On the evening of December 23rd, as Biden was about to leave office, the Office of the United States Trade Representative (USTR) launched a 301 investigation into China's mature process chip industry, aimed at examining the impact of China's mature process semiconductors on the US economy.
What is the focus of the 301 investigation launched by the United States this time? What is the intention of the 301 investigation? What impact does it have on China?
Targeting the mature process semiconductor industry
According to official information, this survey focuses on China's mature process chip industry (28nm and above), and examines the specific application of mature process chips in downstream fields such as US defense, automotive, medical, aerospace, telecommunications, and power grid. The investigation was launched on December 23, and USTR will accept written opinions and registration for public hearings from January 6 to February 24, 2025. A public hearing will be held from March 11 to March 12, 2025.
USTR stated that in the next three to five years, China is expected to account for almost half of the world's newly added mature node semiconductor manufacturing capacity, and claimed that this will create supply chain dependence in the mature semiconductor field. In September 2024, USTR announced that it would increase the tariff rate on Chinese semiconductors from the current 25% to 50% by 2025.
On December 7th, the Bureau of Industry and Security (BIS) of the US Department of Commerce released a public report on the use of mature process semiconductors. The report shows that downstream terminal manufacturers in the United States lack understanding of their chip supply chain, and about half of the surveyed companies cannot confirm whether their product chips are manufactured by Chinese wafer foundries. The report mentioned that over two-thirds of the surveyed terminal manufacturers may include chips manufactured by Chinese contract factories in their products, but the proportion is limited, accounting for about 2.8% by quantity and only 1.3% by value. The report claims that the price pressure brought about by China's capacity expansion will weaken the competitiveness of American chip suppliers.
Meanwhile, the report claims that approximately three-quarters of US chip sales do not come from chips manufactured by Chinese wafer foundries, and among those US chip manufacturers that do use Chinese foundries, Chinese foundry manufacturing only accounts for 6% of overall production. Among them, SMIC (688981. SH) and Huahong Group (688347. SH) are the main domestic foundries chosen by American chip companies, accounting for 78% of the US's chip manufacturing in China. Lower costs are the reason why American chip companies use Chinese foundries, with respondents believing that 72% of wafer prices are cheaper in China. In addition to price, some American companies have stated that the inability to find alternatives and support terminal sales in the Chinese market are also reasons.
What is the intention?
On December 23rd, the spokesperson of the Chinese Ministry of Commerce issued a statement expressing strong dissatisfaction and resolute opposition to the 301 investigation. The US has launched a new 301 investigation into policies related to China's chip industry due to its suppression of China and domestic political needs.
Since its inception, the "301" system has had a strong unilateralism color and has been opposed by other countries. As early as 2017, during Trump's tenure, the United States launched a 301 trade investigation against China in areas related to technology transfer, intellectual property, and innovation. As Biden is about to step down as the President of the United States, the 301 investigation launched this time will be reconfirmed by the next US President Trump.
The spokesperson of the Chinese Ministry of Commerce further stated that the United States provides huge subsidies to its domestic chip industry through the "Chip and Science Law", and American companies occupy nearly half of the global chip market. However, they accuse China of so-called "non market practices" and exaggerate the threat to China's industry, which is obviously contradictory and completely untenable. The mature process chip report recently released by the US Department of Commerce shows that Chinese made chips only account for 1.3% of the US market share. Chinese chip exports to the United States are much lower than imports from the United States. The Chinese side will closely monitor the progress of the investigation and take all necessary measures to firmly defend its own rights and interests.
According to WICA data, China's semiconductor exports in 2023 will be 136.3 billion US dollars (approximately 994.8 billion yuan). According to statistics from the General Administration of Customs, China's integrated circuit exports reached 1.03 trillion yuan in the first 11 months of this year, breaking through the trillion yuan mark for the first time in history and increasing by 20.3% year-on-year.
Professor Hu Jie from the School of Advanced Finance at Shanghai Jiao Tong University believes that since the 2018 China US trade friction, it has been influenced by factors such as national security, ideology, and economic trade, resulting in a persistent trend of economic and trade friction between China and the United States. This survey is the result of joint efforts by the US political, industry, and stakeholders.
In recent years, China's mature process semiconductor industry has developed rapidly and is highly competitive in terms of production capacity and prices, which has put tremendous pressure on competitors in other countries and regions, including the United States. The US government is also facing pressure from the industry, which is one of the reasons why the US government initiated the 301 investigation, "said Hu Jie.
Compared to previous sanctions on advanced processes, this time mainly targets mature processes, with a focus on economic and trade considerations. Industry insiders believe that the survey was mainly initiated due to trade protectionism, targeting domestic semiconductor design companies with mature processes, as the prices of domestic products are very competitive in the international market.
Does it affect geometry?
What impact will this 301 investigation have on the semiconductor industry? The spokesperson of the Ministry of Commerce stated that this will disrupt and distort the global chip industry and supply chain, and will also harm the interests of American companies and consumers. It is a repeated mistake.
Due to its high quality and affordability, downstream terminal manufacturers and consumers in the United States would have welcomed the sale of mature process chips from China to the United States. After the end of the 301 investigation, the United States will introduce corresponding restrictive measures, which will have a more or less adverse impact on China's export of mature process semiconductor products to the United States. "Hu Jie believes that" although the United States is an important market for China, it is not the only market. Currently, the impact on other major export destinations of mature process semiconductor products from China, including Southeast Asia and Europe, is not significant
However, Hu Jie pointed out that if China's mature process chip products are sold as components to the European or Southeast Asian markets, assembled into complete products, and then sold to the United States, they may be affected by the subsequent restriction measures of the 301 investigation, facing the problem of restricting the proportion of Chinese components or imposing additional tariffs.
Industry insiders believe that currently, the relationship between China and the United States is shifting from a cooperation led to a competition led approach, which inevitably hinders the development of China's semiconductor industry. At the same time, the sanctions imposed by the United States on specific industries are equivalent to labeling them as reverse selection, and both national and private resources will flow into these industries to promote their further development.