How the CHIPS Act and Other Restrictive Laws Could Empower Chinese Manufacturing

As governments worldwide continue to enact protectionism on semiconductor products, a lack of foresight could help embolden Chinese semiconductor manufacturing while still leaving the semiconductor industry vulnerable. How could China still benefit from the semiconductor industry with the west, what common examples exist, and should the CHIPS act also focus on low-end semiconductors?

How China can still benefit from the semiconductor industry

The recent CHIPS act in the US passed by Congress, along with numerous other legislative acts passed by western nations, is an attempt to try and protect the semiconductor supply chain after it became apparent that the entire world is dependent on semiconductors and that the vast majority of high-end semiconductors originate from a few nations surrounding China. At the same time, disturbances in global markets have the ability to shatter the technological supremacy of a nation while also giving opponents plenty of time to catch up.

But while the West rushes to create their own cutting-edge foundries, there is one area of semiconductors that seems to be going unnoticed; basic semiconductor devices. Next-generation semiconductor foundries are great for producing AI chips, server cores, and mobile processors, but just about all electronic circuits on the earth require some basic semiconductors such as diodes, transistors, and logic devices.

China’s presence in this industry is quickly becoming apparent, with more Asian semiconductor brands being available to western companies, and in many cases, these devices are more than suitable for off-the-shelf equipment. Considering the low prices offered on Chinese versions of parts (such as the AMS1117 and the STM32) combined with the increasing costs of living, it is more than possible for designers to favour Chinese-made parts over Western varieties.

Should this happen, it is plausible that future semiconductor supply chains will remain just as vulnerable as they are today, with the new vulnerability lying in low-end semiconductor devices. Worse, such a market would be highly advantageous to China, which can position itself as a key semiconductor provider regardless of the numerous protective measures put in place by western nations. This issue is similar in nature to the inability of the CHIPS act to also protect supply chains relating to the semiconductor industry.

Common examples of low-end semiconductors provided by China

Any quick search on popular component distributors such as LCSC will immediately show a new trend of Asian brand semiconductor manufacturers creating industry standard parts. For example, the vast majority of basic transistors and amplifiers, such as the 2N3904, BC548, and LM358, are provided by numerous companies, including HGSEMI, ST Semtech, and DIOTEC. More complex parts such as the AMS1117 are available from multiple manufacturers in China, all of which perform similarly to those made by western companies. 

But when we think of low-end semiconductors, this doesn’t just include basic linear analogue devices; it also includes microcontrollers and other technologies not dependent on state-of-the-art semiconductors. One popular example is the GD32 range of microcontrollers from a company called GigaDevice. The GD32 range of microcontrollers are code-compatible STM32 clones that can be programmed using the same development environment and programmers as STM32 devices. But unlike the STM32 range, the GD32 offer significantly lower prices, with some starting as low as $0.80. 

It is not entirely clear if the GD32 range of devices is legal, as some suggest it could be in breach of IP infringement, but there seems to be no sign of legal action, nor have there been any notable statements made on the subject by either party. Furthermore, some users have experienced issues with GD32 devices claiming they are not 100% compatible. 

Should governments also focus on low-end semiconductors?

Considering that the vast majority of electronics in vehicles, consumer products, and industrial equipment are low-tech semiconductors, it makes sense that governments worldwide should also consider a level of protection for these devices. Having the ability to produce bleeding-edge technology is utterly pointless if semiconductors needed to support that hardware are unavailable. This is especially true in the automotive industry, where critical parts such as current monitors and sensors were impossible to get after the COVID lockdowns.

The reason why low-end semiconductors are slowly fading away from the West simply comes down to cost. Manufacturing basic transistors and logic devices in the West makes no sense when high-end semiconductors provide higher profit margins, especially considering that China has a massive advantage in this area.

As such, governments could help incentivise the manufacture of low-end components through numerous means, including reduced VAT rates on low-end semiconductors, tax credits for their manufacturer, or even requiring new foundries to have a 70/30 ratio of high-end capabilities to low-end capabilities to encourage the production of cheaper devices. 

Overall, the CHIPS act only marginally protects high-end semiconductor supply chains, but it does nothing to prevent countries from becoming dependent on China for all other supporting hardware.