One of the premises behind the CHIPS Act and its billions in subsidies for semiconductor firms is that the U.S. must avoid being overtaken by China’s state-directed semiconductor industry.
But the Chinese semiconductor industry is not the juggernaut that some in the U.S. believe it to be, according to George Calhoun in a recent interview with Discourse. Calhoun is a professor at Stevens Institute of Technology, a research university in New Jersey. Before becoming a professor, he worked in the technology industry for decades.
Here’s Calhoun on how China’s domestic industry remains woefully unable to meet its semiconductor needs:
China, today, still imports something like 90% of its requirements in the chip industry. It’s vital to them because they then turn around and assemble electronic goods. It’s a crucial element in their supply chain, but I think that 90% number, notwithstanding the hundreds of billions that you referenced, indicates that they are still not where they want to be and not where a lot of people in the United States sometimes fear they are.
Calhoun described the scale and ham-fistedness of China’s attempts at semiconductor industrial policy:
It’s a top-down, Soviet-style mandated, dump money on it, provide subsidies to one and all program. They have tried that more than once. In the latest round, Beijing has announced a new set of incentives for semiconductor companies. What happens is there are suddenly 10,000 or 15,000 semiconductor companies that yesterday were bending metal and maybe doing dry cleaning and goodness knows what, and suddenly they’re relabeling themselves as semiconductor companies. That is not the way the industry works.
You’re starting to see some of the crumbs falling off the table on the other side, too. I just read an article about the downturn that some of those companies are now running into in China. 3,000 of these semiconductor companies have declared bankruptcy in China. Just consider those numbers versus what the semiconductor industry looks like in the United States or in Korea or in Taiwan. There are not 10,000 companies; there are not 3,000 companies failing. It’s a much different structure of the industry. I think that those numbers—the 90% and the 10,000 and the 3,000—those kinds of numbers show you that China is definitely not where it wants to be.
The idea that the U.S. has been completely left out of semiconductors is not true, Calhoun said:
There’s an area that a lot of people don’t pay that much attention to, electronic design automation, EDA, which describes the critical software tools that are used by chip designers. Qualcomm or Nvidia, they are highly dependent on companies like Cadence and Synopsys to provide a software platform that allows them to design their chips.
Chip design is such a complicated business today that even the companies that do it for a living are themselves dependent on some of these key suppliers. Those key suppliers are all Western. Currently, the EDA industry is basically a U.S. industry, U.S.-based. I think those are also significant obstacles to the Chinese in terms of recreating the capability to be a top player in the semiconductor world and in any short period of time.
Calhoun said that the CHIPS Act could have some positive effects. “Perhaps in the scheme of things, to spend $50 billion to get people thinking about it and talking about it and taking a broader perspective in decision-making related to this industry is not a bad thing,” he said. He also thinks government could play a role in shifting incentives to lead to the manufacture of certain kinds of chips over others. But the idea that China’s semiconductor industrial policy has been a roaring success is not correct in his view.
You can read or listen to Calhoun’s entire interview here.