Because of China the world will be faced with a

Because of China, the world will be faced with a flood of cheap chips this year – something that Western countries will struggle to cope with

Barclays analysts recently said that over the next five to seven years, Chinese manufacturers will be able to double the amount of chips produced using sophisticated technical processes, and over the next three years that amount will grow by 60%. Some experts believe that it will not be easy for Western competitors to withstand this onslaught and that not all regulatory tools can work in their favor.

    Image source: SMIC

Image source: SMIC

With my thoughts on this topic from the pages Financial Times shared by Professor Chris Miller, author of the book “Chip War” and expert on the global semiconductor market. He shares the concerns of others in the industry who believe the unbridled expansion of Chinese core component makers could lead to overproduction and market overstocking in the coming years. Chinese companies already lack access to advanced lithography technologies, but are actively increasing the production volumes of primitive chips that are not subject to sanctions from the United States and its allies.

By the way, at the recent quarterly reporting conference, TSMC management expressed the threat of global overproduction of sophisticated chips, but expressed the opinion that this does not pose a direct threat to the business of TSMC itself. According to CEO CC Wei, in the field of mature lithography, the company not only focuses on customizing technical processes according to the needs of a specific customer, which makes changing manufacturers problematic, but also enters into long-term contracts that guarantee stable profits. For this reason, TSMC is not only not afraid of competition from the Chinese, but will also increase its capacity, for example, to produce the same 28nm products.

Chris Miller explains that the “Chinese invasion” will not affect all segments of the semiconductor components market equally. In the automotive sector, for example, a trend towards concluding long-term contracts has emerged even after the chip supply crisis that arose during the pandemic, and in this area too, Chinese manufacturers will not be able to poach customers from foreign competitors. Managing the supply of chips of Chinese origin generally seems to be a difficult task due to the huge assortment and impressive market turnover, which is why Miller is inclined to the idea of ​​deliberately restricting the access of Chinese chips to Western markets. For example, the authorities of some countries may completely block access to their market for products with a Chinese component base for security reasons. This principle already works in many places in the defense sector; it can be complemented not only by medical devices, but also by electric vehicles, although the latter, due to their prevalence and saturation with electronics, will probably never fall under this complete ban.

Western countries can continue to put pressure on Chinese manufacturers through access to chip production equipment, but the range of sanctions will simply expand if necessary. While the United States and Japan tend to use national security rather than defense when dealing with Chinese suppliers, Europe is more willing to use market means where appropriate and possible.

About the author

Dylan Harris

Dylan Harris is fascinated by tests and reviews of computer hardware.

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