China Condemns U.S Chips Act, Claims It Is An Act Of 'Economic Coercion' Aimed At Crippling Its Semiconductor Supply Chains

Chinese foreign ministry, state-owned and trade bodies have condemned the recently-enacted U.S. CHIPS Act, claiming it is aimed at crippling China's semiconductor supply chains.

China said that the Act, which was signed into law by President Joe Biden earlier this week, will seriously disrupt normal trade and investment activities of global semiconductor companies while causing an adverse impact on the stability of global chip industrial chains.

"How the U.S. grow its industry is its own business, but it should not set obstacles for normal economic, trade, scientific and technological exchanges and cooperation between China and the U.S., let alone undermine China's legitimate development rights and interests," Wang Wenbin, Chinese Foreign Ministry Spokesperson said during at a regular briefing on Wednesday (Aug 10).

The new CHIPS Act will provide $52.7 billion worth of subsidies for American semiconductor research, development, manufacturing and workforce development, including $39 billion earmarked for manufacturing incentives.

Though aimed at bolstering U.S. semiconductor self-sufficiency, under the Act, the subsidy recipients for domestic semiconductor production in the U.S. are barred from expanding production in China beyond "legacy semiconductors" – defined as chips made with 28-nanometre process technology or older – for ten years.

While the Act will provide incentives to lure semiconductor human capital and investments into the U.S., it effectively prevents global chip behemoths– such as Taiwan Semiconductor Manufacturing Co and Samsung Electronics – from expanding their capacity in China if they use the U.S. funding.

Chinese trade bodies criticise the U.S. Chips Act.

"It is a typical industrial subsidy, which is not in line with the WTO's non-discrimination principle. On the other hand, the Act would harm the interest of enterprises by forcing them to adjust their global development strategies and layout," the joint statement said.

China's own fledgeling semiconductor industry is driven by state subsidies

With the aid of heavy government subsidies and other incentives, China has attempted to advance its chip-making technology from a starting point of 90 nm in the past few years.

In the early 2000s, China rejuvenated the industrial ecosystem with a more ambitious slew of policies to support Chinese semiconductor producers by providing tax holidays, enterprise tax reductions, localised subsidies to build infrastructure, and, additionally, constituting the most crucial National Talent Training Project in 2003 to provide a much-needed human resource for industrial development. The result was evident in the mushrooming of fabless firms (where fabrication is outsourced) that grew exponentially from a paltry 15 in 1990 to 485 by 2010.

The other significant development of the year 2000 was the establishment of the Semiconductor Manufacturing International Corporation (SMIC). SMIC is already able to produce 14-nm chips. Some Chinese observers have claimed that it has also achieved the capability to make 7-nm chips.

Although China is the world's largest consumer of semiconductors, it has a disproportionately small international market share of production and a very low domestic chip self-sufficiency rate.