Experts: U.S. chip technology 10-15 years ahead of China

A Dongguan worker looks at a mobile phone chip

The Communist Party of China has consistently ranked advanced semiconductors as one of the core technologies most vulnerable to U.S. suppression. Without U.S. technology, especially in chip manufacturing equipment and design software, China cannot produce the highest-performing chips. Experts say that not selling technology to China puts Chinese chips 10-15 years behind the US.

On the current level of U.S. and Chinese chip development, U.S. experts agree that the U.S. is still ahead of China in semiconductors, but differ on how to deal with the Chinese Communist challenge.

James Lewis, director of the strategic science and technology program at the Center for Strategic and International Studies (CSIS), a Washington think tank, and a former State Department official, said in a recent interview with the Voice of America that after the former U.S. President Donald Trump’s administration imposed sanctions on China’s semiconductor technology, the Chinese side got off track and started to fall behind because of its lack of access to Western technology.

“The decision not only by the United States, but also by Japan, some European countries, not to sell chips to China has really put China (chip level) behind. Chinese experts tell me it will take 10 to 15 years for China to catch up (with the U.S.), so I think, in the short term, the U.S. will do just fine.” Lewis said.

But at the same time, he also pointed out that the U.S. and China are currently facing tricky problems in the field of semiconductors.

Semiconductors are research-intensive industries that require a lot of R&D work, he said. The Chinese (Communist Party of China) authorities are willing to spend billions of dollars to build the semiconductor industry, plus China is now a major market for U.S. semiconductor equipment manufacturers, chip manufacturing machines, all of which will pose a great risk to the future of private companies in the United States, and even Europe and Japan.

Because semiconductor research requires money, then foreign companies without government support will need to sell chips to the Chinese market and rely on business income in order to reinvest. However, he acknowledged that investment is a solvable problem.

U.S. President Joe Biden (Joe Biden) announced Wednesday (March 31) the $2 trillion infrastructure plan, including investment of $50 billion in semiconductor (chip) manufacturing and research.

U.S. Commerce Secretary Gina Raimondo also said Wednesday that the White House’s infrastructure plan would put the United States on a more equal footing with China because it would support the U.S. semiconductor industry.

It’s about beating China in the competition,” she said in an interview with CNBC. If we act now …… we have time to do that, to rebuild, to build the semiconductor industry in particular, but we have to get our hands dirty and do it.”

Last week, Congress, businesses and workers agreed at a Senate hearing that the tax code should be updated to incentivize domestic production and innovation, make U.S. manufacturers globally competitive and reduce U.S. dependence on imports of key products such as semiconductors.

They called for investment tax credits and restoration of tax deductible credits for research and development to provide long-term stability and attract investment in jobs and technology.

Building a Giant? Spotlight on the CCP’s model of semiconductor industry development

The CCP has consistently ranked advanced semiconductors as one of the core technologies most likely to be suppressed. Without U.S. technology, especially in chip manufacturing equipment and design software, China cannot produce the highest-performing chips.

So in addition to heavy investment in the semiconductor industry, the Chinese Communist authorities have granted tax credits to semiconductor companies, and the latest policy, introduced in late March, also allows chip makers to import machinery and raw materials tax-free until 2030.

More than 50,000 new semiconductor-related Chinese companies are registered in 2020, more than three times the number in 2015.

Lewis noted that the trickier issue at hand is how to deal with the question of how the Chinese Communist Party’s model for developing the semiconductor industry will be the same as the past one of building the Huawei giant.

“If China floods the market with subsidized goods like it has done into other industries, Huawei, for example, is a classic example. When Huawei entered the market, there were about a dozen telecom equipment suppliers worldwide, but Chinese (Communist) espionage combined with subsidized prices and government support allowed Huawei to squeeze out all but two foreign suppliers.” He said, “How do we know China won’t do the same thing with semiconductors?”

Lewis said there is also such a risk if China is allowed to develop its own industry and squeeze out other companies.

Global demand for semiconductors has increased dramatically and is expected to grow by 5 percent a year through 2030. Currently 80% of global semiconductor manufacturing is concentrated in Asia, including Taiwan, South Korea, Japan and China; 12% of semiconductor production activity is in the United States, with only 9% coming from U.S. companies.

Ainikki Riikonen, a research associate in the Technology and National Security Program at the Center for a New American Security (CNAS), said the U.S. already has a very strong leadership position in the semiconductor sector.

“While much of the manufacturing (work) is outsourced outside the U.S., the design part of the supply chain is critical, because without design, there is no manufacturing. China has a long way to go if it wants to succeed, especially since the U.S. and like-minded countries are already trying to accelerate innovation and stay ahead of the curve.” She said.

She argued that the semiconductor supply chain is long and complex, and that sudden restrictions or retaliatory measures by either side could be costly for both sides.