US chip war could hurt the West as Beijing moves to ramp up its own industry

Nine Chinese semiconductor companies have had IPO applications approved

The US battle to halt China's growing semiconductor industry is having an effect, but risks hurting Western industries as well. Meanwhile, China is fighting back with new investments aimed at making its own industries more self-sufficient.

Washington's sweeping export restrictions on semiconductor technologies, announced in October, were supposedly aimed at preventing the most advanced cutting-edge technologies from falling into the hands of China's military.

However, alongside US moves like the CHIPS Act to boost its own semiconductor industries, it appears to reflect a wider concern that China may soon catch up and even overtake America in the technology stakes.

But according to a report in the Financial Times, cutting off access to Chinese technology will raise prices for businesses and consumers around the world, at a time when many are already facing the threat of rising inflation driving up prices.

A similar effect has already been seen in the telecoms industry, where countries such as the UK have stopped using equipment supplied by China-based Huawei in the face of pressure from the US, a move which was believed to cause higher costs and would delay upgrades to 5G networks as alternative sources had to be found.

The new US export restrictions already appear to be hitting China, with the country's semiconductor imports dropping 12.4 percent in September, as we reported last month.

According to the FT, the biggest issue facing China is likely to be the equipment needed to manufacture advanced semiconductors using the latest cutting-edge production nodes, typically those below 14nm but especially the newer nodes such as the 5nm and 3nm technology now coming online. The makers of most of this machinery, including companies such as Lam Research and Applied Materials, are based in the US and therefore banned from exporting kit to Chinese companies.

Other suppliers, such as Netherlands-based ASML, are not currently affected by the US export controls, but Washington is already applying pressure to change this. As we reported earlier this month, it has been in talks with allies such as Japan and the Netherlands about imposing the same kind of export restrictions.

On Friday, Dutch trade minister Liesje Schreinemacher told Reuters that the nation is in talks with the US regarding the matter. ASML has already been prevented from selling its most advanced photolithography equipment to China under an existing arrangement, but the new US export restrictions go further.

Meanwhile, just last week, the US effectively banned the import or sale of Chinese telecoms and video surveillance products from Huawei, ZTE, Hytera Communications, Hikvision, and Dahua, on national security grounds.

China is already taking steps to ramp up its own semiconductor industry to become more self-sufficient and rely less on technology from elsewhere in the world, especially the US.

The South China Morning Post reports that nine companies involved in the semiconductor supply chain have had their applications for an initial public offering (IPO) approved, which will allow them to raise money from investors to expand their operations and research efforts.

Among these businesses are several chip design outfits, a wafer foundry, and a chip packaging company. The SCMP quotes a senior Asia-Pacific economist as saying that China's research and development efforts in the semiconductor industry would be "a complicated and lengthy process, but it is important to counter US restrictions."

New figures from research outfit Gartner forecast that global semiconductor industry revenue is already expected to decline by 3.6 percent next year, nearly wiping out the 4 percent growth it has seen during 2022.

According to Gartner, semiconductor revenue in 2023 is now forecast to reach a total of $596 billion, down from an earlier forecast figure of $623 billion. This is largely due to rapid deterioration in the global economy and weakening consumer demand, said Practice Vice President Richard Gordon.

Particularly badly hit will be the memory chip market, which Gartner says will remain flat for the rest of 2022, but is forecast to decline 16.2 percent in revenue during 2023. ®

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