This month we provide an update to our previous Signal From Noise focused on the semiconductor industry, published in November 2022.
The U.S. and Chinese government have at least one thing in common – a strong belief in the strategic geopolitical and economic importance of the semiconductor industry. Authorities in Beijing on May 28, 2024 announced a fresh subsidization effort to bolster China’s domestic semiconductor industry, committing $47.5 billion of fresh investments from the country’s six largest state-owned banks into the China Integrated Circuit Industry Investment Fund. This third phase of the initiative will focus on chip-manufacturing equipment and high-bandwidth memory chips. (The first phase was more generalized, while the second phase focused on companies involved in the various aspects of the fabrication process.)
Beijing’s subsidies have already enabled some initial moves toward Chinese President Xi Jinping’s objective of technology independence for China. Earlier this year, the country ordered its telecom companies to phase out the use of non-Chinese processors (notably, those made by Intel (INTC 1.61% ) and AMD (AMD 1.89% )) in its communications networks by 2027. The government had previously issued procurement guidelines discouraging government agencies and state-owned enterprises (SOEs) from purchasing laptops and PCs powered by Intel and AMD processors.
It’s reasonable to assume that Xi Jinping views this as a logical counter to U.S.-led efforts to impede China’s ambitions to become a dominant technology power, even as the U.S. and its allies in Europe and Asia seek to boost their own respective semiconductor-manufacturing capabilities.
While semiconductors are obviously crucial to modern life, much of the impetus for these government efforts have been driven by Taiwan Semiconductor Manufacturing Corporation (TSM 2.79% ), which a number of analysts have described as “the most important company in the world.” As we have discussed previously, TSMC is by far the most advanced and most capable fabricator of semiconductors in the world – no rival even comes close. Its base in Taiwan, which China has long claimed as its territory, has made countries around the world nervous.
The U.S. came to see it as an important economic, military, and strategic priority to convince TSMC to diversify the geographical breadth of its operations and build facilities in the U.S. – not just to improve access to the company’s expertise, but also to convince other semiconductor companies to make chips in the U.S. To those ends, the U.S. government passed the CHIPS and Science Act in August 2022. To date, it has resulted in roughly $45 billion in financial assistance, helping to fund and incentivize private investment in 19 projects in 12 states. Among the major recipients of this program thus far have been Intel ($8.5 billion in grants, $11 billion in loans), Global Foundries (GFS, $1.375 billion in grants, $1.6 billion in loans), Samsung ($6.4 billion in grants), Micron Technology (MU 1.04% , $6.14 billion in grants, $7.5 billion in loans) – and of course, Taiwan Semiconductor Manufacturing Corporation ($6.6 billion in grants, $5 billion in loans). Collectively, these major recipients will use the government assistance to build as many as 16 new fabrication facilities and to modernize and expand others, including three new TSMC fabs in Arizona.
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