Analysts’ views on China’s 28nm autonomy and controllability

In September 2020, the second phase of China’s National Integrated circuit Fund surfaced. According to related reports, the foundation invested 28.9 billion US dollars in the integrated circuit industry, which is nearly double the amount of the first phase of the fund. We can see from relevant sources that the size of this fund is expected to reach 47 billion US dollars, and the specific areas of focus include etching machines, thin film deposition, testing and wafer cleaning equipment.

According to Strategyanalytics, China’s goal is to achieve self-sufficiency in semiconductor production, starting with the 28 nm CMOS node, the most widely used manufacturing node or feature size for integrated circuits (ICs). China can meet most of its Semiconductor needs by making ICs at this node, and the plan appears to be successful.

Strategyanalytics further pointed out that the reason why China has such an idea is that they want to obtain reliable semiconductor resources to continue producing and exporting Electronic products in mainland China. As recent U.S.-China tensions have made them concerned about their ability to acquire chips now and in the future, China has turned domestically for semiconductor resources in order to survive. Most importantly, the Chinese government sees semiconductor self-reliance as strategically important. Because it protects and sustains job growth in manufacturing.

According to Strategyanalytics, China buys 36 percent of the world’s $400 billion-plus semiconductors annually, and half of those chips are built into electronic products such as PCs, TVs and mobile phones that are exported. Semiconductor producers in mainland China have a global market share of about 5 percent, while U.S. companies have a 47 percent share of the market, according to the Semiconductor Industry Association (SIA).

The escalating trade war between the U.S. and China has brought the world into a new reality, the technological cold war. The United States has expanded its “entity list” of blacklisted companies from Chinese military equipment makers to large corporations. Even SMIC has become a target for the United States.

The COVID-19 pandemic has also caused other disruptions to international trade, as it has prompted them to emphasize the importance of companies with multiple sources of supply, including local sources, and we are against technology trade wars, but this has become a reality. important damage caused by this debate. Because the electronics industry’s supply chain is complete, the world has to live with it.

 Faced with such a situation, what will China do? To what extent can it be done?

First of all, we must say that before the second phase of the Semiconductor Investment Fund, China announced several plans including the next-generation artificial intelligence development (AIDP). Tensions between the U.S. and China also really escalated in May 2020, as the U.S. imposed tough new sanctions ON Huawei at that time, which boosted the development of the second phase of the Big Fund and allowed China to focus more on achieving Self-reliance for 28nm chip production.

According to the Information Technology and Innovation Foundation, a trade promotion group, China could spend the next decade investing huge sums in semiconductor self-reliance.

To achieve complete self-sufficiency in semiconductor production, China’s semi-fabs require domestic suppliers of semiconductor equipment, domestic on-site support, and domestic suppliers of repaired parts and raw materials (such as silicon substrates and gases). China has more semiconductor factories than any other country and has about 30 new factories under construction or under construction. According to a SEMI forecast last year, China will spend $14 billion on semiconductor equipment purchases in 2020, making China the largest buyer of such equipment. However, the U.S. has imposed export controls on the sale of U.S.-designed tools and manufacturing equipment to Chinese fabs.

According to Strategyanalytics, among these semiconductor equipment, lithography equipment is the most difficult to produce for China. Because there is no domestic machine in China capable of lithography for 28 nm CMOS. Lithography machines typically cost about $50 million each, and they account for 25 to 30 percent of the cost of fab equipment.

In addition, lithography operations typically account for about 50 percent of semiconductor fabrication time, so such machines are critical in determining the throughput and cost of single-chip and per-chip production in fabs.

Lithography uses challenging and expensive techniques. 28 nm lithography requires machines to generate deep ultraviolet light at 193 nm using a powerful argon fluoride excimer laser, coupled with immersion lithography, which illuminates the wafer while immersed in a transparent liquid to change the index of refraction and create fine lines , these are key issues that need to be addressed.

Chinese fabs have achieved remarkable success in producing LEDs, low-power processors, sensors, discrete semiconductors, and assembly, packaging and test (APT) devices. However, China still lags behind in multiple areas such as multi-core processors, storage devices, semiconductor design tools and equipment, especially in mobile SoCs (systems on a chip) that require smaller process nodes to achieve the highest level of integration. China also lags behind. China is also lacking in handset analog/mixed-signal ICs and RF (radio frequency) front-end components including power amplifiers and RF filters.

Full self-sufficiency in all of these areas will require China to produce more advanced semiconductor equipment than is required for the 28 nm CMOS node. It remains to be seen whether European and Japanese equipment suppliers will follow the U.S. lead, or risk a conflict with the U.S. by continuing to sell semiconductor equipment to China. But it is certain that if equipment suppliers around the world impose sanctions, these companies will lose billions of dollars in sales.

In the face of China’s attack, how should the United States respond?

Strategyanalytics said that China’s independent and controllable pursuit of semiconductors will stir distrust of the United States in China. Politicians, foreign policy and defense analysts see China’s plans for 5G, artificial intelligence, quantum computing and semiconductors as part of their ambitions, posing a threat to the U.S. technology leader. But Strategyanalytics argues that these fears are overblown, a view that persists and has recently intensified.

Over the past few decades, U.S. semiconductor suppliers have outsourced production to avoid the high manufacturing costs associated with building new, state-of-the-art fabs. Today, only a handful of U.S. suppliers still produce their own chips in-house, and most U.S. companies, except for older chip designs, have become fabless.

Therefore, the United States has begun planning, led by the Advanced Research Projects Agency (DARPA), to promote semiconductor autonomy and revival. Congress also participated in the formulation of the US CHIPS Act. This is a bill totaling more than $17 billion to revive U.S. chip production, while they will fund related research and development and ensure a secure supply chain using investments and generous tax incentives.

In Strategyanalytics’ view, China will achieve its goal of independence on the 28 nm node in about two years, which should secure customers in the Chinese electronics industry. However, it is a bit difficult for China to achieve complete production independence in all aspects.

The main challenge facing the US and China is that the semiconductor industry is indeed global in nature. No single company or country can produce the most efficient product without selling to a global market. Because this requires specialized companies located in various parts of the supply chain in other countries.

So it’s a balancing act. China can still benefit from the outside semiconductor market and foreign sales. Moreover, the United States still needs the strong APT and electronic assembly and production capabilities of the Chinese market. We hope to find a good balance.