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China’s semiconductor industry is growing from strength to strength. The country has accelerated its efforts to advance its semiconductor industry in the wake of increasing geopolitical tensions with the US.
A case in point is China’s newly acquired capability to produce 28-nanometer chip wafers. This is likely to mature this year and is a crucial step in developing competencies for advanced chipmaking technologies. It is a sign that the country is fast developing high-end skills in chip manufacturing.
Production of 28nm chip is not the only instance of the growing capabilities of Chinese chipmakers. Some Chinese companies have shifted its 14nm chipset orders from the market leader Taiwan Semiconductor Manufacturing Company (TSMC) to China’s Semiconductor Manufacturing International (SMIC). By the coming year, China is expected to have gained required expertise in the manufacturing of 14nm chips.
Besides, SMIC, a prominent Chinese semiconductors firm emerging as an alternative to global leader TSMC, will run the trial production of 7nm chips this month and is likely to introduce mass production in October.
The geopolitical tensions between the US and China are forcing the latter to develop competencies in this segment. Over the last few years, the country has greatly enhanced its capability in chip manufacturing. The country announced plans last year to invest $1.4 trillion over six years to develop the semiconductor industry till 2025. Its Dual Circulation initiative and strategy to make significant investments in this segment have helped the country reach key milestones.
Understanding the chip shortage
Earlier this year, the world was hit by an unprecedented chip shortage. While the focus has been on the automotive sector, the chip shortage affected several industry segments, including servers, electronics, personal computers, and smartphones.
Semiconductors are the foundation of our modern digital lives. Right from being a part of your smartphone, laptop, to cars, washing machines to medical devices, semiconductors power our lives. Further, all the upcoming technologies, like the Internet of Things (IoT), Augmented Reality, Virtual Reality need chips to turn the vision into reality.
This surge in demand is partly because of the COVID-19 pandemic. Last year as people moved into their houses to maintain social distancing, there was a massive increase in demand for electronic items. The need for semiconductors shot up and is not showing any sign of slowing down. Global semiconductor sales increased by $412.2 billion in 2019 to $439 billion in 2020. The sales for December 2020 were 8.3% more than that of December 2019.
The geopolitical factors are further disrupting the semiconductor supply chains. Traditionally, the semiconductor industry is dominated by the US, South Korea, Japan, and Taiwan. As per Semiconductor Industry Association, the US had the largest market share with 47% share, followed by Korea at 19%, Japan and European Union at 10% each; Taiwan and China have 6% and 5%, respectively. Most of the production of the chips by the US is done in the country itself.
China is the world’s largest importer and consumer of semiconductors. The country is believed to be buying around 40% of the global semiconductor shipments, with most of it being used in communications and consumer electronics product designs. Now China is targeting to bring down its dependence on imports for its chip requirements.
Fighting sanctions
Even as China continues to grow its semiconductor industry, it faces US-led sanctions that continue to create difficulties for the country and Chinese firms. For instance, SMIC will not be able to use the advanced Extreme Ultraviolet (EUV) light technology because of US sanctions to create 7nm chips later this year. It will instead have to do with Deep Ultraviolet (DUV) to manufacture 7nm chips. This is just one instance of how the US sanctions make it challenging for the Chinese semiconductor industry to grow.
The geopolitical factors, particularly US sanctions, led to massive supply chain uncertainties, which forced the firms to stockpile components, disrupting the industry’s supply chain. The supply chain ambiguities are also likely to drive the semiconductor prices, leading to higher cost of electronic devices for end-users. It is also expected to push several countries to develop competencies and self-reliance in semiconductor design and manufacturing.
With our growing dependence on semiconductors the world over, it is in the best interests to address the geopolitical issues for the smooth running of the crucial chip industry. This is especially true during a pandemic when the world is fighting economic and social hardships. The countries need to forgo their differences for the time being to grapple with these extreme uncertainties.
Despite several challenges, the Chinese semiconductor industry is all set to grow in prominence. By acquiring expertise in new areas like the manufacturing of 14nm and 7nm chips, the Chinese industry is well on its way to becoming self-reliant and disrupting the global semiconductor industry.
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