China’s legacy chips in EU’s crosshairs

The European Union is preparing two surveys aimed at checking how China’s growing production capacity of older-generation semiconductors is affecting the bloc. 

The European Commission will conduct two surveys covering major chip-consuming industrial firms and the chip industry, respectively, in September, Reuters reported on Saturday (July 6). 

The report, citing two unnamed sources, said the EC has already started seeking feedback on the two survey’s draft questions. 

The EC will ask chip-consuming firms about where they source their so-called legacy chips, which refer to 28-nanometer and older mature chips. Separately, it will ask EU chipmakers about their products and pricing, and their estimates of the same information from their competitors, including the Chinese ones. 

Prior to this, the EC had already said in early April that it would carry out surveys to assess the “trustworthiness” of legacy chips used in everything from aerospace to automobiles to home appliances and to find evidence of market distortions.

The Reuters report came after the EC began imposing provisional tariffs of up to 37.6% on Chinese electric vehicles (EVs) on July 5. The EU will make a decision in November on whether the extra tariffs will become permanent. 

The Chinese government and automakers said they will negotiate with the EU on the matter. So far China has launched anti-dumping probes for imports of pork and brandy from Europe. Spain and France are the two major exporters of pork and brandy, respectively, in the region. 

Last December, the United States Commerce Department said its Bureau of Industry and Security (BIS) would launch a survey in January 2024 to identify how US firms are sourcing current-generation and legacy chips.

The BIS said in a study that the Chinese government had provided its chipmakers with about US$150 billion in subsidies over the past decade, which it estimated is likely to create a non-level global playing field for US and other foreign competitors.

After meeting with US Commerce Secretary Gina Raimondo at the sixth ministerial meeting of the EU-US Trade and Technology Council in Belgium on April 4-5, European Commissioner for Competition Margrethe Vestager said the EU will coordinate with the US to do a voluntary survey on China’s legacy chip matter.

“China has built its mature chip industry with its huge downstream industry demand,” a Chinese IT columnist writing under an Uncle Biao pseudonym said in an article published on Sunday. “Even if the US and the EU will join hands to suppress China with non-market means, they won’t be able to change the fact that China is about to dominate the legacy chip market.”

“As long as China keeps its market open, it will not only gain a dominant position in the legacy chip market, but also make technological breakthroughs in the advanced chip sector,” he wrote.

China’s global market share for mature chips will increase from 31% at the end of last year to 39% by 2027, according to a TrendForce analysis. 

According to the Ministry of Industry and Information Technology, China’s integrated circuit production rose 32.7% to 170.3 billion units in the first five months of this year from a year earlier. China’s customs data shows its exports of integrated circuits grew 10.5% to 113.9 billion units, over the period.

Global semiconductor industry sales surged 19.3% to US$49.1 billion in May 2024 from a year ago, the Semiconductor Industry Association (SIA) said on July 5. Year-to-year sales were up in the Americas (43.6%), China (24.2%), and Asia Pacific/all other (13.8%), but down in Japan (-5.8%) and Europe (-9.6%). 

While the US and EU are still investigating the case, some commentators said the duo may impose tariffs on China’s legacy chips in the near future.

“If the EU really imposes new restrictions or tariffs on China’s legacy chips, China will definitely launch countermeasures against European products,” Tan Haojun, a Jiangsu-based writer, opined in an article published on Sunday. “Both the Chinese and European sides will be seriously affected.”

Tan estimates that Chinese firms will face an increasingly tough business environment overseas as the EU’s intention to suppress China has become more and more obvious. He says China should grow its consumption markets to achieve domestic circulation.

Chip buyers, including the German automakers, need China-made legacy chips, Christophe Fouquet, chief executive of chip-making equipment maker ASML, told Germany’s Handelsblatt newspaper in an interview published on July 8.

Global demand for legacy chips is rising dramatically but Western chip makers are not investing enough in the sector, which is not very profitable, Fouquet says.

He said that Europe cannot even cover half of its own needs and that the West should seek alternatives if it wants to slow down China’s legacy chip production. 

Read: China’s legacy chips to survive with price advantage

Follow Jeff Pao on X at @jeffpao3

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