Some of the world’s leading chip makers, including Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics, will be hamstrung from expanding their facilities in China under proposed US guidelines covering companies that receive federal funding for semiconductor production, according to analysts.
The proposed “national security guardrails”, which the US Commerce Department unveiled on Tuesday, bar companies receiving a portion of the US$52 billion in federal subsidies under the US CHIPS and Science Act from using the funds for projects in “foreign countries of concern” – specifically, mainland China, Russia, Iran and North Korea.
The new guidelines, which classify a list of semiconductors as critical to national security, prohibit funding recipients from adding new production lines or expanding an existing legacy facility’s production capacity beyond 10 per cent. It also bars them from significant transactions involving material expansion of facilities for advanced chips in those countries for 10 years from receipt of funding.
These guardrails show how Washington is continuing to put pressure on China’s semiconductor development ambitions, following the US-Netherlands-Japan pact to restrict exports of some advanced chip-making machinery to the mainland, the US-led Chip 4 Alliance with South Korea, Japan and Taiwan, and the expanded trade sanctions imposed by the Biden administration last October.
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For TSMC, the world’s largest contract chip manufacturer, implementation of the new rules for the US CHIPS Act could result in the suspension of its expansion programme at its chip fabrication facility in Nanjing, capital of eastern Jiangsu province.
“The chances of TSMC further expanding production in China is low” because of the US-China tech war and tense cross-strait relations with Taiwan, said Arisa Liu, a senior semiconductor research fellow at the Taiwan Institute of Economic Research.
“It is expected that TSMC will slow down its investment in the country and focus on building production capacity in the US, Japan and even Europe in the future, with Taiwan remaining as a production hub,” Liu said.
In 2021, TSMC invested US$2.89 billion to expand production capacity at its 28-nanometre wafer fab in Nanjing to meet growing chip demand in the car industry. The Nanjing fab primarily makes advanced integrated circuits using 12-nm and 16-nm process technologies.
An aerial view of Taiwan Semiconductor Manufacturing Co’s production complex in Nanjing, capital of eastern Jiangsu province. Photo: Agence France-Presse
TSMC has already “taken proactive steps in adjusting its production capacity to avoid being restricted by similar bans”, according to Lucy Chen, vice-president at Isaiah Research in Taipei.
The Taiwanese chip giant is currently building an US$8.6 billion fab in southern Japan, with Sony Group Corp and auto parts maker Denso Corp. It is also building a US$12 billion facility in Phoenix, Arizona, as part of an overall US$40 billion investment to produce more advanced semiconductors in the US city.
TSMC declined to comment.
The impact of the proposed new US guidelines is expected to be more significant on major South Korean chip makers with existing production facilities in China, according to Liu of the Taiwan Institute of Economic Research.
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“Companies like Samsung and SK Hynix have a high proportion of their production capacity invested in China,” Liu said. “If they cannot upgrade production processes or expand capacity, their business will be greatly affected.”
Both Samsung and SK Hynix, the world’s two-largest memory chip makers, are applying for funding under the US CHIPS Act, according to recent reports.
Samsung did not immediately respond to a request for comment on Thursday.
In a statement sent on the same day, SK Hynix said it “will closely review the US government’s announcements” amid ongoing discussions between Seoul and Washington.
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Samsung operates a chip plant in Xian, capital of northwest Shaanxi province, that produces more than 40 per cent of the company’s total NAND flash memory chips.
SK Hynix runs its plant in Wuxi, a city in Jiangsu that serves as a regional manufacturing hub, where about half of the company’s DRAM chip output is produced.
At a press conference in Beijing on Wednesday, Chinese foreign ministry spokesman Wang Wenbin described the US government’s proposed guardrails as “sci-tech blockade measures and protectionist”.
“Containment and suppression cannot hold back China’s development,” Wang said, adding that this would only strengthen the country’s resolve and capability to seek self-reliance and technological innovation.