Beijing Slams US Plan to Review China's Supply of Legacy Chips

Beijing has hit back at a US move to probe American companies’ purchase of mature-node computer chips of 28 nanometres or above – known as ‘legacy’ chips – that are made in China.

The plan, announced by US Commerce Secretary Gina Raimondo on Thursday, has triggered a backlash from the Chinese government, which says Washington is “weaponizing” trade issues.

China’s foreign ministry spokesman Wang Wenbin said on Friday the US move would endanger global supply chains. He urged the US to respect international trade rules and market-based principles.

“Any deliberate intervention to instrumentalize and weaponize economic and trade issues is a violation of the principles of market economy and fair competition and will pose risks to the security of global industrial and supply chains. It will hurt the interests of the whole world, including the US itself,” Wang said.

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The US Department of Commerce said on Thursday it would launch a survey of the US semiconductor supply chain and national defence industrial base to address national security concerns about chips sourced from China.

The survey aims to identify how US companies source legacy chips – current mature-node semiconductors – as the department moves to award nearly $40 billion in subsidies for semiconductor chip manufacturing.

The department said the survey by the Bureau of Industry and Security (BIS), which will begin in January, aims to “reduce national security risks posed by” China.

Commerce Secretary Gina Raimondo said “over the last few years, we’ve seen potential signs of concerning practices from (China) to expand their firms’ legacy chip production and make it harder for US companies to compete.”

Beijing warns of supply chain disruption

Chinese state media said on Friday the US had made a move to determine “how deeply reliant US companies have become on technology from China” and warned that this would “further disrupt the US semiconductor supply chain”.

The Global Times state media outlet said the move was “just a pretext to maintain US competitiveness in legacy chips, where China has advantages including lower costs, faster research and development progress, and more diverse application scenarios compared to the US,” citing Ma Jihua, a veteran telecom observer.

But Ma said it was “unlikely” that the US would be able to find a viable alternative for mature-node chips in the near-term, “as building chip factories and establishing an entire supply chain require time and resources.”

It said tech consulting group TrendForce had forecast that China’s share of the production of mature chips was expected to reach 39% by 2027.

“Due to export controls on advanced equipment by countries like the US, China has shifted its focus toward expanding investment in mature processes, specifically the 28nm and more mature processes, which can be applied for most scenarios across the semiconductor industry.

“If the US restricts domestic companies from using Chinese-made chips, it would have significant consequences and economic loss for the US compared with previous chip restrictions given the large sales and usage of mature-node in the industry, which account for over 90% of the overall chip market and are used in various manufacturing industries, Ma added.

“Imposing restrictions would undoubtedly lead to a backlash and dissatisfaction among these companies. Additionally, the competitiveness of their products would suffer, placing significant pressure on the US economy, Ma explained.”

US moves on computer chips have so far been focused largely on export bans that seek to deny China’s access to advanced chips that can be used for artificial intelligence and the Chinese military.

But the Biden administration recently began issuing awards to bolster chip production at home and appears determined to reduce any dependency on China for legacy chips of 28nm or above in size.

That is a worry for Beijing for both financial reasons and also because its chip sector has been plagued by upheaval, caused partly by corrupt use of state funds over many years, and reports that more than 22,000 chip-related firms have ceased trading over the last four years.