Concerns over chip supply chain security on US moves

Since 2020, the world has faced an unprecedented chip shortage, which first started from a lack of automotive sector chips, and then spread to almost all fields.

For more than half a century, the semiconductor industry had been developing in accordance with Moore's Law — roughly every two years, the number of transistors on a microchip will double. Although there are periodic production capacity shortages and price fluctuations, the industry has generally achieved a dynamic balance.

Therefore, many industry insiders generally believe that this round of chip shortages is "abnormal", and is not caused by a huge gap between supply and demand. In fact, it is the suppression of the former Donald Trump administration of the United States and the COVID-19 pandemic that have led to the global chip shortage in recent years.

The impact will be far-reaching, including the delay and reduction of downstream industry shipments, sharp rise in chip prices and disruption of the development rhythm of the semiconductor industry.

Also, with the alleviation of the chip shortage in the future, the huge chip inventory and the cancellation of a large number of orders will also trigger the industry to enter a downward trend.

This round of chip shortages, which has endured longer than ever seen before, has caused concerns in various countries. In particular, the shortage of automotive chips has had a huge impact on the vehicle industry.

The US Department of Commerce requires major domestic chip manufacturers to hand over sensitive information such as customer lists. If this were a move by the US government motivated by public interest, it would undoubtedly be a good thing for the entire industry.

However, driven by the concept of "America First", the move has led concerns over a lack of chips into worries over supply chain security for countries around the world.

Today, the global semiconductor supply chain operates naturally under normal market mechanisms. A landmark event was the entry of the China Semiconductor Industry Association into the World Semiconductor Council in 2006.

Previously, although China was not a major player in semiconductors, the prototype of becoming a world factory had emerged, and demand for semiconductors had risen rapidly. Therefore, the Chinese market has become a strategic battlefield for major global semiconductor companies.

China becoming a member of the WSC was not due to China's semiconductor technology and industry, but because of China's huge market at that time.

Data from US consulting firm IBS showed that as early as 2014, China produced 84 percent of the world's smartphones, 82 percent of tablet computers, 66 percent of TV sets and 81 percent of desktop and laptop computers.

Therefore, as the country's semiconductor manufacturing enterprises matured, a large number of foreign companies have also begun to entrust Chinese semiconductor manufacturing enterprises to produce semiconductor products for them.

For a long time, Semiconductor Manufacturing International Corp, China's leading chip company, gained more than half of its sales revenue from foreign customers. It also shows that cost, efficiency and market are the most important factors amid globalization of the semiconductor supply chain.

Undoubtedly, the US has made a huge contribution to the globalization of the semiconductor supply chain, but at the same time it is also the biggest beneficiary.

According to the US Semiconductor Industry Association, even back in 2018, for key US companies, their business in China accounted for over 20 percent of their global business while sales in the country hit tens of billions of dollars. Up to 48 percent of the revenue of the US semiconductor industry came from the Chinese market.

That is to say, the US government has been destroying the supply chain that it, itself, had worked hard to build over the past few decades. And of course, US companies have suffered the most.

The de-sinicization in the semiconductor supply chain that the US government is vigorously promoting is systematically breaking the integrity of the global chip market, which will inevitably lead to market fragmentation.

In the history of global mobile communications, it can be clearly seen that the unification of standards will lead to the unification of product technology and promote globalization of the supply chain, thereby greatly reducing costs, and ultimately bringing prosperity to markets worldwide.

A globalized supply chain will bring cost optimization. More than 200 years ago, Adam Smith, known as the "father of modern economics", pointed out in one of his books that for any industry, the larger the market size is, the finer the division of labor will be, and the finer the division of labor is, the stronger profitability will be gained.

In other words, the finer the division of labor is, the lower it will cost. The globalization of the semiconductor supply chain also follows this law of economics. If the supply chain is forcibly disrupted, the cost will inevitably rise sharply, which must be bad news for profit-seeking entrepreneurs and capital markets.

Since its birth, the semiconductor industry has been innovation-driven, where research and development investment often determines the competitiveness of an enterprise.

According to a report by Boston Consulting Group, if the US and China are completely decoupled, R&D investment in the US semiconductor industry will drop by 30 to 60 percent, which will greatly affect the improvement of US innovative capabilities.

In the long run, the leadership of the US in the semiconductor field will give way to South Korea and even China. In fact, excluding China from the global semiconductor supply chain will have a huge negative impact on the US chip industry.

The semiconductor industry has been developing for more than half a century and has formed its own codes and rules of development. Both China and the US have experienced the rapid development of industries due to respect for industry laws, and have also suffered from mistakes of violating industry laws and bringing related development to a standstill.

Today, semiconductor technology has already entered a high level, which requires significant R&D investment. Any mistake may cause irreparable damage, which is worthy of serious consideration by policymakers.

In fact, global cooperation has created the tremendous achievements of today's semiconductor industry. The US beggar-thy-neighbor practice will eventually harm others and itself. The global chip industry should be aware of its harm and resolutely resist it.

At the end of the day, industry competition always exists.

On the one hand, technological innovations are endless and the pursuit for higher-performance, lower-power-consumption, smaller and lower-cost chips will exist forever in the semiconductor industry.

On the other hand, industrial development has always been moving from low end to high end. If there are large profits to be made, there will be new entrants. Don't expect to enjoy high profits without competition.

Therefore, we advocate healthy competition through innovation, and firmly oppose malicious suppression. If everyone adopts a tit-for-tat approach, won't there be security problems for the global supply chain?

The writer is director of the China Semiconductor Industry Association's IC design branch.

The views don't necessarily reflect those of China Daily.