US CHIPS Act 'economic coercion' against China; but won't succeed in changing global semiconductor industrial distribution: expert
Published: Aug 10, 2022 09:43 PM Updated: Aug 10, 2022 11:43 PM
quantum chips Photo: CFP

Quantum chips Photo: CFP

Chinese foreign ministry and trade bodies raised objections soon after the Biden administration signed a long-brewing CHIPS Act which clearly aims at crippling China's semiconductor supply chains, saying that the move will seriously disrupt global companies' normal trade and investment activities, while bringing a negative impact to the stability of global chip industrial chains. 

Experts said that the bill is unsustainable in actual implementation, not only because it runs counter to basic market rules by arbitrarily breaking naturally formed international labor division in the semiconductor industry, but also because it may face change in the case of power rotation in the US. 

The new CHIPS Act, which was signed into law by US president Joe Biden on Tuesday night US time, provides $52.7 billion for American semiconductor research, development, manufacturing and workforce development, including $39 billion in manufacturing incentives. 

Although US officials stressed that the legislation is primarily intended to strengthen US' semiconductor production, content of the Act shows a clear tendency of cracking down on China's chip industry. For instance, the Act requires that recipients do not build certain facilities in China and other countries of concern, a White House statement showed. 

Chinese foreign ministry spokesperson on Wednesday lashed out at the Act, saying that it is another example of "economic coercion" by the US. 

"How the US 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 US, let alone undermine China's legitimate development rights and interests," said Wang Wenbin, Chinese Foreign Ministry Spokesperson, at a regular briefing on Wednesday.

Two Chinese trade bodies, the China Council for the Promotion of International Trade (CCPIT) and China Chamber of International Commerce(CCOIC), on Wednesday called upon the global business community to jointly eliminate the Act's adverse impact on the business community and take strong measures to safeguard their legitimate rights and interests where necessary.

According to a joint statement issued by the two organizations, the US CHIPS Act ensures the US will gain unfair advantage over any country of concern, including China, which will intensify the global geopolitical competition in the semiconductor industry and hinder the global economic recovery and innovative growth.

"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 statement said.

Experts said that the Act shows the US government's intention of setting obstacles for China and other countries in order to obstruct their chip industry's development, but as ambitious as it looks, it is unreasonable in many aspects, making people doubt its effectiveness as well as sustainability.

Violate market rules

"The Act shows that some US politicians don't understand economics," commented Weng Guanxing, a partner at Shanghai-based law firm Wintell & Co, on the chips bill, saying that it has violated basic market rules by using government's power to change global labor distribution pattern in the semiconductor industry which has been formed naturally over the years according to market characteristics and resources.

In particular, experts stressed that what the US is good at is researching and designing high-end chips, while China and some other countries are good at mass production, because these countries have advantages over the US in terms of labor costs.

"A short-term subsidy aimed at moving all the sectors of the semiconductor to the US will only add to its manufacturing cost, making the products less competitive on international market," Gao Lingyun, an expert at the Chinese Academy of Social Sciences (CASS) in Beijing, told the Global Times on Wednesday.

On the other hand, if companies choose to accept US subsidies and give up chip investment in Chinese mainland, that almost means a spontaneous abandonment of the huge Chinese market which not only helps produce a large amount of chips at a relatively low cost for them, but buys many semiconductor products from them. In this sense, what the act brings to global chip giants is losses instead of benefits in the long term.

Shares of many global chip makers plunged on Tuesday. The PHLX Semiconductor, an equity index composed of companies primarily involved in the production and sale of semiconductor products, dipped by 4.57 percent. A number of semiconductor shares like Lam Research and Marvell Technology plunged by more than 7 percent. 

According to Gao, US chip stocks' plunge also to some extent reflected the concerns of semiconductor enterprises as they are forced to choose sides and restructure their future investment and layout following passage of the bill.

Unsustainable Act 

Experts also doubted effects and endurance of the Act, citing reasons like the change of administration which might affect the law's implementation, and the scale of the subsidy which is too small to bring fundamental changes.

According to Gao, if the Republicans come into power they are likely find fault with some content of the Act, casting uncertainty to the implementing of the Act. 

Hu Qimu, chief research fellow at the Sinosteel Economic Research Institute, told the Global Times on Wednesday that he doubts the Act will be able to block China's semiconductor development, as the cost to remodel the semiconductor industry and bring manufacturing back to the US far exceeds the $50 billion offered by the US government. 

"The research and development cost of integrated circuit is very high. The $52 billion can only be allocated to very limited number of enterprises for rebuilding production facilities, maybe only one or two," Hu said. 

In comparison, China imported about $440 billion worth of chips in 2021, customs data showed, far exceeding the amount of subsidies the US is going to give to companies to help them restructure industrial chains. 

Weng also stressed that there are ways for companies to evade the CHIPS Act's clauses by adopting special commercial structures such as sovereign wealth funds, trust or other methods, which will help them get subsidies from the US while maintaining business contact with China. 

But he also raised some suggestions for domestic chip companies to avoid being impacted by global friction, including paying more attention to contracts in cross-border business activities, as well as reducing cutthroat competition among domestic enterprises.