White House Report Part 1 of 2: China’s “Massive Subsidy Campaign”

The White House released a report on Tuesday that details the findings and recommendations of the Administration’s 100-day supply chain review. Among the findings, the report warns of the Chinese government’s “massive subsidy campaign” to dominate emerging markets.

President Biden signed an executive order in February that directed the review of four key industries: semiconductors, large capacity batteries, critical minerals and pharmaceuticals.

The report states that the Chinese government’s “massive subsidy campaign [as much as $200 billion over the past eight years] to develop its domestic semiconductor capability” has exploited “gray areas” in international trade rules and avoided World Trade Organization (WTO) oversight.

The Chinese Communist Party has made a concerted effort to dominate the semiconductor market. The Made in China 2025 plan aims to produce 70 percent of China’s chip demand indigenously and pledges as much as $1.4 trillion of investment into China’s semiconductor industries.

Memory chips are the “most mature” of these efforts. Yangtze Memory Technologies (YMTC) has emerged as a “national champion memory chip producer.” A report by James Mulvenon this year identifies ties between YMTC and the People’s Liberation Army.

The White House report continues: “Even though YMTC’s 3D-NAND memory technology is untested and significantly less advanced than global leaders, it still represents a watershed moment in China’s semiconductor ambitions, especially because YMTC was only founded in July 2016. YMTC has received an estimated $24 billion in subsidies from Chinese government sources, which was essential to the firm’s rapid development.”

“It’s not just YMTC,” cautioned Emily de La Bruyère, senior fellow at the Foundation for the Defense of Democracies, during a roundtable forum this week. “Changxin Memory Technologies is equally propped up and potentially equally connected to the [People’s Liberation Army].”

“While the United States no longer leads the world in semiconductor manufacturing capabilities,” it has a competitive advantage over China in semiconductor manufacturing equipment (SME), the White House report adds. The United States supplies more than 41 percent of the world’s SME. 

Accordingly, “the Administration should target and implement export controls on critical semiconductor equipment and technologies to address certain supply chain vulnerabilities.”

The report calls for a multilateral export control approach with U.S. allies. “Together, such controls will protect U.S. national security interests by limiting advanced semiconductor capabilities… while enabling continued leadership of the U.S. semiconductor sector.”

During the roundtable with Ms. La Bruyère, ITIF’s Stephen Ezell summarized: “Over the long term China doesn’t buy into the WTO notion of comparative advantage … China wants absolute advantage in all advanced technology industries, including semiconductors.”