China and the global semiconductor industry
The China Forum seminar on Wednesday 28 February 2024 took the form of a roundtable seminar. The panellists were Associate Professor Douglas B. Fuller (Department of International Economics, Government and Business, Copenhagen Business School), Dr Mathieu Duchâtel (Director of International Studies and Resident Senior Fellow, Institut Montaigne, Paris) and Dr Ming-chin Monique Chu (Lecturer in Chinese Politics, Department of Economic, Social and Political Sciences, University of Southampton)
Dr Chu’s talk focussed on China's industrial policy towards semiconductors. In 2014, China introduced the ‘IC Promotion Guidelines’ (Integrated Circuit Promotion Guidelines), which were designed to achieve advanced world-level semiconductor capacity across all segments of the semiconductor supply chain by 2030. In 2015, China introduced the ‘Made in China 2025’ initiative, which included the objective of increasing domestically made IC production to 70% by 2025. In 2016, China introduced the ‘Innovation-driven Development Strategy’, which was ‘the greatest single commitment of government resources to an industrial policy objective in history’. It signified a new stage in China’s industrial policy, which targets an emerging technological revolution at the intersection of AI, data, telecommunications, and semiconductors. In 2022, China reinforced its import substitution policies in response to heightened US-orchestrated export controls. Between 2014 and 2023 the Chinese government initiated three major funding rounds to support backbone firms across the semiconductor supply chain. Although China has increased its share of global wafer and manufacturing capacity it lags behind global competitors in terms of technology, efficiency, and sustainability. China faces an uphill battle in pursuit of self-reliance in semiconductors.
Dr Duchâtel examined the impact that US-China relations has had upon four major players in the semiconductor industry - Korea, Taiwan, Japan, and the EU. South Korean firms are ‘doubling down on Korea’, investing huge amounts on ‘re-shoring’ chip production within the country. In the case of Taiwan, in 2019 Huawei overtook Apple as TSMC's largest customer. The Taiwanese semiconductor industry was happy to build two separate supply chains, one for China, and another for the rest of the world. Within a year Huawei was no longer a market for Taiwanese companies and Taiwan made a strategic choice to support US policy. Japan is implementing a state-led ‘chip industrial policy’, which aims to attract foreign investment and nurture a Japanese ‘chip industry renaissance’. America’s export controls have resulted in a large loss of revenue for the EU’s chip industry. For example, ST Micro lost EUR 10 billion annual revenue from Huawei overnight. The EU is in the process of re-thinking its policies towards the semi-conductor industry, as part of the European Economic Security Strategy.
Professor Fuller noted that industrial policy is not new. In the past, the Korean, Taiwanese and Chinese governments have each heavily subsidized investment in this sector. The leading Korean chip-makers, Samsung and SK Hynix both received extensive government support. TSMC is determined to keep advanced chip production within Taiwan and has no intention of building advanced chip production capacity outside Taiwan. In Professor Fuller’s view, TSMC lacks the ‘cultural dexterity’ to operate effectively away from its home base on Taiwan. Professor Fuller noted that China’s industrial policy towards the chip industry has been quite successful. China is now able to produce 5nm chips, despite the USA’s export controls and restrictions on access to the most advanced chip-making equipment.
Issues discussed in Q&A included: the extent to which US-led constraints on the export of Western semiconductor technology to China have changed the incentive structure in China; the changed relationship between the customers for advanced chips and the entities that produce chips within China; the extent to which China needs to achieve self-sufficiency in production of advanced chips; the feasibility of the USA’s sanctions policy; and the response of the US government if China makes substantial progress in chip self-sufficiency and overcomes the US-led restrictions on transfer of semi-conductor technology to China.
Dr Ming-chin Monique Chu, a lecturer in Chinese politics at the University of Southampton, holds MPhil and PhD degrees in international relations from the University of Cambridge. Previously at SOAS and the University of Oxford, her research explores semiconductors' geopolitics, geoeconomics, sovereignty, and Cross-Strait relations.
Known for her groundbreaking monograph, The East Asian Computer Chip War (Routledge, 2013), and co-editorship of Globalization and Security Relations across the Taiwan Strait (with Scott L. Kastner, Routledge, 2014), she has contributed to prestigious journals like The Journal of Strategic Studies, The China Quarterly, and China Perspectives.
Beyond her academic endeavours, Dr Monique Chu testified before the House of Lords International Relations Committee in March 2018, providing oral evidence on China’s capabilities in emerging technologies. She has been sought after for interviews by major international media outlets, including the BBC, National Public Radio, and Australian Broadcasting Corporation. Her insights cover topics such as the geopolitics of semiconductors, Chinese foreign policy, Cross-Strait relations, and Sino-US relations.
Dr Mathieu Duchâtel is Resident Fellow for Asia and Director of International Studies at Institut Montaigne. He was previously Senior Policy Fellow and Deputy Director of the Asia and China Program at the European Council of Foreign Relations (2015-2018), Senior Researcher and the Representative in Beijing of the Stockholm International Peace Research Institute (2011-2015), Research Fellow with Asia Centre in Paris (2007-2011) and Associate Researcher based in Taipei with Asia Centre (2004-2007). He has spent a total of nine years in Shanghai (Fudan University), Taipei (National Chengchi University) and Beijing and has been visiting scholar at the School of International Studies of Peking University in 2011/2012, the Japan Institute of International Affairs in 2015, and the Institute of National Defense and Security Research in Taipei in September 2020. He holds a PhD in political science from the Institute of Political Studies (Sciences Po Paris).
For Institut Montaigne, Mathieu Duchâtel recently authored Economic Security: the Missing Link in EU-Japan Cooperation (April 2023), Semiconductors in Europe: the Return of Industrial Policy (March 2022), Technology Transfers: the Case for an EU-Japan-US Cooperation Framework (March 2022), (January 2021), Fighting COVID-19: East Asian Responses to the Pandemic (May 2020, with François Godement and Viviana Zhu), and Europe and 5G: the Huawei Case (May 2019, with François Godement).
Douglas B. Fuller is an Associate Professor in the Department of International Economics, Government and Business at Copenhagen Business School. His research focuses on the intersection of Chinese politics, comparative political economy, technology policy and corporate technology strategy. He is the author of Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development (OUP 2016, 2019), editor of two volumes on Hong Kong’s innovation system and technology flows between the US, China and Taiwan, respectively, and numerous articles.
