China’s Surging Legacy Chip Production Amidst Export Sanctions

Recent developments in the semiconductor industry have brought to light the unintended consequences of export sanctions imposed by the United States. According to a report from SCMP, China’s semiconductor output of legacy chips has experienced a staggering 40% growth in the first quarter of 2024. This surge in production poses a potential paradigm shift, with China emerging as a formidable contender in legacy chip production on the global stage.

Understanding the Surge: Trade Restrictions and Legacy Chips

A significant factor driving China’s rapid production growth is the absence of trade restrictions on “mature chips,” which utilize 28nm or older process technology. Unlike newer chips, these legacy chips were intentionally excluded from U.S. sanctions due to their widespread use in essential devices such as electronics and automobiles. Recognizing the critical role of these chips in maintaining supply chain resilience, the U.S. government deemed them non-threatening to national security.

As a result, China’s national semiconductor output of legacy chips has reached unprecedented levels, with a record 36.2 billion units produced in March alone. This surge reflects China’s strategic focus on bolstering its capabilities in legacy chip production, leveraging heavy state support to drive production gains.

The Path to Dominance: China’s Ambitious Production Goals

Reports indicate that China’s investments in semiconductor production have predominantly targeted mature process technologies, redirecting resources away from bleeding-edge nodes. With robust state backing and a concerted effort to ramp up production, China is poised to assert dominance in legacy chip production. Projections suggest that China’s mature-process production capacity could capture 39% of the global market share by 2027, a significant increase from the previous year’s 31%.

Limitations and Challenges: The Quest for Self-Sufficiency

Despite its strides in legacy chip production, China still faces significant challenges in achieving complete self-sufficiency in semiconductor manufacturing. The country’s inability to compete with industry leaders like Intel and TSMC on cutting-edge process nodes underscores its reliance on older technologies. Without access to crucial lithography tools required for advanced chip fabrication, China’s aspirations for technological independence remain elusive.

The Duality of Dependence: Balancing Imports and Production

While China’s production of legacy chips has surged, the country continues to rely heavily on semiconductor imports. Reports indicate a 12.7% increase in semiconductor imports in Q1 2024, highlighting the ongoing dependence on foreign suppliers. Despite efforts to bolster domestic production, China’s journey towards self-sufficiency remains a work in progress, characterized by a delicate balance between import reliance and production growth.

The surge in China’s legacy chip production underscores the complex interplay between trade policies, technological advancements, and geopolitical tensions in the semiconductor industry. While export sanctions have inadvertently propelled China’s growth in certain segments, the country still grapples with limitations in cutting-edge technology and import dependence.

As China continues to pursue self-sufficiency in semiconductor manufacturing, the industry is poised for continued evolution and transformation. By navigating the challenges and opportunities presented by export sanctions and technological barriers, stakeholders can shape a more resilient and competitive semiconductor landscape, driving innovation and progress on a global scale.