US sanctions derail China chipmakers’ expansion plans
Sweeping export bans imposed by the U.S. last fall have held up plans by major Chinese chipmakers to expand operations, dealing a setback to the government’s ambitions to make the country a semiconductor powerhouse.
Uncertainty was the prevailing mood during a visit to the massive flagship production site of Yangtze Memory Technologies, about 40 kilometers east of central Wuhan. Both YMTC engineers and technicians at the site to deliver manufacturing equipment had no idea when its second plant, originally slated to start up in late 2022, would actually come online.
“Things like electrical equipment have been set up, but installation of chipmaking equipment hasn’t started yet,” one said.
YMTC was founded in 2016 by Tsinghua Unigroup in partnership with the National Integrated Circuit Industry Investment Fund, commonly known as the “Big Fund.” It began mass-producing NAND flash memory chips in 2019.
After Unigroup went bankrupt, YMTC came under the management of the Big Fund and local authorities. It focused on honing its ability to compete in the global NAND market, reaching the point that Apple had reportedly been set to use YMTC chips in iPhones.
The company broke ground in 2020 on a second factory — estimated to cost around 100 billion yuan ($15 billion at current rates) — to triple production capacity.
But its ascent has stalled since Washington announced broad, stringent curbs on exports of technology and gear for making advanced semiconductors, as well as restrictions on U.S. nationals providing support to Chinese chipmakers.
That September, not long before the sanctions were announced, Simon Yang — who reportedly holds a U.S. passport — stepped down as CEO of YMTC. The following month saw the departures of American engineers from U.S.-based chipmaking equipment companies who had supported YMTC’s expansion plans.
The delays have forced YMTC to cut jobs.
“Our department started layoffs in January of around 10% of its staff,” said an engineer who has worked at the company for about three years. “They’ve also frozen the hiring of graduate students.”
The atmosphere at the company is grim, with its future looking uncertain, the engineer said.
ChangXin Memory Technologies, which makes DRAM chips using advanced technology covered by the sanctions, has also had a wrench thrown into its plans.
CXMT finished a new office building for a planned second plant located near the company’s headquarters in the city of Hefei. But the construction of the production facility itself is facing lengthy delays.
“We planned to begin operations in 2023, but it won’t happen until 2024 or 2025 at the soonest,” said a CXMT engineer.
The construction of CXMT’s new research and development center appears to have made hardly any progress as well.
“The hiring of graduate students has been suspended temporarily,” said the engineer, who added the company is cutting 5% to 7% of staff, depending on the department.
The government under President Xi Jinping announced the “Made in China 2025” initiative in 2015, which positioned semiconductors as a critical industry. The Big Fund was established as part of the initiative and has strongly supported the development of the chip industry. First-phase investments reached roughly 140 billion yuan.
Thanks to that fund, China’s semiconductor industry attained rapid growth, with the three government-backed memory companies YMTC, CXMT and Fujian Jinhua Integrated Circuit Co. leading the way.
But as tensions flared between the U.S. and China, Washington tightened restrictions on exports to the Chinese chip sector, the technology of which lagged behind that of the U.S. industry.
Huawei Technologies, the telecommunications equipment manufacturing heavyweight, fell under the sanction crosshairs in 2019. China’s largest chip foundry Semiconductor Manufacturing International Corp. soon found itself targeted as well.
China’s rate of self-sufficiency in semiconductors grew to 24% in 2021 from 10% in 2015, according to International Business Strategies. The U.S. research company put out a report in June last year that predicted the ratio will exceed 50% in 2030. But when the U.S. later toughened trade sanctions, IBS CEO Handel Jones warned the self-sufficiency share might stall at 30% by that date.
The semiconductor market has been lackluster as of late, with Chinese companies — the main clients of YMTC and other chip suppliers — easing up on orders. Considering those dynamics, the delayed expansion in production will not likely amount to a critical blow to the Chinese government’s ambition of building a self-sustaining supply chain.
At the same time, the U.S. pressure campaign against the Chinese semiconductor industry is visibly taking its toll, putting the country on a steeper path on realizing its chip dreams. Nikkei.Asia
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