How is China's semiconductor industry preparing to deal with new US sanctions?

China’s semiconductor industry is preparing for another four years of challenges under Donald Trump. To counter the challenges posed by tough US policies, China is stepping up its purchases of chipmaking equipment from other countries to reduce its dependence on US technology. At the same time, China is actively recruiting international talent, especially semiconductor experts, to strengthen its workforce.

In addition, China's semiconductor industry is also actively building new strategic alliances, cooperating with countries and companies with suitable technologies, to strengthen its strength and minimize the impact of US export control measures.

A synthesis and assessment of more than 30 articles, reports and studies published by companies, industry associations and chip analysts in China after Donald Trump won the election shows that Chinese experts and businesses are considering a number of strategies to cope with the impacts of the upcoming US administration's trade policies.

One of the key strategies is to foster deeper cooperation with countries and companies that are not bound or affected by the trade policies and technological restrictions that the US government may impose. At the same time, studies also emphasize improving self-sufficiency in semiconductor technology and developing domestic supply chains to reduce dependence on external resources.

During his first term, former President Donald Trump targeted major Chinese tech companies such as Huawei Technologies and ZTE, along with China’s leading chipmaker Semiconductor Manufacturing International Corporation (SMIC). Trump placed these companies on a trade “blacklist,” a move that severely restricted their access to advanced US technology.

The policy not only prevents Huawei, ZTE and SMIC from purchasing core hardware and software from US companies, but also restricts their access to components and services critical to high-tech research, development and manufacturing. These measures are aimed at weakening the position of major Chinese technology companies in the global market while minimizing the national security risks that the Trump administration believes may arise from dependence on Chinese technology.

Meanwhile, the Biden administration has implemented strict and comprehensive export controls to limit China’s access to the most advanced chip technology. By expanding export regulations, the US has prevented not only the sale but also the transfer of advanced chip technology from US technology companies to China. This policy is aimed at weakening China’s ability to develop key technologies, including artificial intelligence (AI) and supercomputing, which the US considers important in global technology competition.

Zhu Jing, deputy secretary-general of the Beijing Semiconductor Industry Association, has called on Chinese chip companies to step up their international business and expand to more countries. He said there may be opportunities to continue importing some chips if international cooperation between the US, Japan and Europe in enforcing sanctions against China becomes looser under the Trump administration.

In an article posted on the WeChat app, Mr. Zhu Jing encouraged companies to also increase their attraction of overseas talent if the Trump administration repeats the stance of its first term and implements policies that make it difficult for Chinese students and professionals to work in the US.

“After Trump takes office, there may be some benefits for the development of China’s semiconductor industry in terms of professional talent, multinational companies and foreign cooperation. I recommend that we adapt to the new situation and make timely changes,” Zhu Jing said.

Many articles also predict the industry will see increased export controls and potential tariffs under Trump, and that increased self-sufficiency is the way forward.

Jinan Lujing Semiconductor Company, a maker of security chips and power equipment, said on its WeChat account: "Trump's first term has made us realize the importance of semiconductors and the need for localization, paving the way for China's semiconductor industry to become self-reliant."

In preparation for new US sanctions, China has stepped up its purchases of semiconductors from abroad. In the first nine months of this year, China's semiconductor imports rose by a third to $24.12 billion, according to data from China Customs.

Of this, $7.9 billion was spent on lithography machines, which are needed to produce the most advanced chips, up 35.44% from the same period last year. Most of these photolithography machines came from the Netherlands, worth $7 billion.

The world's leading lithography machine maker, ASML Holding (Netherlands), has stopped exporting its most advanced deep ultraviolet (DUV) lithography machines to China this year. Under regulations issued by the Biden administration last year, ASML has also had to restrict the supply of some older DUV models to certain factories in China. In addition, ASML has not been able to export its more advanced extreme ultraviolet (EUV) lithography machines to the Chinese market since 2019 due to strict controls from the US.

Regarding this issue, Mr. Nori Chiou - Chief Investment Officer at Singapore-based investment management firm White Oak Capital Partners said: "Chinese technology companies, which were heavily impacted by high tariffs during the first term of the Trump administration, have now gradually expanded and improved production capacity to minimize future risks. After the difficulties in the previous period, these companies are now more prepared and feel more confident in facing the challenges from the 2018 trade war as well as the 2020 election."