevant foreign countries.
The proposed rule defines a “significant transaction” as one of at least $100,000 in size and a “substantial expansion” as a 5 percent increase in a facility’s capacity. The rules cover a 10-year time horizon, which would allow companies to make adjustments to their long-term China strategies.
“What the U.S. is doing is essentially using industrial policy to steer the semiconductor supply chain in the direction it wants, which is clearly away from China,” said Reva Goujon, director of China business consulting at research firm Rhodium Group. .”
The policy sends a “clear signal to the companies that producing cutting-edge semiconductors in China will not be sustainable,” she said.
The US Department of Commerce straightforwardly explained the need for such restrictions.
“These thresholds are designed to limit even modest transactions that attempt to expand manufacturing capacity,” the Commerce Department said in the text of the proposed rule, which is now subject to a 60-day public comment period before being published in the U.S. Finalized this summer.
The program also imposes restrictions on joint research and technology licensing activities between companies receiving subsidized funds and relevant foreign entities.
Factories in China represent a multiyear investment for chipmakers, and they account for a sizable portion of global chip production capacity.
Samsung has a NAND flash chip factory in the central Chinese city of Xi’an and a chip packaging plant in the eastern Chinese city of Suzhou. Hynix Semiconductor operates a DRAM memory chip production plant in Wuxi and, through a deal struck in 2020, owns a NAND flash memory chip factory set up by Intel Corp. ( INTC ) in Dalian.
TSMC has chip production plants in Nanjing and Shanghai, China.
According to technology market research firm TrendForce, as of last year, Samsung’s Xi’an factory accounted for regarding 16% of the global NAND flash memory output, while Hynix Semiconductor’s Wuxi factory accounted for regarding 12% of the global DRAM memory output, and its Dalian factory accounted for regarding 10% of the global NAND flash memory output. 6% of NAND flash production.
TSMC’s Shanghai and Nanjing factories together account for 6 percent of the company’s total chip foundry capacity, according to TrendForce.
