General

China is the world's largest producer and exporter in the field of electronic information technology, and is now the largest consumer market in the industry. It has a complete industrial chain and more than 70% of global production capacity for major products such as smartphones, computers, and televisions. After years of development, China's electronic information technology industry has made significant progress in many aspects such as scale, brand, marketing, supply chain, technology, import and export, but compared with multinational companies in this field, the core technology and core devices of domestic-funded enterprises still have obvious progress. China’s import dependence and low profits are generally low. Especially in recent years, the economic and trade friction between China and the United States has superimposed the new crown pneumonia epidemic, which has caused the industry’s industrial chain and supply chain security to attract attention.

On June 8, 2021, the White House website released the report "Building a Resilient Supply Chain, Revitalizing American Manufacturing, and Promoting Broad Growth" (hereinafter referred to as the "Report"), announcing the four types of semiconductors, high-capacity batteries, key minerals and materials, and medicines. The evaluation results of the key product supply chain and the measures to be taken. The four key products involved in the report are all closely related to China. In particular, the proposed measures mentioned in the report will have a direct impact on my country's related industries and trade. This article analyzes the possible impact on the semiconductor part.

Claiming a decline in share is actually paving the way for suppressing other countries

The report shows that the United States’ share of global semiconductor production has fallen from 37% in 1990 to 12% today, and it is attributed to the fact that countries have implemented strong incentive programs to stimulate the development of semiconductor manufacturing, which has resulted in American companies, including major fabless semiconductor companies, rely on outsourcing and imports, especially South Korea and China that rely on Asia, causing obvious supply chain risks. Semiconductor materials are particularly dependent on imports from other countries.

In fact, the current global semiconductor industry chain is still dominated by American companies, especially in semiconductor design, the United States is in a leading position in the world. Many American companies take advantage of low capital expenditures brought about by manufacturing outsourcing or setting up factories abroad to maintain their absolute leading positions in global technology, markets, standards, and profits. According to statistics from the American Semiconductor Industry Association (SIA), in 2020, the US semiconductor industry has sales of 208 billion U.S. dollars, accounting for nearly half of the global market share, and showing a steady annual growth trend. The US semiconductor industry directly contributed US$24.6 billion to the country’s gross domestic product (GDP). In 2019, US companies related to the semiconductor industry employed 207,000 workers, accounting for 1.6% of the total US manufacturing employment. Among the world's top ten semiconductor companies in 2020, US companies account for six. Among the Fortune 500 companies in the world, US companies’ return on equity, net profit margin, degree of multinational operations, brand influence and other indicators are far higher than those of Chinese companies.

The report pointed out that in the complete process of the semiconductor industry chain, the United States has obvious advantages in design and equipment, but there are challenges in manufacturing, packaging and testing, and materials. This pattern of the global semiconductor industry is actually formed by US-funded companies that have actively promoted the international division of labor in the past few decades. For various reasons, the above-mentioned manufacturing, packaging and testing, and semiconductor materials are not the areas that US-funded companies focus on. Among them, the manufacturing field is a heavy asset with high capital investment and a long return period, and consumes a lot of electricity and water; the packaging and testing process is relatively uncomplicated, and there are many industry enterprises, resulting in low profit margins, and production is mainly completed in Asia ; Semiconductor materials are not favored by US-funded enterprises due to their high technical process requirements and small market capacity.

In the past few decades, the United States has promoted globalization, especially in the field of information technology, promoting computers, mobile phones, integrated circuits, electronic components and other commodities in the trade of various countries to reduce technical barriers and eliminate import tariffs, which to a certain extent contributes to information worldwide. With the development of society and the popularization of the Internet, a number of US-funded semiconductor companies, Internet companies, and software companies have rapidly grown into global giants and have gained huge market benefits.

In this process, at the end of 2001, China joined the World Trade Organization (WTO), began to integrate into the global industrial chain, and became an important manufacturing and export base for the global electronic information industry by expanding opening up, attracting foreign investment, and leveraging its cost advantages and demographic dividend. However, 70% of China's electronic information industry exports are still completed by foreign-funded enterprises, and processing trade accounts for more than 50%. Core key components are heavily dependent on imports. The annual import volume of integrated circuits exceeds US$300 billion. The industry is large but not strong. Shortcomings are prominent in the upstream field.

The report lists the fully competitive semiconductor industry in the United States at the top. Analysis of risks is actually to maintain its leading position in this field and ensure that its dominance in the industry is not due to the encouragement policies of other countries and regions, outbreaks of the epidemic, etc. The wavering of the factors also pave the way for the introduction of domestic financial subsidy measures, and it also laid out ahead of schedule by suppressing other countries on an international scale.

Capital, talents, regulations and other measures to reduce semiconductor risks

The report proposes to strengthen supply chain security in related fields by rebuilding production and innovation capabilities, strengthening international economic and trade rules and trade enforcement mechanisms, giving full play to the government's role as a market participant, and strengthening alliance cooperation.

Specific suggestions

For the semiconductor industry, the United States plans to improve supply chain security and maintain semiconductor leadership in the following ways.

(1) Rebuild production and innovation capabilities. Provide at least US$50 billion in special funds for semiconductor manufacturing and R&D; invest US$50 billion to establish a supply chain resiliency plan for key products; establish diversified and barrier-free employment channels for talents in the semiconductor industry; support innovative small and medium-sized enterprises and disadvantaged enterprises, and promote R&D Commercialization of the results; the establishment of an inter-agency "Defense Production Act" (DPA) action group, using the legal authority of DPA to coordinate various departments to expand the supply of key products.

(2) Use export control and CFIUS investment review tools to maintain the leading position of the US semiconductor industry. Establish a multilateral semiconductor security fund to cooperate with like-minded countries to coordinate export control policies; CFIUS should consider the impact of transactions on the semiconductor supply chain when reviewing mergers and acquisitions, and share merger trends and threats with allies.

(3) Establish a supply chain interruption "special team" to monitor the supply chain interruption. Led by the Secretary of the US Department of Commerce, it convenes stakeholders to diagnose problems in the semiconductor supply chain and provide solutions.

(4) Cooperate with industry, allies and partners to solve the problem of semiconductor supply shortage. Cooperate with the industry to promote the flow of information among semiconductor manufacturers, suppliers, and end users; use diplomatic tools to expand diplomatic contacts with allies such as the Group of Four (Quad) and G7 on the fragility of the supply chain; use financial tools to explore investment measures and Mechanisms to work with allies to expand production in key supply chains.

(5) Give full play to the government's role as a key product purchaser and investor, and give priority to purchasing "Made in the United States." Ensure that federal funds are used to purchase products made in the United States as a priority; strengthen and reform the US government's strategic product inventory mechanism.

(6) Strengthen international trade rules and formulate comprehensive strategies to combat unfair trade practices. Led by the Office of the United States Trade Representative (USTR), strengthen unilateral and multilateral enforcement of unfair trade practices; incorporate supply chain flexibility into the U.S. trade policy toward China, including the ongoing Sino-U.S. trade policy review.

Analysis of the U.S. plan

(1) The Biden government of the United States attaches great importance to the risk of semiconductor supply chain, and it is expected that subsequent administrative departments will quickly advance relevant action plans.

(2) The White House report and the US Department of Commerce report adopted a number of policy recommendations from the US semiconductor industry, such as more than US$50 billion in federal investment and joint allies' multilateral control. The U.S. government will continue to promote the alliance of allies, strengthen export control in the semiconductor field and CFIUS investment review.

(3) According to the supply chain administrative order, in addition to this 100-day review report, on February 24, 2022, it is expected that various US government departments will complete the key supply chain assessment report and industrial strategy formulation.

Follow-up policies are estimated to have an impact on the global industrial layout

The possibility of the semiconductor industry returning to the U.S. increases

The report pointed out that China is the largest semiconductor market, and most semiconductor products are re-exported in final products (including consumer electronics and home appliances). It is precisely because of China’s dominant position in the electronic assembly field that US chip manufacturers rely heavily on China sales. According to data from The Economist in 2018, two-thirds of mobile phone chip supplier Qualcomm’s revenue comes from China, and 57% of memory manufacturer Micron’s revenue comes from China. Intel's 2020 financial report shows that 26% of its revenue comes from China. The report believes that the United States relies heavily on sales to China, providing China with economic leverage. Therefore, the United States always intends to direct related industries to other countries or return home.

In 2017, the United States launched the "301 Investigation" against China and imposed 25% and 7.5% tariffs on most goods imported from China. According to the statistics of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (hereinafter referred to as "the Chamber of Commerce of Machinery and Electronics"), the increase in tariffs has reduced the share of China's mechanical and electrical products in the United States imports, and regions such as Vietnam and Malaysia have benefited. Information technology products led by US companies such as computers and mobile phones are not subject to tariffs because more than 70% of them are produced and exported in China and the cost of industrial transfer is relatively high. However, because these fields involve more than 700 billion US dollars in imports and exports of Chinese computers, mobile phones, communication equipment, integrated circuits and other products, it is necessary to be vigilant about the follow-up measures of the United States.

Previously, the U.S. government proposed to promote investment in domestic semiconductor manufacturing facilities and key semiconductor manufacturing. TSMC, Samsung, Intel and GF have all announced investments in semiconductor manufacturing operations in the United States. The United States is currently promoting legislation, including the "American Foundry Act of 2020" (AFA), the "Creating Beneficial Incentive Measures Act for Chip Production" (CHIPS), etc. The above bill proposes a series of investment and incentive measures to actively deploy US chip technology R&D and production, support US semiconductor manufacturing, ensure R&D and supply chain security, and US semiconductor manufacturing technology’s global leadership.

In recent years, multinational companies in the electronic information field have shown signs of reducing their production in China and shifting to lower-cost regions (represented by Samsung, its complete machine production has been transferred out of China, but it has strengthened upstream such as semiconductors, new displays, and lithium batteries. Field investment). Chinese brand companies or industry leaders are also increasing their potential in overseas markets, and their globalization is also speeding up, aiming to make full use of local labor costs, preferential tax policies and their location-related advantages to reduce production costs and enhance competitiveness.

As the largest investor in Southeast Asia, Japan expressed support in April 2021 that its enterprises would transfer back the production capacity of parts or raw materials that are highly dependent on a country, or establish factories in ASEAN and other regions to achieve diversified production. . On April 9, 2021, the Washington Post and Bloomberg reported according to the details released by the Ministry of Economy, Trade and Industry of Japan that the Ministry of Economy, Trade and Industry of Japan allocated 243.5 billion yen (approximately RMB 15.8 billion) in funds. Yu sponsored Japanese manufacturers to withdraw their production lines from the Chinese market.

The industrial development of some developing countries has temporarily benefited from this. Southeast Asian countries represented by Vietnam, India, Mexico and other places, and even labor-intensive and high-carbon resource-intensive latecomer economies in the overall sense have become the undertaking. Hot spots for Chinese enterprises to transfer their production capacity. However, in the integrated circuit industry with high capital investment and high talent requirements, China still has a strong appeal in the short term.

Cooperation between the U.S. and its allies will pose a higher risk to the security of Chinese companies' supply chain

The Biden administration of the United States proposes to strengthen cooperation with allies in many fields, and also proposes "cooperating with allies and partners in the field of semiconductor supply chain, by encouraging foreign foundries and material suppliers to invest in the United States and other allies and partner regions. In order to provide a diversified supplier base, seek R&D partnerships, and coordinate policies to solve market imbalances and non-market actors," while also clearly "supporting policy actions by ensuring export controls."

Take its ally Japan as an example. Before the Japan-US summit meeting on April 16, 2021, the governments of Japan and the United States had already cooperated in the supply chain of important components such as semiconductors. The two parties stated in a joint statement that “To counter the threat from China, based on economic security, Japan and the United States have invested a total of US$4.5 billion in the research and development of high-speed, large-capacity 5G and new-generation 6G cutting-edge communication technologies. June 4, 2021, Japan The Ministry of Economy, Trade and Industry announced that Japan has completed research on semiconductors, digital infrastructure, and digital industry strategies, and established a semiconductor digital industry strategy with the goal of expanding domestic production capacity. Japan will strengthen overseas cooperation, accelerate digital investment, and joint development Cutting-edge semiconductor manufacturing technology and ensuring production capacity.

Japan and the United States have strengthened joint research and development in a wide range of scientific and technological fields, especially in the field of cutting-edge semiconductors. They will obscure the country-specific attributes of technology research and development results, significantly expand the extension of US export controls, and increase the compliance risks of Chinese companies’ external procurement of equipment, technology, and components. Increasing, and even more difficult to purchase. Because Japan is one of the important source regions for my country's imports of high-tech products, and the fourth largest source country for China's integrated circuit imports, accounting for about 5.1% of my country's total integrated circuit imports. Specifically in terms of the industrial chain, in the field of silicon wafers as semiconductor substrates, Shin-Etsu Chemical Industries and SUMCO two Japanese companies accounted for more than 50% of the global share; in the field of photoresist, Japanese companies also accounted for 90%; In the field of CMP (single chip multi-processor) polishing fluids for semiconductor surface polishing, Japanese companies alone account for more than 40%; in the field of semiconductor equipment, Tokyo Electronics alone accounts for nearly 40% of the share of coating and developing equipment. 90%.

According to China Customs statistics, in 2020, my country’s key IC products imported from Japan are mainly memory, processors, semiconductor equipment and semiconductor materials. Japan is the top five import source markets for these types of products in my country, and is part of the key products ( The largest source of imports for semiconductor equipment and materials). It can be seen that my country's integrated circuit products are highly dependent on Japan's imports, and Japanese related products occupy a relatively large proportion in my country's industrial chain (see Table 1).

The EU also listed semiconductors as one of the six key areas of focus in the 2021 updated industrial strategy report. In terms of supply chain measures, it proposed that “a coordinated combination of industry, research, and trade policies can promote diversification of alternative supply sources. Through partnerships and collaborations with global partners, the existing supply chain will be strengthened.” The remaining five key areas are raw materials, bulk medicines, lithium batteries, hydrogen energy and cloud computing, which are highly overlapped with the areas of concern in the United States.

It is recommended to pay close attention to and establish a bottom line thinking

The report "Building a Resilient Supply Chain, Revitalizing American Manufacturing and Promoting Broad Growth" was specifically assessed by the U.S. Department of Commerce, the Department of Energy, the Department of Defense, the Department of Health and Human Services and other departments to complete the assessment of the subdivisions, provided by industry companies, industry associations, and research institutions Extensive and professional opinions and suggestions, the concept and intention of "national security, economic security and technological leadership" run through. The relevant departments in the United States have begun to implement specific measures.

For example, in the chapter on key minerals and materials, the report proposes to evaluate the import of neodymium magnets that are highly dependent on the launch of a "232 investigation." Although the United States mainly imports neodymium magnets from China (more than 80%), and this supply pattern is difficult to change in the short term, it is important to the United States’ industrial security, national security and building a fully controllable industry.

The industry must fully prepare for the determination of the chain and establish a bottom-line thinking. Relevant companies should pay close attention to the potential impact of follow-up policies, make early warnings and prepare for response, and at the same time strengthen the construction of export control compliance systems and the training of international talents to reduce operating risks in the international market.