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US CHIPS Act Regulations Elicit Mixed Reactions, Prompting Semiconductor Firms to Reevaluate China Strategy

On 21st March, the US government disclosed regulations pertaining to the CHIPS Act subsidy, eliciting mixed reactions from the semiconductor industry. The core stipulation restricts manufacturers from raising their production capacity in China by over 5% in the next 10 years if they are recipients of US subsidies. However, the regulation does not limit technological advancements, as production capacity is measured by wafer input in semiconductor manufacturing.

Although semiconductor companies can enhance production while maintaining wafer input at their Chinese facilities, concerns linger regarding US restrictions on Chinese semiconductor equipment.

The US Department of Commerce aims to finalize the regulations following a 60-day public consultation period. As long as the 5% production increase limit is respected and US export controls are adhered to, technological upgrades are permissible. “Substantial expansion” is described as a quantitative increase in production capacity, while a “significant deal” is quantified at $100,000.

These regulations apply to companies, such as Samsung Electronics, who are seeking subsidies while building semiconductor factories in the US.

Samsung Electronics manufactures advanced semiconductors in China that surpass the levels regulated by the US. Should they receive US government subsidies, a 5% capacity expansion limitation may be imposed. However, technological upgrades can still be pursued to increase semiconductor production while maintaining wafer input levels.

The primary challenge is the import of equipment necessary for capacity expansion, as the US government imposes restrictions on exports of certain semiconductor production equipment to China. The semiconductor industry is focusing on whether the US government will extend the “one-year grace period” concluding in October.

Samsung faces limited options depending on the US government’s decisions, possibly leading to reduced investment in China and the diversification of production bases outside of China in the long term. However, given the substantial investments already made in China, this would be a challenging decision.

Many semiconductor firms may ultimately withdraw from China within a decade. The paramount priority is for the government and industry to negotiate the continuation of this policy during export control suspension discussions.

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