October 11, 2024

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As US chips away at Chinese capacity, India takes big first steps

As US chips away at Chinese capacity, India takes big first steps
Back-to-back developments in the past few days show how the future may see radical rebalancing of global technological power as China tries hard to defend its semiconductor, or chips, industry while India takes bold steps to create its chips ecosystem. Prime Minister Narendra Modi accompanied by his Singapore counterpart Lawrence Wong on Thursday visited a leading Singaporean semiconductor company and also signed an MoU on India-Singapore Semiconductor Ecosystem Partnership. Around the same time Maharashtra cabinet panel approved a $10-billion (₹83,947 crore) investment proposal by a joint venture between Israel’s Tower Semiconductor and Adani Group to set up a semiconductor chip manufacturing unit at Taloja.A few days earlier, the Union Cabinet had approved setting up of an Outsourced Semiconductor Assembly and Test (OSAT) facility in Sanand, Gujarat by Kaynes Semicon with a Rs. 3,307 crore investment. The capacity of this unit will be 63 lakh chips per day.

Now, ET has reported that the Indian Semiconductor Mission (ISM) is likely to receive a second budgetary allocation of up to $ 10 billion ISM, a division within the Digital India Corporation tasked with furthering the country’s semiconductor manufacturing, packaging, and design capabilities was first established in 2022 with a budgetary allocation of $10 billion. The government will have to seek fresh funding under the ISM as it has almost exhausted the funds in the first phase which saw approvals of $11 billion, an official has told ET. Before nod to Kaynes and Tower-Adani plants, India had approved five chip plants: two by the Tata Group in Assam and Gujarat; and one each by Micron and CG Power in Gujarat and by RRP Electronics in Maharashtra.

China struggles to defend its chips industry

While India is taking mega steps to build its chip industry from scratch, China, which has a huge chip-making capacity built over more than a decade, is struggling to defend it from restrictions by the US and its allies.


Just when India was approving big chip plants and mulling to infuse billions of more dollars in its chips sector, Bloomberg News reported that China warned severe economic retaliation against Japan if it further restricts sales and servicing of chipmaking equipment to Chinese firms. Toyota Motor privately told Japanese officials that Beijing could react to the curbs by cutting Japan’s access to minerals required for automotive production, the report said.The news showed how China is further getting bogged down into chip wars as the US decided a few years ago to degrade China’s successful chips industry and followed it up with many curbs on export of chip-making machines to China for which China depends on the US and its allies.Japan began restricting exports of 23 types of semiconductor manufacturing equipment, aligning its technology trade controls with a US push to curb China’s ability to make advanced chips in July.

Last month, one of China’s leading chip equipment makers, Advanced Micro-Fabrication Equipment (AMEC), filed a federal lawsuit against the US defence department, challenging its designation as a “Chinese Military Company”. AMEC has played a key role in China’s push to develop the domestic semiconductor industry and cut reliance on foreign technology, with major chip foundries, such as Semiconductor Manufacturing International Corp, among its clients. It was one of a group of companies added to the list of Chinese Military Companies by the Department of Defense (DoD) in January.

The Biden administration is fighting to overcome opposition from allied nations and the tech industry as it prepares to expand restrictions aimed at slowing China’s ability to make the most advanced semiconductors, which could be used to bolster Beijing’s military capacity, the NYT reported last month. The administration has drafted new rules that would limit shipments to China of the machinery and software used to make chips from a number of countries if they are made with American parts or technology, as well as some types of semiconductors, according to people who have seen or were briefed on a draft version of the rules. The rules are aimed at blocking off some newer routes that Chinese chipmakers have found to acquire technology, despite international restrictions. The US has been pushing allies including Japan and the Netherlands to toughen their restrictions on technology shipments to China.

The effort to get allies to block chip technology to China started in the Trump administration, when the Netherlands agreed to stop shipping China ASML’s most advanced machines. Then, two years ago, the United States banned shipments globally of advanced chips to China as well as US exports of chipmaking machinery from US-based companies including Applied Materials Inc., Lam Research Corp. and KLA Corp. Last year, the Netherlands and Japan agreed to issue restrictions barring shipment of some of their most advanced machinery to China, and the United States further tightened its own rules, including stopping more shipments from ASML and Tokyo Electron.

The aggressive moves by the West and its allies show that the chip war between China and the US is now intensifying.

Will the West be able to hamstring China?

The curbs on China’s chip industry by the US and its allies could have come too late. China is said to have already developed expertise in advanced chips and depends on the West only for the most advanced cutting-edge technology. Last year, Chinese telecom company Huawei rolled out a phone with an advanced chip, a move widely seen as a challenge. There is a view that curbs on China might push it to innovate further and achieve technological breakthroughs on its own.

Chinese imports of equipment to make semiconductors hit a record for the first seven months of this year as the Asian nation’s companies continue to ramp up their purchases in case the US and its allies further block them from buying.

Dutch company ASML’s sales to China surged 21% in the second quarter to hit almost half of its total revenue, with sales consisting of unrestricted older systems as Beijing pushes to make more mature types of semiconductors. ASML is the sole supplier of the most advanced lithography equipment required to make cutting-edge chips.

Chinese chipmakers are expected to grow their output by 14% to 10.1 million wafers per month in 2025, or nearly a third of the global industry’s production, after achieving a 15% increase this year, trade group SEMI estimated in June.

Chinese tech giants including Huawei and Baidu as well as startups are stockpiling high bandwidth memory (HBM) semiconductors from Samsung Electronics in anticipation of U.S. curbs on exports of the chips to China, Reuters reported last month based on information from sources. The companies have ramped up their buying of the artificial intelligence (AI) capable semiconductors since early this year, helping China account for about 30% of Samsung’s HBM chip revenue in the first half of 2024, a source told Reuters.

The moves show how China is gearing up to keep its technology ambitions on track amid rising trade tensions with the US and other western nations. They also show how the tensions are impacting the global semiconductor supply chain.

China’s semiconductor market size was estimated at $180 billion in 2023. In comparison, the Indian semiconductor industry will grow more than two-fold over the next six years to reach $109 billion by 2030, up from $38 billion in 2023, the minister of state for electronics and information technology Jitin Prasada has told the Lok Sabha.

India needs at least 10 more semiconductor chip fabrication companies to set up shop in India in the next decade, Ajit Manocha, president of the global semiconductor industry body SEMI, has said.

(With inputs from agencies)

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