US pushes chip bill to encircle China, but ‘unable to lure firms to decouple with mainland’

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By Xie Jun, Qi Xixia, Liu Yang (Global Times) 08:35, July 28, 2022

The US Senate on Wednesday passed a chip bill that is intended to counter China's high-tech rise under the guise of shoring up US competitiveness and protecting national security, a "dream" that is very difficult to achieve considering problems like mounting debts and industrial hollowing-out in the world's largest economy, experts said.

For countries and regions that have been kidnapped by the US bill to secede their chip supply chains from China, some might make symbolic gestures to follow the US orders but postpone real actions, like setting factories in the US, because what the US is pushing runs counter to their tangible benefits, observers noted.

The bill, aimed at boosting US semiconductor production, passed the US Senate 64-33 on Wednesday and will move to the House and US President Joe Biden for approval, US media reported.

The package, known as "CHIPS-plus," includes about $52 billion of funding for US companies making computer chips, a provision that offers a tax credit for investment in chip production, as well as funding to spur innovation and development of other US technologies, the report noted.

Although US officials have used many expressions to justify the bill, like economic security, national security or "America's future," its real intention of containing China's development has nowhere to hide judging from the bill's requirement for companies to pick only one of two choices - business ties with China, or subsidies from the US government.

The legislation would prohibit companies from expanding their semiconductor manufacturing in China for 10 years after they take a grant to build a US plant, Bloomberg reported on July 18. Companies could continue to invest in "legacy" chip manufacturing in China, but the definition of that term is unresolved.

"The US is using the bill to force companies in countries and regions of key status on the global chip supply and industrial chains to play by US rules, as well as encircling and suppressing chip industries in emerging markets," Wang Peng, a research fellow at the Beijing Academy of Social Sciences, told the Global Times on Wednesday.

Gao Lingyun, an expert at the Chinese Academy of Social Sciences (CASS) in Beijing, told the Global Times on Wednesday that the bill is aimed at containing China's development and putting the US on a more competitive footing with China in the technological edge.

US 'Chips Alliance' scheme will exacerbate global chip crunch. Illustration: Chen Xia/GT

Stuck in difficult position

As US officials mount efforts to push the bill toward passage, which experts interpreted as shifting from a "stick" approach by forcing companies to leave China to a "carrot" tactic with subsidies as bait. Chip companies, either in the US or in other countries and regions, are finding themselves in the difficult position of having to take sides.

A CNBC report noted that the CHIPS act has elicited divided responses from the US chip industry, as some players are concerned that the bill could provide disproportionate support to manufacturers like Intel while doing little to support other chip firms that do not produce chips by themselves.

But even companies like Intel are not one hundred percent satisfied with the bill. According to a report from Politico, Intel and other chipmakers are lobbying to curtail limitations on their operations in China.

Experts stressed that large US chip companies always know that globalized distribution is the best option for them, as the mode has supported their business growth over many years.

"If companies build plants in the US, where do they get cheap labor and construction materials from? How do they cover their factory operating expenses? Why build a factory where the end market is far away?" questioned Ma Jihua, a veteran technology analyst.

Xiang Ligang, director-general of the Beijing-based Information Consumption Alliance, said on Wednesday that for some large US companies, getting the subsidies and giving up the Chinese market will mean more losses than gains. For instance, Intel is unlikely to completely give up the Chinese market, which accounts for 20 to 30 percent of its entire annual revenue.

For US allies like Japan and South Korea, whose semiconductor industrial chains are deeply integrated with the Chinese mainland market, the situation is even more difficult.

"If they listen to the US, their companies might get tens of billions of dollars from the US, but they will lose hundreds of billions of dollars or even more due to decoupling with the mainland markets," Ma said.

They will not only lose Chinese chip customers, but could also see spillover effects on other products as well, similar to how South Korean companies suffered in Chinese mainland market after the Terminal High Altitude Area Defense (THAAD) crisis, the expert said.

Ma anticipates that Japan is prone to saying yes to Biden but would not cut its cooperation with China in reality, while South Korea is likely to face severe opposition from its large chipmakers.