Hong Kong Media: China Is Accelerating Production of Legacy Chips — Why Are the US and Europe Alarmed?

Hong Kong's South China Morning Post recently published an article titled “US and Europe increasingly worried about China's legacy chip production.” Its core argument is that while the US keeps pressuring China in the field of cutting-edge chips, China is rising rapidly in legacy chips. With its supply chain advantages, China may well take the global lead in this field, putting the pressure back on the United States.

Semiconductor chips are the core components of modern technology and a focal point of international competition. In recent years, the US has continually escalated export controls and sanctions to curb China's semiconductor development, attempting to cut off China's access to advanced chips. Yet China has not been defeated; instead, it has accelerated the production and localization of legacy chips. This has surprised and worried the US and Europe, which are even considering tougher measures to contain China's progress in chips.

Why is China focusing on legacy chips (rather than advanced chips)? And why are the US and Europe so nervous? This article reveals the truth behind it.

What are legacy chips?

Legacy chips are chips manufactured using relatively mature, older process technologies. Generally, a chip's process node is measured in nanometers (nm): the smaller the number, the more transistors are integrated on the chip and the higher its performance. Currently, the world's most advanced process is 3nm, while legacy chips usually refer to chips at 28nm and above.

Although legacy chips cannot match advanced chips in performance, they still play an important role in the global economy. They are widely used in smartphones, electric vehicles, the Internet of Things, military hardware and more, and are indispensable components of many products and devices. According to statistics:

The global foundry market is expected to reach US$79.1 billion in 2023, with mature-node processes accounting for US$37.6 billion.

The global foundry market will reach US$86.1 billion in 2025, with mature-node processes accounting for US$43.1 billion.

The global resistor market is expected to reach US$11 billion in 2023 and grow to US$12 billion by 2025.

The global capacitor market is expected to reach US$22 billion in 2023 and grow to US$24 billion by 2025.

The global inductor market is expected to reach US$6.6 billion in 2023 and grow to US$7 billion by 2025.

These figures alone show that the legacy chip market still has enormous demand and potential, and that its position cannot be fully replaced by advanced chips for a long time to come.

Why is China accelerating legacy chip production?

As the world's largest producer and consumer of electronic products, China has strong demand for semiconductors. However, China's semiconductor self-sufficiency rate is low, and it relies heavily on imports. Here is another set of statistics:

In 2022, China's semiconductor market reached US$160 billion, accounting for 25% of the global market.

In 2022, China's semiconductor output was only US$26 billion, accounting for 4.1% of the global market.

In 2022, China's semiconductor imports reached US$420 billion, making them China's largest import.

In 2022, China's semiconductor self-sufficiency rate was only 16.3%, with domestic companies accounting for just 6.1%.

This severe imbalance between supply and demand exposes China to major security risks and development challenges in semiconductors. Especially under continued US pressure, China has felt even more keenly the importance and urgency of the semiconductor industry. China has therefore decided to step up investment in and support for the semiconductor industry and accelerate the achievement of high-level scientific and technological self-reliance.

However, given the complexity and long-term nature of the semiconductor industry, catching up with international levels in advanced chips requires enormous cost and time. Legacy chips, by comparison, have lower technical barriers, greater market demand and are easier to replace with domestic products. China has therefore chosen to start with legacy chips, gradually building a complete domestic supply chain and laying a solid foundation for moving up the value chain.

According to the latest statistics I found:

In 2022, China's foundry capacity was about 4 million 200mm-equivalent wafers per month, accounting for 18% of global capacity and continuing to surpass Japan.

In 2022, China's foundry output was about US$12 billion, of which mature-node output was about US$9 billion.

In 2022, China's resistor market was about US$2.2 billion, with domestic companies holding about 35% market share.

In 2022, China's capacitor market was about US$4.4 billion, with domestic companies holding about 45% market share.

In 2022, China's inductor market was about US$1.3 billion, with domestic companies holding about 55% market share.

It is clear that China has already achieved certain results and advantages in legacy chips. As investment continues to increase, China's legacy chip advantage will rise further, achieving true self-sufficiency and global exports.

Why are the US and Europe alarmed?

Although legacy chips are not the most advanced technology, they still have an important role and influence in the global economy. If China can master the production and supply of legacy chips, it will have a stronger voice and greater competitiveness in many fields. This undoubtedly poses a threat and challenge to the US, Europe and other countries.

First, from an economic perspective, if China can mass-produce legacy chips, the low-cost advantage of its powerful supply chain will allow Chinese companies to export these chips to global markets at lower prices, bringing high-quality, affordable products to users worldwide. This could force foreign competitors to close or exit the market. China could then take a dominant position in the legacy chip market and earn greater profits from it — which, for the US and Europe, who have long tried to maintain a monopoly in chips, amounts to “taking a slice of their pie.”

Furthermore, this could weaken the investment and R&D of related companies in the US and Europe in other areas, affecting their development and innovation in advanced chips. In this way, China could narrow the gap with foreign companies in semiconductor technology and lay the groundwork for future breakthroughs. The US, fixated on its vested interests, does not want China to “get a share of the pie” at all, so China's moves in legacy chips have become a major headache for it.

Second, from a security perspective, when a country can control the supply of legacy chips, it may effectively control the “production power” over some of other countries' military and critical civilian equipment. For example, a country with a chip export advantage could use chips to implant backdoors or viruses in foreign electronic products to obtain sensitive information or launch attacks. The US has held chip hegemony for many years, and its “global surveillance” programs are not unrelated to its “chip hegemony.”

Thus, narrow-minded US politicians believe that if China gains an export advantage in legacy chips, it would likely act as the US does (in fact, China has never engaged in the kind of covert practices the US does). Some US and European politicians even smear China by claiming that if China gains “global export hegemony” in legacy chips, it could use them to pressure or sanction other countries' military hardware and thereby affect their strategic deployment or combat capabilities. That US and European politicians make such baseless speculation to smear China shows just how flustered they have become.

In summary, China's acceleration of legacy chip production is a far-sighted and wise strategic choice. It not only meets China's basic needs and goals for independent development in semiconductors but also delivers a strong response to the former “chip hegemony” of the US and Europe. It also demonstrates China's determination and confidence in the semiconductor industry, as well as its resilience and fearlessness in the face of the US and Europe. If the US and Europe want to stop China's rise in semiconductors, it may already be too late.

Dear readers, do you think the US has a way to curb China's development in legacy chips? What other “dirty tricks” do you think the US might come up with? Feel free to share your views in the comments. If you enjoyed this article, please like, save and share it with your friends and followers. Thank you for reading and for your support!