Last October, the U.S. showed leadership on the global stage when the Bureau of Industry and Security (BIS) issued long-awaited export controls aimed to restrict the PRC’s semiconductor capabilities. Multilateral momentum followed with Japan and the Netherlands agreeing to limit exports of chip making equipment to China. More recently, The Financial Times reports that Japan is poised to levy export controls next month that go beyond U.S. action. This is notable because the U.S. focused on advanced chips while Japan is going broader and covering legacy chips as it would cover larger (45 nm) chips.
According to FT, a Chinese chip factory executive said,“Japan’s export controls will be more disturbing to China than Washington’s sanctions last year.” That’s because China is ramping up its legacy chip production since its advanced capabilities were smashed last fall. SMIC, China’s largest legacy chipmaker, has four factories in production, and has received $282 million in subsidies.
The U.S. should take note and expand its export controls to cover legacy chips because every chip matters – not just advanced chips. Unfortunately, BIS Under Secretary Alan Estevez told Congress in March that legacy chips are a “ubiquitous commodity,” signaling no intention to address this gap.
But doing nothing lets Chinese legacy chip companies such as SMIC seize market share. More concerningly from a national security standpoint, SMIC’s activities boost the Chinese military. As CTT Special Advisor Steve Coonen recently wrote in Willful Blindness, his exposé of the failed U.S. export control regime, “To see how our export control policies continue to feed the buildup of an adversarial Chinese military is to watch a car crash unfold in slow motion. The nominally civilian technologies American companies are permitted to sell to China today could be leveraged to kill American military personnel in the Pacific tomorrow.”
Coonen isn’t alone. Other voices are warning against the many dangers of a Chinese-dominated legacy chip market. On May 3, for example, Greg Allen of CSIS wrote, “If China succeeds in establishing a dominant position in legacy chips, this could give China genuine coercive power in key market segments such as automotive chips.”
We eagerly await to see if Japan comes through and if the U.S. steps up its game.