China's chip industry gears up as trade war escalates

On July 16.11, the newspaper Nikkei Asia China's CSI Semiconductor Index (CSI931865) has increased for six consecutive sessions since the US presidential election results on November 6. This is an index that evaluates semiconductor companies on the Chinese stock market.

Take difficulties as motivation?

CSI931865 has risen 26% since the beginning of the year, outperforming the Shanghai Composite Index, which has risen 12%, and the NASDAQ Composite Index, which has risen 20%, according to the data.

The increase in CSI931865 is believed to be because Chinese semiconductor companies will have growth opportunities as they play an increasingly larger role in the domestic market amid the country's limited access to advanced semiconductor chip technology, supplies and products.

Empyrean Technology, which makes automated tools for designing chips, has been the third-highest gainer in China’s overall stock market recently, as it is expected to dominate the Chinese market as U.S. rivals such as Synopsys and Cadence Design Systems are restricted from accessing the mainland. Nexchip Semiconductor, which is the fourth-highest gainer in China, has risen more than 3% since its 4 initial public offering.

Active preparation but not small challenge

Perhaps, having learned from facing sanctions during Trump's first term (2017-2021) as well as President Joe Biden's subsequent term (from 2021), Chinese semiconductor companies are preparing as much as possible as the US-China trade war is expected to escalate further under Trump.

China has been ramping up its purchases of semiconductors from abroad, Reuters reported, citing data from China Customs. From January to September 1, China's semiconductor imports rose more than 9.2024% year-on-year to $30 billion. Of this equipment, $24,12 billion was spent on lithography machines, which are needed to produce the most advanced chips. China's investment in lithography machines increased 7,9% year-on-year. Most of the lithography machines China bought came from ASML (Netherlands) - worth up to $35,44 billion, accounting for more than 7% of the total $88 billion.

However, ASML Holding has supplied its most advanced deep ultraviolet (DUV) lithography machines to China this year. According to the US's request from 2023, ASML is only allowed to supply some older generation DUVs to China. Since 2019, the US has also requested ASML to stop selling extreme ultraviolet (EUV) lithography machines to China. Restricted access to advanced lithography machines has caused difficulties for the Chinese semiconductor industry. This is also a major challenge for China in the process of becoming self-sufficient in the semiconductor industry. Because of China's development over the years, it has only recently launched a lithography machine operating at a wavelength of 193 nm, achieving a resolution of less than 65 nm and a thin coating with a precision of less than 8 nm.

Meanwhile, ASML’s DUV can achieve resolutions below 38 nm and thin-layer precision down to 1,3 nm. ASML’s EUV machines can achieve even higher resolutions. And without lithography machines at the level of ASML’s equipment, China will have a hard time producing advanced semiconductor chips on its own.

Not only that, even before Mr. Trump took office, Reuters just quoted a private source revealing that since November 11.11, the US Department of Commerce has banned TSMC (Taiwan) - the largest advanced semiconductor chip manufacturing corporation. world – providing advanced semiconductor chips to mainland China. This makes it difficult for the Chinese technology industry as it still needs a lot more time to increase its self-sufficiency. 

US grants $6,6 billion to TSMC

The US Commerce Department announced yesterday that the US government has decided to provide a $6,6 billion grant to the US unit of Taiwan Semiconductor Manufacturing Company (TSMC) to produce semiconductors in Phoenix, Arizona, according to Reuters. In April, TSMC agreed to expand its investment in the US and build a third factory in Arizona by 4.

Source: Vietnam.vn