Fathom Consulting
September 20, 2022

Chart of the Week: China’s struggle towards semiconductor self-sufficiency

by Fathom Consulting.

The Russia-Ukraine conflict and the subsequent western sanctions on Russia  have strengthened the determination of President Xi Jinping’s administration to make China more self-sufficient in vital supply chains over the next few years, a goal which is reiterated in the Chinese Communist Party’s latest Five-Year Plan. Beijing is therefore investing $150bn in expanding and improving its domestic production of semiconductors, a product used in all modern electronics and essential to national security. China’s desire to reduce its heavy reliance on imported chips is reflected in the recent increase in its domestic production of semiconductor integrated circuits, which at its peak in August 2021 had more than doubled since 2019. The past year has however seen a slowdown, with China producing approximately 27.22 billion units in July 2022, down from 32 billion in August 2021. President Xi’s zero-COVID strategy is likely to have contributed to this fall.

The US has begun to respond to China’s initiative, rolling out restrictions which prohibit exports of chipmaking equipment to Chinese companies that produce advanced semiconductors, citing a national security threat. The US is also investing $52bn in its own domestic semiconductor production, with the condition that recipient companies are banned from building new-generation chip factories in China for the next 10 years. The US has for the past year attempted to form a semiconductor alliance called “Chip 4” with Taiwan, South Korea and Japan, to coordinate supply chains and R&D. However, the alliance has still not held a preliminary meeting, due to concerns regarding the sharing of trade secrets, and fears of Chinese retaliation.

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