Geopolitical frictions between China and the US have been reflected in their evolving relations within the global supply chain. The drive from both sides to enhance their domestic production capacities notably manifests in the semiconductor industry. Here, governmental agencies of both nations have introduced substantial subsidies to encourage in-country companies and buffer any potential shocks from bilateral sanctions.
The year 2022 witnessed the Biden Administration give its approval to the CHIPS and Science Act. This legislation directed a hefty $52.7 billion towards industry subsidies over a span of five years to foster the country’s chip manufacturing abilities, including R&D efforts. This move was soon followed by announcements from various chip firms, including Intel and Taiwan Semiconductor Manufacturing Company (TSMC), indicating their plans for constructing fabrication facilities within the US.
The Chinese government is purportedly gearing up to invest approximately 1 trillion yuan ($145 billion) over the forthcoming five years as subsidies for their domestic sector. Coupled with no immediate end in sight for sanctions and an escalating domestic chip-making ability, China has taken a notable stride towards self-sufficiency. The latest development reported is that US technology will be phased out from government computers.
Released in December of the previous year, new governmental mandates direct government agencies to employ equipment exclusively from brands labeled as ‘safe and reliable’ by the China Information Technology Security Evaluation Center (CITSEC). Notably, only Chinese companies currently occupy the list approved by CITSEC. The goal to shift to domestically manufactured equipment has a set deadline of 2027, as per insiders talking to the Financial Times.
These new rules are foreseen to impact US firms significantly, especially those with a significant market share in China, such as Intel and AMD. With Chinese clientele making up 27% of Intel’s $54 billion total revenue and 15% of AMD’s $23 billion sales in the last fiscal, the stakes are high. While these corporations would undoubtedly attempt to get on CITSEC’s whitelist, this would necessitate the disclosure of sensitive R&D data, a step most tech giants might be hesitant to take.
On the flip side, replacing all governmental hardware within China with domestically sourced equipment is likely to be an expensive, time-intensive process. Furthermore, skepticism lingers over the maturity and performance of domestic equipment. While there is no denying that China’s domestic chip tech has advanced leaps and bounds in recent times, there are reservations about its performance caliber compared to US technology.
