Semiconductors and the CHIPS Act: The Global Context
Congressional research reportSep 28, 2023
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Semiconductors and the CHIPS Act: The
Global Context
Updated September 28, 2023
Congressional Research Service
https://crsreports.congress.gov
R47558
SUMMARY
Semiconductors and the CHIPS Act: The Global
Context
In 2021, Congress enacted legislation in response to its concerns that the United States lacked
critical domestic semiconductor production capabilities and, more broadly, was losing its
competitive edge in the global semiconductor industry. Through the Creating Helpful Incentives
to Produce Semiconductors (CHIPS) for America program, Title XCIX of P.L. 116-283, the
William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (2021
NDAA), Congress authorized an incentive program for building and equipping semiconductor
fabrication facilities in the United States. It also authorized research and development activities
to support U.S. leadership in semiconductor manufacturing technology.
R47558
September 28, 2023
Karen M. Sutter
Specialist in Asian Trade
and Finance
John F. Sargent Jr.
Specialist in Science and
Technology Policy
Manpreet Singh
Subsequently, in appropriating funding for P.L. 116-283’s CHIPS for America provisions,
Analyst in Industrial
Congress combined provisions from a number of previously introduced bills into a single bill.
Organization and Business
These proposals sought to increase U.S.-based semiconductor fabrication and to address concerns
about the adequacy of U.S. investment in research and development (R&D) and the development
of the U.S. science and engineering workforce. After resolution of differences between the House
and Senate versions of these bills, the bill became known as (though not officially named) the
CHIPS and Science Act. In July 2022, Congress enacted the CHIPS and Science Act (P.L. 117-167), which President Joe
Biden signed into law in August 2022. P.L. 117-167 (Division A) provides funding for the CHIPS for America provisions
enacted in the 2021 NDAA. The act appropriates $52.7 billion to increase semiconductor manufacturing capacity in the
United States by providing financial incentives for building, expanding, and equipping domestic fabrication facilities and
companies in the semiconductor supply chain. In addition, the act includes provisions that fund federal semiconductor R&D
activities at the National Institute of Standards and Technology, a National Semiconductor Technology Center (in partnership
with U.S. industry), a National Advanced Packaging Manufacturing Program, and the establishment of up to three
Manufacturing USA institutes. P.L. 117-167 also created and funded three additional funds that seek to bolster U.S.
semiconductor capabilities for national defense, workforce development, and international cooperation.
Some other countries have long-standing support programs for their semiconductor industries. East Asia—in particular,
South Korea, Taiwan, Japan, Malaysia, and Singapore—is home to globally competitive semiconductor firms and industries.
The semiconductor industry in East Asia has relied on various forms of government support to develop and sustain its
globally competitive position. Governments in East Asia, among others, have announced new investments and support
measures, in part as a response to the CHIPS Act of 2022, to bolster their position in global semiconductor supply chains.
U.S. semiconductor firms are heavily invested in these markets, either through a direct corporate presence or the use of
contracted services. The United States relies primarily on Taiwan for the fabrication of leading-edge logic chips
(microprocessors and microcontrollers that function as the “brains” of computing devices) and South Korea for leading-edge
memory (data storage) chips, while relying on Taiwan, South Korea, and increasingly China to meet demand for mature-node
chips.
China is catching up to leading nations in both semiconductor production capacity and capabilities, in large part due to
government capital outlays that subsidize domestic firms, fund the purchase of imported equipment and software, and finance
China’s acquisition of foreign semiconductor firms. U.S. officials have expressed concerns about the ways in which China’s
state-led semiconductor policies are pressuring or encouraging U.S. and other foreign semiconductor companies to transfer
key technology, intellectual property, talent, and R&D to China, thereby boosting China’s competitiveness in the industry.
India—a global leader in information technology (IT) software services—is investing heavily in IT hardware and seeking to
boost investment in semiconductors and microelectronics. European-headquartered semiconductor firms account for about
10% of global semiconductor sales and specialize in niche markets (e.g., automotive, energy, and industrial automation).
This report examines U.S. actions in a broader context by highlighting recent actions by other governments to boost their
semiconductor industries. U.S. policy efforts to promote and protect U.S. semiconductor capabilities will shape and be
influenced by these broader dynamics. Consideration of the global context may raise additional considerations for Congress,
particularly with regard to how the United States might consider cooperation and collaboration among allies and close
partners while potentially seeking to restrict the development of semiconductor capabilities of strategic competitors such as
China. Among U.S. allies and close partners, other considerations involve how to maximize the role of markets and achieve
the appropriate balance of government and market roles, and how to avoid overcapacity and other potential market
distortions.
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Semiconductors and the CHIPS Act: The Global Context
Contents
Introduction ..................................................................................................................................... 1
U.S. Policy Context ......................................................................................................................... 1
Actions by Other Governments to Support their Semiconductor Industries ................................... 3
Japan.......................................................................................................................................... 6
South Korea............................................................................................................................... 8
Taiwan ..................................................................................................................................... 10
China Ties and Concerns ................................................................................................... 11
Southeast Asia (Malaysia and Singapore) ................................................................................ 11
Malaysia ............................................................................................................................ 12
Singapore .......................................................................................................................... 12
Europe ..................................................................................................................................... 13
India ........................................................................................................................................ 16
China ....................................................................................................................................... 17
Key Policy Efforts............................................................................................................. 17
State of China’s Industry and Role of Foreign Ties .......................................................... 20
U.S. Export Controls ......................................................................................................... 22
CHIPS Act Guardrails ....................................................................................................... 28
Policy Implications and Issues for Congress ................................................................................. 30
Contacts
Author Information........................................................................................................................ 35
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Semiconductors and the CHIPS Act: The Global Context
Introduction
In July 2022, Congress enacted the CHIPS Act of 2022 (Division A of P.L. 117-167), which was
signed into law by President Joe Biden on August 9, 2022. The act appropriated funding for the
CHIPS for America provisions enacted in the William M. (Mac) Thornberry National Defense
Authorization Act for Fiscal Year (FY) 2021 (2021 NDAA, P.L. 116-283). It also revised the 2021
NDAA CHIPS for America provisions and established three additional funds to support efforts
that seek to address semiconductor-related challenges in defense, workforce and education, and
international technology security and innovation. In total, the act appropriated $52.7 billion for
these activities for FY2022-FY2027.
This report—one of a series of CRS reports that discuss provisions in the CHIPS Act of 2022,
U.S. competitiveness in semiconductors, and the semiconductor sector more broadly—provides
information on the broader global context in which U.S. policy actions are being undertaken.
Specifically, the report outlines the recent actions that other governments have taken to support
the semiconductor industry in their countries. Some of these efforts are long-standing, and some
have been adopted specifically in response to provisions in the CHIPS Act of 2022. Other reports
in this series provide information about the U.S. semiconductor industry and key technologies
and segments of the supply chain; and the provisions and implementation of the CHIPS Act of
2022, responses to frequently asked questions, and some key issues and considerations for
Congress.1
U.S. Policy Context
Over the past several years, some Members of Congress and other U.S. policymakers have
expressed concern that only a small share of the world’s most advanced semiconductor
fabrication production capacity is located in the United States. The U.S. position in the global
semiconductor supply chain has shifted over time as markets in Asia developed their
semiconductor manufacturing capacity, and as U.S.-headquartered semiconductor companies
built fabrication facilities (commonly referred to as fabs) overseas and shifted other related parts
of the supply chain outside the United States. Additionally, a number of U.S.-headquartered
semiconductor companies separated design and manufacturing functions, abandoned
manufacturing, and shifted to a fabless business model, moving their production to overseas
contract foundries (primarily in East Asia). U.S. policymakers have expressed concerns about the
loss of U.S. leadership in semiconductors, including the extent to which U.S. industry has fallen
behind industry in Taiwan and South Korea in advanced chip capabilities.2 U.S. policymakers
also express concern about U.S. industry ties and operations in China and how U.S. firms may be
supporting China’s industrial ambitions in the semiconductor sector. Other concerns relate to the
potential economic and military implications of a further decline or loss of U.S. leadership in
semiconductors.
1 See CRS Report R47523, Frequently Asked Questions: CHIPS Act of 2022 Provisions and Implementation, by John
F. Sargent Jr., Manpreet Singh, and Karen M. Sutter and CRS Report R47508, Semiconductors and the Semiconductor
Industry, by Manpreet Singh, John F. Sargent Jr., and Karen M. Sutter.
2 “On Senate Floor, Chairman Warner Urges Quick Action on Bill to Boost American Manufacturing & Innovation.”
Office of Senator Mark Warner, July 26, 2022; “Cornyn Amendment to Bring Production of Semiconductors Back to
U.S. Passes in NDAA,” Office of Senator John Cornyn, July 21, 2020; “Remarks by U.S. Secretary of Commerce Gina
Raimondo: The CHIPS Act and a Long-term Vision for America’s Technological Leadership,” U.S. Department of
Commerce, February 2023.
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Semiconductors are a uniquely important enabling technology. They are fundamental to nearly all
modern industrial and national security activities, and they are essential building blocks of other
emerging technologies, such as artificial intelligence, autonomous systems, 5G communications,
and quantum computing. The federal government and U.S. companies pioneered the development
and early adoption of semiconductors, and throughout the 1960s and 1970s, the United States led
the world in semiconductor manufacturing. Subsequently, a variety of factors led to a
concentration of semiconductor manufacturing in East Asia. These factors included, among
others, other nations subsidizing the construction and operation of semiconductor fabs and lower
or subsidized operating costs in these overseas locations. Other factors involved the shift by some
semiconductor companies to a fabless model that relies on contracting with external
semiconductor foundries due to the high cost and complexity of semiconductor manufacturing.
Additionally, a preference for being physically proximate to the electronics business clusters and
clients in East Asia played a role in this concentration of production in East Asia.
U.S. policymakers raising concerns also have focused on the risks of potential supply chain
disruptions. The concentration of chip production in East Asia creates semiconductor supply
chain vulnerabilities in the event of a trade dispute, military conflict, natural disaster, or other
disruption, as well as vulnerability to the risk of product tampering and intellectual property (IP)
theft. Concerns about supply chain vulnerabilities and gaps in U.S. fabrication capacity
intensified during the COVID-19 pandemic.3 Shifting consumer and industrial demands,
production declines, and logistics disruptions led to supply chain shortages of certain
semiconductor chips, among other industrial products and inputs. The People’s Republic of China
(PRC or China) government’s efforts to tighten control over the technology sector—and its
growing use of economic coercion to influence political and economic outcomes—intensified
concerns about semiconductors and related technology supply chains.4
Congressional concerns about the U.S. semiconductor industry are also informed by China’s
state-led efforts—unprecedented in scope and scale—to develop an indigenous vertically
integrated semiconductor industry. China’s government outlays (an estimated $322 billion to
date) and its role as a central production point for global consumer electronics generate strong
incentives for U.S. and foreign firms to develop semiconductor capabilities in China.5
3 The White House, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-
Based: 100-Day Reviews under Executive Order 14017, June 2021, https://www.whitehouse.gov/wpcontent/uploads/2021/06/100-day-supply-chain-review-report.pdf.
4 With regard to China’s use of economic coercion, the PRC government tightly controls access to capital, trade,
investment, technology, and research opportunities, which, in turn, allows it to calibrate incentives that can be offered
and retracted to create pressure on foreign firms, governments, and other actors to adhere to China’s commercial and
political demands. China’s economic coercion involves both the offer and withdrawal of access to its market, the
application of commercial pressures to achieve certain outcomes—such as the transfer of technology or other terms of
trade and investment deals—and the use of other economic levers that China controls to pressure or incentivize certain
behavior. China uses ad hoc trade restrictions and brinkmanship to commercially and politically pressure trading
partners, to deter foreign countries, nongovernmental organizations, and companies from actions that the government
views as inimical to its economic and political interests, and to take action against those entities deemed to have
challenged those interests. This pressure or action may take the form of (real or threatened) trade restrictions (on either
imports or exports), popular boycott campaigns, restrictions on Chinese outbound tourism, suspension of contracts, the
imposition of restrictions in China and other costs ostensibly related to regulations, and formal sanctions and
countersanctions. See CRS Report R46915, China’s Recent Trade Measures and Countermeasures: Issues for
Congress, by Karen M. Sutter.
5 This estimate includes the China Integrated Circuit Investment Industry Fund (CICIIF)’s initial announcement to
channel an estimated $150 billion in state funding in support of domestic industry, state-directed overseas acquisitions,
and the purchase of foreign semiconductor equipment. It also includes the second fund that China announced in
October 2019 with an estimated capitalization of $29 billion and China’s plans announced in December 2022 to
(continued...)
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Meanwhile, the PRC government treats access to foreign capabilities in the near term as a key
pathway to accelerate indigenous development. Many U.S. and allied government policymakers
also have expressed concern about China’s state-led efforts to acquire companies and access
semiconductor technology through both licit and illicit means, including technology-transfer
pressures and targeted IP theft.6 A series of PRC acquisitions of semiconductor firms in the
United States and allied countries since 2014 have prompted governments in the United States,
several European countries and the European Union (EU), Japan, South Korea, and Taiwan to
undertake policy actions that seek to both promote and protect their semiconductor capabilities
vis-à-vis China.7 Some policymakers express concern that China’s industrial policy efforts, if
successful, could significantly shift global semiconductor production and related design and
research capabilities to China, challenging the competitiveness and leading positions of U.S. and
other foreign semiconductor firms.8 Although China’s current share of the global industry is still
relatively small, and its companies produce mostly low-end chips, China’s industrial policies aim
in part to establish global dominance in semiconductor design and production by 2030.9 China’s
emerging and future semiconductor competencies could support a range of technology
advancements, including military applications.
Actions by Other Governments to Support their
Semiconductor Industries
The CHIPS Act of 2022 provides federal funding and tax incentives for certain semiconductorrelated activities in the United States. Its provisions support both commercial operations and
commercial and government-led research and development (R&D). The provisions seek to
provide an additional $143 billion to support the development of PRC fabs and the costs of related semiconductor
manufacturing equipment. See CRS Report R46767, China’s New Semiconductor Policies: Issues for Congress, by
Karen M. Sutter. Christopher Thomas, A New World Under Construction: China and Semiconductors, McKinsey &
Company, November 2015; Yoko Kubota, “China Sets up New $29 Billion Semiconductor Fund,” Wall Street Journal,
October 25, 2019; Tianlei Huang, “Government-Guided Funds in China: Financing Vehicles for State Industrial
Policy,” China Economic Watch, Peterson Institute for International Economics, June 17, 2019; OECD, Trade and
Agricultural Directorate, Trade Committee, “Measuring Distortions in International Markets: The Semiconductor
Value Chain,” November 21, 2019, pp. 94-95; Julie Zhu, “China Readying $143 Billion Package for its Chip Firms in
Face of U.S. Curbs,” Reuters, December 13, 2022; “Battered by Covid, China Hits Pause on Giant Chip Spending
Aimed at Rivaling US,” Bloomberg, January 4, 2023; Monica Chen and Jessie Shen, “Chinese Foundries are Quietly
Making Equipment Purchases,” DigiTimes, February 3, 2023.
6 For examples of such efforts, see Department of Defense, Defense Innovation Unit-Experimental, Michael Brown and
Pavneet Singh, China’s Technology Transfer Strategy: How Chinese Investments in Emerging Technologies Enable a
Strategic Competitor to Access the Crown Jewels of U.S. Innovation, January 2018; U.S.-China Economic Security and
Review Commission, Sean O’Connor, How Chinese Companies Facilitate Technology Transfer from the United States,
May 6, 2019; and National Counterintelligence and Security Center, Protecting Critical and Emerging U.S.
Technologies from Emerging Threats, October 2021.
7 Executive Office of the President, President’s Council of Advisors on Science and Technology, “Report to the
President: Ensuring Long-Term U.S. Leadership in Semiconductors,” January 2017.
8 See Senate floor debate on the National Defense Authorization Act for Fiscal Year 2021, Congressional Record, vol.
166, part 128 (July 21, 2020), p. S4325; Jeanne Whalen, “U.S. Restricts Tech Exports to China’s Biggest
Semiconductor Manufacturer in Escalation of Trade Tensions”; “Implementation of Additional Export Controls:
Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use;
Entity List Modification,” BIS Rule, October 13, 2022; Alexandra Alper and David Sheperdson, “U.S. Official
Acknowledges Japan, Netherlands Deal to Curb Chipmaking Exports to China,” Reuters, January 31, 2023; and Jamie
McIntyre, “New House Foreign Affairs Committee Chairman Michael McCaul has China on his Mind,” Washington
Examiner, February 17, 2023.
9 China’s State Council, “Guideline for the Promotion of the Development of the National Integrated Circuit Industry,”
June 2014; “Made in China 2025 (2017),” Publishing House of the Electronics Industry, 2017, in Chinese language.
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promote collaboration and joint use of certain R&D resources. While the nearly $53 billion in
U.S. government funding for the industry is quite large by U.S. government current and historic
standards, it is small in comparison to the aggregate capital investments and other forms of
market support and preferences that other governments currently offer and have offered to
promote their domestic semiconductor industries. It is also small relative to the investments that
U.S. and foreign semiconductor companies make on their own in the United States and globally.
A 2021 survey of 153 companies by the Korea Semiconductor Industry Association reported a
$450 billion commitment in outlays in South Korea through 2030, for example.10
East Asia—in particular, South Korea, Taiwan, Japan, Malaysia, and Singapore—is home to
globally competitive semiconductor firms and industries. At present, the United States relies
primarily on Taiwan for leading-edge logic chips and South Korea for leading-edge memory
chips, and on Taiwan, South Korea, and increasingly China to meet demand for mature-node
chips.11 Semiconductor firms in East Asia have used various forms of government support to help
develop and sustain this globally competitive position in semiconductors. 12 Large-scale public
investment in semiconductor fabrication has supported firms in South Korea and Taiwan and
increased their competitiveness related to U.S.-headquartered firms. A Department of Commerce
analysis of the global semiconductor supply chain notes that the Taiwan government provides
subsidies and other support for fabrication facilities, including 50% for land costs, 45% for
construction and facilities, and 25% for semiconductor production, in addition to R&D
investments and tax incentives.13 Arguably, these investments have helped Taiwan companies
become global leaders in producing the most advanced semiconductor chips. South Korea and
Singapore’s semiconductor subsidies reduce the cost of facility ownership by 25-30%, thereby
boosting the competitiveness of firms headquartered or operating in these markets.14
China is coming from behind in all parts of the supply chain but is catching up quickly to other
leading semiconductor producing nations in both capacity and capabilities, arguably due in large
part to sizeable government capital outlays that subsidize domestic firms, fund the purchase of
imported equipment, and finance China’s acquisition of foreign semiconductor firms. China also
benefits (as do a number of other countries) from its sustained ties with U.S. and foreign industry,
its ability to tap U.S. and global talent, its leveraging of global basic and applied research to
develop its own talent pool, and its participation in U.S.-led open source technology platforms.
Such platforms support PRC firms in chip design and hardware capabilities. The Organisation for
Economic Co-operation and Development (OECD) assessed in a 2019 study that China’s
subsidies and other forms of state support for the industry, and particular national champion
10 Kim Jaewon, “South Korea Plans to Invest $450bn to Become Chip ‘Powerhouse’,” NikkeiAsia, May 13, 2021.
11 The White House, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-
Based: 100-Day Reviews under Executive Order 14017, June 2021. Node is an industry label used to track successive
generations of chip technologies and historically referred to the size of key electronic features on the chip measured in
nanometers (nm), or 1 billionth of a meter. While node no longer reflects the actual size of features in recent
generations of chips, the industry continues to use these labels to market new products with smaller numbers implying
more powerful chips (e.g., 5 nm chips can offer higher performance than 10 nm chips). There is no industry standard on
how recent node labels are assigned, however, and which nodes are “mature” chip technologies. For a further
discussion of types of semiconductor chips, see CRS Report R47523, Frequently Asked Questions: CHIPS Act of 2022
Provisions and Implementation, by John F. Sargent Jr., Manpreet Singh, and Karen M. Sutter.
12 OECD, Trade and Agricultural Directorate, Trade Committee, “Measuring Distortions in International Markets: The
Semiconductor Value Chain,” November 21, 2019.
13 The White House, Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering BroadBased: 100-Day Reviews under Executive Order 14017.
14 Ibid.
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firms, is well above what other countries have typically offered and represents significant
potential for distorting global markets.15
These semiconductor policy support efforts by governments in East Asia have influenced U.S.
offshoring and the ceding of certain U.S. semiconductor capabilities and production activity for
some time, going back to at least the 1980s.16 The U.S. government and U.S. industry have
previously initiated U.S. antidumping cases and brought other charges against Japanese and South
Korean semiconductor firms with regard to semiconductor subsidies and their distortive effects
on semiconductor chip exports to the United States.17 East Asia has also benefitted from decisions
by U.S. industry to shift to a fabless model in which chips are designed internally and then
produced by a contract manufacturer, generally outside the United States. The negotiation of
lower tariffs through plurilateral trade deals on many inputs and finished products related to
semiconductor and microelectronics production has also facilitated U.S. offshoring and the
related expansion of the semiconductor industry in East Asia. Fabricators and packaging firms
operating in East Asia have benefitted from the increased ease and cost effectiveness of moving
wafers and chips across borders, in some cases numerous times, for design, production, testing,
and packaging, as well as from easier and cheaper export of chips, including those embedded in
finished products.18 Taiwan’s leading firms (e.g., Taiwan Semiconductor Manufacturing
Corporation, TSMC) and South Korean firms (e.g., Samsung) have developed capabilities in part
through commercial partnerships and licensing agreements with U.S. firms. Apple, for example,
reportedly accounts for over 20% of TSMC’s annual business.19 Globalization of the
semiconductor industry has led to increased efficiencies as industry has kept pace with growing
demand, but has also introduced new risks, including the decline of U.S.-based production and
challenges to U.S. leadership in the industry.
Many factors are currently driving foreign governments’ efforts to revitalize or strengthen their
semiconductor industries, including
•
technology changes across a range of consumer, industrial, government, and
military applications that are increasing demand for semiconductors, including
advanced chips;
15 Organisation for Economic Co-operation and Development (OECD), Trade and Agricultural Directorate, Trade
Committee, “Measuring Distortions in International Markets: The Semiconductor Value Chain,” November 21, 2019.
16 Offshoring is the location of production functions (e.g., chip fabrication) outside the nation in which a company is
headquartered. See, for example, “Offshoring: U.S. Semiconductor and Software Industries Increasingly Produce in
China and India,” U.S. Government General Accountability Office (GAO), September 2006.
17 Doug Irwin, “The U.S.-Japan Semiconductor Trade Conflict,” in The Political Economy of Trade Protection, ed.,
Anne O. Krueger, University of Chicago Press, 1996; Hyun Young Lee, “The Japan-U.S. and Korea-U.S.
Semiconductor Trade Dispute,” Far Eastern Studies, Vol. 3, March 2004.
18 In July 2015, the World Trade Organization expanded the Information Technology Agreement (ITA), first signed in
1996, which has more than 80 signatories, including the United States. Beginning on July 1, 2016, the signatories
agreed to eliminate some tariffs immediately and then phase out others by January 2024, on 201 information
technology products not included in the original 1996 ITA. China is a signatory to both agreements, but still has high
tariffs on certain products. Mexico, a substantial location for electronics assembly that incorporates finished
semiconductors in electronic goods, is not party to the agreements. For details on the ITA of 1996 and the ITA
expansion in 2015, see https://ustr.gov/issue-areas/industry-manufacturing/industry-initiatives/information-technology
and https://unctad.org/system/files/official-document/tn_unctad_ict4d05_en.pdf. Some industry groups are currently
advocating for a third expansion of the ITA.
19 Eamon Barrett, “How TSMC Convinced Apple it would be a Trustworthy Partner, Landing the Taiwan Company its
most Significant Semiconductor Contract to Date,” Fortune, February 10, 2023.
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•
•
•
global shortages of semiconductor chips during the COVID-19 pandemic;20
potential implications of China’s state-led semiconductor policies; and
U.S. efforts to boost its domestic industry and related policy efforts to strengthen
critical supply chains among allies and close partners.21
Japan
Semiconductor firms headquartered in Japan have approximately 9% market share of global
semiconductor production, a significant fall from the 1980s, when Japan accounted for over half
of global production.22 However, Japanese firms remain competitive in producing certain types of
chips, such as memory chips, sensors, and power semiconductors. Japan also has a leading role in
semiconductor manufacturing equipment (a 35% global market share) and in semiconductor
materials, including the manufacture of semiconductor wafers and photoresists (a 50% global
market share).23 Some analysts attribute the decline in Japan’s market share to three factors:
Japanese industry’s decision to focus on memory at the expense of logic chips; offshoring and
challenges due to global shifts to a fabless model of chip design and production; and the 1986
U.S.-Japan Semiconductor Agreement. In that agreement, the parties negotiated a 20% market
share for U.S. industry in Japan and committed Japan to allow greater foreign competition in its
market.24
The Japanese government has recently sought to boost its semiconductor industry and align its
efforts with those of the United States. Following visits to Japan by Secretary of Commerce
Raimondo in November 2021 and by President Biden and Secretary of State Blinken in May
2022, the two countries established the U.S.-Japan Economic Policy Consultative Committee
(EPCC), sometimes referred to as the “Economic 2+2.” During the first EPCC meeting in July
2022, U.S. and Japanese officials discussed a joint action plan to promote and secure critical and
emerging technologies, and issued a statement on joint innovation and plans to develop a new
joint international semiconductor research hub.25
In June 2021, Japan’s Ministry of Economy, Trade, and Industry (METI) published a “Strategy
for Semiconductor and Digital Industries.” The strategy aims to sustain Japan’s current level of
market share in the global semiconductor industry at 10%. It also seeks to develop logic chips and
next generation semiconductor technologies in cooperation with the United States, and new
20 Dashveenjit Kaur, “Two More Years of Shortages: No ‘Chips to make Chips’,” TechHQ, June 30, 2022;
“Automotive Semiconductor Supply Chain Working Group Releases Interim Report Titled Efforts to Make
Automotive Supply Chains Resilient,” METI, July 1, 2022.
21 “Executive Order on America’s Supply Chains,” E.O. 14017, February 24, 2021; The CHIPS and Science Act of
2022 (P.L. 117-167).
22 “Japan—Country Commercial Guide,” International Trade Administration, U.S. Department of Commerce,
November 21, 2022.
23 Ibid. A photoresist is a light-sensitive material used in semiconductor manufacturing processes to form a patterned
coating.
24 Mathieu Duchatel, “Racing for the New Rice - Japan’s Plans For its Semiconductor Industry,” Institut Montaigne,
August 4, 2021; Doug Irwin, “The U.S.-Japan Semiconductor Trade Conflict,” in The Political Economy of Trade
Protection, ed., Anne O. Krueger, University of Chicago Press, 1996.
25 “Joint Statement of the U.S.-Japan Economic Policy Consultative Committee: Strengthening Economic Security and
the Rules-Based Order,” Media Note, Office of the Spokesperson, U.S. Department of State, July 29, 2022;
“Announcement Regarding Efforts Toward the Establishment of Design and Manufacturing Bases for Next-Generation
Semiconductors,” Japan’s METI, November 11, 2022. For an English language summary of Japan’s R&D efforts,
including with the United States, see https://www.meti.go.jp/english/press/2022/pdf/1111_001a.pdf.
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photovoltaic “fusion” technologies that could involve new materials beyond silicon.26 Japan’s
approach emphasizes “strategic indispensability”—sustaining and expanding Japan’s role in the
global supply chain in certain key products—and “strategic autonomy”—an effort to develop
certain capabilities important for Japan. One European scholar has paraphrased this approach as
“owning chokepoints and cultivating strengths.”27 The strategy emphasizes R&D in advanced
technologies, expanding domestic chip production, protecting sensitive technologies, and
cooperating with like-minded countries, an approach similar to that taken by the United States.28
METI has created a Leading-Edge Semiconductor Technology Center, to focus on R&D and to
lead research cooperation with the United States, and Rapidus, a joint venture firm among eight
entities.29
In November 2021, the Japanese government approved $6.8 billion to support domestic
semiconductor manufacturing. This package included $3 billion to support TSMC, in partnership
with Sony, to build a new foundry in Kumamoto prefecture in southwest Japan to produce chips
at the 22 to 28 nanometer (nm) node. The government also approved $143 million to subsidize a
new TSMC R&D center for advanced semiconductor packaging and testing in Ibaraki prefecture,
which is just outside Tokyo. In 2022, the Japanese government enacted a new economic security
law that includes provisions to strengthen strategic supply chains and provide government
funding for R&D in technologies it deems important for economic security, such as
semiconductors.30 In other activity, a Japanese industry consortium in 2022 purchased U.S.
company ON Semiconductor’s facility in Japan (renamed JS Foundry) and announced plans to
upgrade the facility to produce chips for the auto industry.31 METI is providing U.S. firm Micron
up to $320 million in subsidies to produce DRAM memory chips at its facility in Hiroshima
(Micron acquired Japan’s Elpida Memory in 2012, which included Elpida’s operations in
Hiroshima), and up to $644 million in subsidies to U.S. firm Western Digital to expand
26 The strategy is available in Japanese at https://www.meti.go.jp/press/2021/06/20210604008/20210603008-1.pdf. For
English language summaries see https://www.meti.go.jp/english/press/2021/0604_005.html and
https://www.meti.go.jp/english/press/2021/pdf/0604_005a.pdf. For a discussion of the strategy, see, for example,
“Japan's Three-Stage Strategy to Revive the Semiconductor Industry,” UTMEL Electric blog post, April 1, 2022,
https://www.utmel.com/blog/news/other/japan's-three-stage-strategy-to-revive-the-semiconductor-industry.
27 Mathieu Duchatel, “Racing for the New Rice - Japan’s Plans For its Semiconductor Industry,” Institut Montaigne,
August 4, 2021.
28 “On the Creation of a New International Order,” Policy Research Council, Liberal Democratic Party of Japan,
December 16, 2020, provisional translation in English available at https://jimin.jp-east2.storage.api.nifcloud.com/pdf/news/policy/201021_5.pdf. For discussion of this strategy, see Mariko Tagashi, “Japan
Prioritises Semiconductor Industry in Bid to Enhance Economic Security,” International Institute for Strategic Studies
blog, March 30, 2022.
29 Entities tied to this research center include the University of Tokyo, Japan’s National Institute of Advanced Industrial
Science and Technology, RIKEN (Japan’s largest research institution), the U.S. National Semiconductor Center,
Europe’s Interuniversity Microelectronics Institute (IMEC), and U.S. and Japanese companies. See Scott Foster,
“Japan’s Grand Plan to Home Grown 2nm Chips,” Asia Times, November 14, 2022. Shareholders in Rapidus include
Kioxia, Sony, Softbank, Toyota, Denso, NTT, NEC, and Mitsubishi UFJ Bank. Ibid. Yochiro Hiroi, “Japan's New
Chipmaker Seeks to Break Free from 'Lost Decade',” Nikkei Asia, November 12, 2022. Rapidus has formed
partnerships with non-Japanese companies, including a joint development agreement with IBM to work alongside IBM
researchers to develop IBM’s 2 nanometer (nm) node technology. IBM Newsroom, “IBM and Rapidus Form Strategic
Partnership to Build Advanced Semiconductor Technology and Ecosystem in Japan,” December 12, 2022.
30 For a copy of the act in Japanese language, see https://www.cas.go.jp/jp/houan/208.html. “Japan Passes Economic
Security Bill to Guard Sensitive Technology,” Reuters, May 11, 2022; “Japan’s Economic Security Promotion Act and
the Implications for Businesses,” Strategic Comments, Volume 28 Comment 32, December 2022; Kana Itabashi, Junko
Suetomi, Daisuke Tatsuno, Izumi Matsumoto, Ayumu Shinozaki, Mami Ohara, and Takumi Hasegawa, “Japan: New
Act on the Promotion of Japan’s Economic Security Enacted,” Baker McKenzie, July 10, 2022.
31 Ibid.
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production in Japan with its Japanese partner Kioxia.32 In May 2023, ahead of the G-7 Summit,
Japan’s Prime Minister Fumio Kishida met with senior executives from top semiconductor firms,
including Micron, TSMC, Intel, Samsung, IBM, and Applied Materials, to discuss options for
these firms to increase their investments in Japan.33
South Korea
An estimated 20% of South Korea’s total exports are semiconductors and related products. South
Korea’s government support for the semiconductor industry has focused on developing
specialized capabilities in memory chip fabrication among leading firms, such as Samsung and
SK Hynix. Private-public cooperation since the 1970s—notably through the (South Korean)
Electronics and Telecommunications Research Institute—helped companies like Samsung and SK
Hynix emerge as leading semiconductor firms. These firms enjoy close ties with the government
and a vertically integrated conglomerate structure that has allowed them to achieve scale in
particular segments of the semiconductor industry, such as dynamic random access memory
(DRAM) chips.34
South Korea, since 2022, has focused on boosting domestic competencies while also more closely
aligning with the United States. China has responded to these efforts by trying to pressure Seoul
with regard to how South Korean industry may be affected by certain U.S. policies directed at
China, such as export controls.35 South Korea’s Special Act to Protect and Foster the National
High-Tech Strategic Industry took effect on August 4, 2022. Under the law, firms producing
designated “national high-tech items,” including semiconductors, receive tax benefits, regulatory
exemptions and other preferential treatment to spur more R&D and increase production output.36
In late March 2023, South Korea’s National Assembly passed an amendment to the Act on
Restriction of Special Taxation that expands tax deduction rates for companies that invest in
industries that the government categorizes as strategic. This measure implements the earlier
proposal by the Ministry of Economic and Finance of tax credits for large firms of up to 15% for
investments in semiconductor manufacturing among other strategic technologies. The tax credits
for similar investments by small and medium sized firms are from 16% to 25%. Any additional
investment in semiconductors in 2023 could also qualify for an additional 10% tax break, with
potential total tax benefits for semiconductor benefits ranging from 25% for small firms to 35%
for larger firms.37 The National Assembly is also reportedly considering amendments to further
32 Kana Inagaki and Leo Lewis, “Japan Grants Micron $320mn in Deepening U.S. Chip Alliance,” Financial Times,
September 30, 2022; Evelyn M. Rusli, “Micron to Acquire Elpida Memory in Deal Valued at $2.5 Billion,” The New
York Times, July 2, 2012.
33 Erica Yokoyama and Min Jeong Lee, “Kishida Meets Chipmakers to Bring More Production to Japan,” Bloomberg
News, May 17, 2023.
34
S. Ran Kim, “The Korean System of Innovation and the Semiconductor Industry: A Governance Perspective,”
Science Policy Research Unit and Sussex European Institute, December 1996,
https://www.oecd.org/korea/2098646.pdf.
35 Kim Eun-jin, “China Putting Pressure on South Korea Concerning Chip 4 Alliance,” Business Korea, July 26, 2022;
Seong Hyeon Choi, “Tech War: China-Korea Semiconductor Trade Ties Start to Fray Under U.S. Pressure,” South
China Morning Post, February 3, 2023.
36 For a copy of the law in Korean language, see https://www.law.go.kr.
37 Dan Robinson, “South Korea to Offer Tax Breaks to Hedge Semiconductor Woes,” The Register, January 3, 2023;
Kang Yoon-seung, “South Korea to Expand Tax Incentives for Chip Industry,” Yonhap News Agency, January 3, 2023;
Dan Robinson, “Korea passes tax break-driven 'Chips Act' as protectionism fears mount,” The Register, March 30,
2023.
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expand benefits for the chip industry and semiconductor engineer training programs.38 South
Korean officials said in July 2022 that the government aims to locally source 50% of the
semiconductor manufacturing materials, components, and equipment used in South Korean
semiconductor production by 2030, up from the current level of 30%.39
A number of other South Korean initiatives are under way at the national, provincial, and
company levels. The Ministry of Trade, Industry, and Energy is spending an estimated $900
million to develop artificial intelligence (AI) chip technologies by 2026.40 In April 2021, the
government created a special committee to develop support measures for the industry, partly in
response to current chip shortages.41 Relatedly, in Gyeonggi province on the outskirts of Seoul,
South Korea’s government and its semiconductor industry have plans to create the world’s largest
semiconductor production base by the 2040s; this base would employ 84,000 workers across as
many as 19 production lines.42 In part likely in response to these initiatives, U.S.-headquartered
equipment firm Applied Materials announced in June 2022 that it would open an R&D center in
Gyeonggi province.43 In August 2023, the CEO of the Netherlands-headquartered semiconductor
lithography equipment firm, ASML, met with South Korean President Yoon Seok-yeol to discuss
South Korean government support for ASML’s construction of a semiconductor equipment
facility in South Korea, also in Gyeonggi province. The facility is to provide ASML components
and training; it is targeted to be completed in 2025.44
South Korean firms are also investing in the U.S. semiconductor market. In July 2022, Samsung
announced plans to invest about $192 billion in the United States over the next 20 years,
including 11 new semiconductor production lines in Texas.45 Toward this goal, in late 2021
Samsung announced plans for a $17 billion facility in Tyler, Texas.46 SK Hynix is also reportedly
planning to build an advanced chip packaging plant in the United States.47 During a public
meeting with President Biden in July 2022, the head of SK Group announced that his firm would
invest an estimated $11 billion in the U.S. semiconductor ecosystem with a focus on chip
packaging and R&D.48 SK Group is already invested in the U.S. semiconductor industry,
38 “Urging the National Assembly to Pass the K-Chips Act, ‘Our Life and Death Depend on Semiconductors,"
Financial News, September 14, 2022, in Korean language at https://www.fnnews.com/news/202209141821433364in.
39 Joyce Lee, “S. Korea Targets Localising 50% of Chip Materials Supply by 2030,” July 20, 2022.
40 “MSIT to announce the ‘Support Plan for AI Semiconductor Industry Promotion,’” Ministry of Science and ICT
Press Release, June 27, 2022, at
https://www.msit.go.kr/eng/bbs/view.do?sCode=%20eng&mId=4&mPid=2&pageIndex=&bbsSeqNo=42&nttSeqNo=7
02&searchOpt=ALL&searchTxt=.
41 “DP Launches Special Committee to Prop Up Semiconductor Makers Amid Growing Global Competition,” Yonhap
News, April 23, 2021.
42 Hakjae Kim, “South Korea’s Semiconductor Industry,” Kotra Express, December 2019,
https://www.investkorea.org/upload/kotraexpress/2019/12/images/1912_Full.pdf.
43 Robert Castellano, “Applied Materials Establishes R&D Center in Korea as Korean Sales Plummet,” Seeking Alpha,
June 9, 2022.
44 Jessica Tsai and Judy Lin, “Korea Asks ASML for Cooperation in Local Chip Ecosystem and Promises 'Maximum'
Incentives,” DIGITIMES Asia, August 1, 2023; Kim Eun-jin, ASML to Invest KRW240bn to Build Remanufacturing
Center in Korea,” Business Korea, November 16, 2022.
45 Kim Eun-jin, “Samsung Electronics Unveils a US$200bn Investment Plan in the U.S.,” Business Korea, July 25,
2022.
46 Samsung press release, “One Year Since Samsung Electronics' Taylor Expansion Announcement,” November 28,
2022.
47 “SK Hynix to Break Ground on New U.S. Chip Packaging Plant Early Next Year,” Reuters, August 12, 2022.
48 “Remarks by President Biden in Meeting with the SK Group on Investments in American Manufacturing and Jobs,”
Office of the White House, July 26, 2022.
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including a facility it is building in Georgia to make glass-based substrates for semiconductor
chips.49
Taiwan
Almost 90% of global high-volume, leading-edge semiconductor chip production is now
concentrated in Taiwan.50 Taiwan firms also play important roles in other parts of the global
semiconductor supply chain, including in chip design; R&D; semiconductor materials (e.g.,
silicon wafers); and assembly, packaging, and testing.51 The government of Taiwan has supported
the development of its semiconductor industry since the mid-1970s. The Taiwan government
provided about half of the initial $200 million in start-up funding for TSMC, with Phillips
providing $30 million and other Taiwan firms providing the balance.52 Government-sponsored
institutes, such as the Industrial Technology Research Institute, have spurred investment in
research and talent, and have spun off major Taiwan firms, including TSMC.
The Taiwan government continues to provide R&D subsidies and tax and tariff incentives for the
semiconductor industry.53 In 2019, the government combined its National Nano Development Lab
and Chip Implementation Center to create the Taiwan Semiconductor Research Institute.54
Government support includes science park “ecosystems” in cities such as Hsinchu; these offer
high-quality, subsidized factory buildings, tax and import duty exemptions, grants and subsidized
credit, and connections with local universities and institutes.55 In January 2023, Taiwan’s
legislative body, the Legislative Yuan, amended Taiwan’s Act for Industrial Innovation and added
tax benefits for firms that domestically innovate technologies that have a critical role in global
supply chains. Qualifying firms could receive tax deductions equal to 25% of R&D expenditures
and 5% of spending on new equipment during a fiscal year.56 In August 2023, Taiwan’s Ministry
of Economic Affairs’ Investment Commission announced it had approved a proposal from ASML,
a Netherlands-headquartered advanced semiconductor equipment firm, to invest $152 million to
build a plant in Linkou district in New Taipei City.57 Also in August 2023, ASM International NV,
another Netherlands-based semiconductor equipment supplier, announced a new training center in
Tainan, Taiwan to train an estimated 100 engineers in atomic layer deposition, a process that is
used to coat substrates in advanced semiconductor production.58
49 “Semiconductor Materials Production Plant Breaks Ground in Covington,” The Covington News, November 1, 2022.
50 See CRS Report R46581, Semiconductors: U.S. Industry, Global Competition, and Federal Policy, by Michaela D.
Platzer, John F. Sargent Jr., and Karen M. Sutter; and Rick Switzer, U.S. National Security Implications of
Microelectronics Supply Chain Concentrations in Taiwan, South Korea, and the People’s Republic of China, p. 4,
September 2019, as prepared for the U.S. Air Force, Office of Commercial and Economic Analysis.
51 See CRS Report R46581, Semiconductors: U.S. Industry, Global Competition, and Federal Policy, by Michaela D.
Platzer, John F. Sargent Jr., and Karen M. Sutter.
52 Patrick Windham, “The Taiwanese Approach,” in “Securing the Future: Regional and National Programs to Support
the Semiconductor Industry,” National Academies Press, 2003.
53 “Taiwan Key Innovative Industry: Semiconductors,” Ministry of Economic Affairs, 2017, available in English
language at https://www.roc-taiwan.org/uploads/sites/30/2018/03/Semiconductors.pdf.
54 For more about the institute and its history, see https://www.tsri.org.tw/en/introduction.html.
55 “Taiwan Key Innovative Industry: Semiconductors,” Ministry of Economic Affairs, 2017.
56 “Legislature Passes R&D Tax Break Bill,” Taiwan News, January 8, 2023.
57 “ASML Secures Approval to Invest over NT$10 billion in Taiwan,” Focus Taiwan: Central News Agency, August
30, 2023.
58 “Dutch IC Equipment Supplier Opens Training Center in Tainan,” Focus Taiwan: Central News Agency, August 18,
2023.
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In the context of these preferences and support, in 2021, TSMC announced plans for $100 billion
in new investments over the following three years to expand advanced semiconductor R&D
production in Taiwan, including $12 billion for a 5 nm fabrication facility in Arizona, a new
materials facility in Japan, and a $3 billion expansion of a 28 nm foundry in China. 59 TSMC’s
most significant and technologically advanced capabilities (e.g., 2-3 nm fabrication) are in
Taiwan. TSMC announced, in May 2020, that TSMC would build a semiconductor fabrication
plant in Arizona, a commitment that TSMC negotiated with the Department of Commerce.60 This
facility represents a small part of TSMC’s broader expansion plans that focus primarily on Taiwan
and, to a lesser extent, other parts of the world, including the PRC, Japan, and Europe. According
to TSMC, its first fab in Arizona is scheduled to begin production of N4 process technology in
2024. TSMC has committed to build a second fab which is under construction and scheduled to
begin production of 3nm process technology in 2026.61
China Ties and Concerns
U.S. export control actions highlight the extent to which PRC companies and institutes, including
many of concern to the U.S. government, appear to be fabricating advanced semiconductors at
TSMC in Taiwan. Many PRC firms and institutes—including some that are listed on the U.S.
Department of Commerce’s Bureau of Industry Security’s Entity List—appear to be using
membership in U.S. open source technology platforms to access the U.S. technology and
capabilities to design advanced semiconductor chips that they can then fabricate in Taiwan.62
Taiwan has also been a target of PRC talent poaching and IP theft in the semiconductor sector.
High profile incidents of PRC poaching of Taiwan’s engineering talent and IP theft exposed gaps
in Taiwan’s Trade Secrets Act. Taiwan’s Legislative Yuan, in May 2022, amended Taiwan’s
National Security Act to make it a crime to engage in economic espionage or the unapproved use
of critical national technologies and trade secrets outside of Taiwan.63
Southeast Asia (Malaysia and Singapore)
Already a global center for assembly, packaging, and testing (APT), and some fabrication of
mature-node chips, Malaysia and Singapore, and other Southeast Asian countries, seem poised to
benefit from increased government and private sector investment in semiconductor foundries in
South Korea, Taiwan, Japan, and the United States. Some Malaysia-based semiconductor experts
assess that an expansion of U.S. foundry capacity will generate follow-on demand for outsourced
APT functions.64 As other markets focus on advanced chip investments, Malaysia, Singapore, and
59 Lisa Wang, “TSMC Announces US$100bn Plan for R&D and Expansion,” Taipei Times, April 2, 2021.
60 TSMC, “TSMC Announces Intention to Build and Operate an Advanced Semiconductor Fab in the United States,”
press release, May 15, 2020.
61 “TSMC Announces Updates for TSMC Arizona,” TSMC Press Release, December 6, 2022.
62 For further discussion of this issue, see CRS Report R46915, China’s Recent Trade Measures and Countermeasures:
Issues for Congress, by Karen M. Sutter.
63 Under the changes, sentences would be up to 12 years and 10 years in jail, respectively. The changes stipulate that
any individuals or organizations that have been entrusted or subsidized by the Taiwan government to conduct
operations involving critical national technologies will have to receive government approval for any trips to China. See
“Amendments to the National Security Act and the Act Governing Relations between the People of the Taiwan Area
and the Mainland Area,” Lee and Li Law Firm, May 27, 2022. The act is available in English language at
https://law.moj.gov.tw/ENG/LawClass/LawAll.aspx?pcode=A0030028.
64 The Star, “Malaysia's semiconductor industry to benefit from Chips and Science Act,” August 15, 2022, at
https://www.thestar.com.my/business/business-news/2022/08/15/malaysia039s-semiconductor-industry-to-benefitfrom-chips-and-science-act.
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other Southeast Asian countries (and China) may be positioned to pick up more investment in the
production of mature-node semiconductors.
Malaysia
The government of Malaysia has previously looked to South Korea and Taiwan as models in
leveraging government support to develop its semiconductor sector.65 In 1985, the government
created the Malaysian Institute of Microelectronics Systems, which then spun off the
semiconductor firm Siltera in 2000.66 Malaysia offers a range of tax and other incentives for
foreign investment in manufacturing and priority sectors such as semiconductors. The
government offers companies in priority sectors a five-year partial income tax exemption on 70%
of their statutory income. Approved high technology companies in priority sectors have a full tax
exemption for up to 10 years. The government provides allowances for re-investments and many
other infrastructure and related input benefits tied to specific investment zones.67
Malaysian government incentives appear to have encouraged new semiconductor investment in
the country, and Malaysia has been a key location for PRC offshore semiconductor expansion.
Siltera restructured and in 2021 was acquired by a firm backed by China’s state semiconductor
fund.68 PRC-controlled Nexperia announced a global R&D center in 2021 and expanded a
production and raw material warehouse facility in Malaysia as part of its global expansion
plans.69 Other firms, including Infineon and Intel, have announced new chip production and
packaging facilities in Malaysia.70 Some U.S. semiconductor equipment firms, such as Lam, have
restructured their Asia-Pacific operations and shifted to Malaysia in response to U.S. export
controls that restrict certain semiconductor activity in the PRC.71
Singapore
The Singaporean government offers a range of incentives relevant to attracting semiconductor
investment, including grants for talent development and tax benefits for R&D and registration of
related IP.72 In May 2022, Taiwan’s TSMC opened talks with Singapore’s Economic
Development Board, seeking incentives to set up chip production facilities with 7 nm and 28 nm
technology.73
65 Willem Thorbecke, “Strengthening Semiconductor Manufacturing: Lessons from East Asia,” Centre for Economic
Policy Research, October 15, 2021.
66 See https://www.silterra.com/about-us/corporate-profile#our-profile.
67 “Malaysia: Investment in the Manufacturing Sector: Policies, Incentives, and Facilities,” Malaysia Investment
Development Authority,” January 6, 2023, at https://www.mida.gov.my/wp-content/uploads/2023/01/2023-01-06MIDA_Policy-Booklet_-English-Version.pdf.
68 Peter Clarke, “China Applies Pressure to Close Foundry Acquisition Deal,” EENews Analog, January 18, 2021.
69 “Nexperia Malaysia Ramps Up Chip Production with New Facility in Negeri Sembilan,” New Straits Times,
December 9, 2021; “Nexperia Announces Plans to Grow Global Production and Increase R&D spending,” Nexperia
corporate announcement, February 9, 2021. For more context on how the PRC government facilitated China’s
acquisition of NXP’s RF power business through PRC antitrust actions, see CRS Report R46915, China’s Recent Trade
Measures and Countermeasures: Issues for Congress, by Karen M. Sutter.
70 “Semiconductor Boom–How Long Will it Last?,” Malaysian Investment Development Authority, August 6, 2022.
71 “Semiconductor Firms Ramp up Malaysia Investments,” Argus Media, December 16, 2022.
72 “Incentives and Schemes for Businesses,” Economic Development Board Singapore, at
https://www.edb.gov.sg/en/how-we-help/incentives-and-schemes.html.
73 Yang Jie and Keith Zhai, “TSMC Looks to Build Multibillion-Dollar Chip Plant in Singapore,” The Wall Street
Journal, May 19, 2022.
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Europe
European-headquartered semiconductor firms account for about 10% of global semiconductor
sales, with top ranked firms STMicroeletronics (Netherlands, France, and Italy), Infineon
Technologies (Germany), and NXP Semiconductors (Netherlands) responsible for much of this
share.74 European firms tend to specialize in niche markets, including the automotive industry,
energy applications, and industrial automation; these firms do little production of computer- and
consumer-related chips.75 Some analysts consider European companies to be strong in chip
architecture, mobile telecommunications and industrial applications, and security chips.76 Europe
is also a leader in advanced and specialized semiconductor manufacturing equipment. Aixtron in
Germany makes CVD (chemical vapor deposition) and MOCVD (metal organic chemical vapor
deposition) machines and related services. ASML in the Netherlands is the only global producer
of EUV (extreme ultraviolet) lithography equipment used for patterning in advanced chips
beyond 7 nm and specializes in other types of chip machinery and manufacturing techniques.
IMEC, a Belgium-headquartered semiconductor R&D hub is focused on nanotechnology and
digital technologies.77 Aixtron was the previous target of an attempted PRC state-led acquisition,
and ASML reportedly has been a recent target of PRC IP theft.78
In May 2013, the European Commission (EC) announced an initiative aimed at increasing
Europe’s share of global semiconductor fabrication by providing $11.3 billion (€10 billion) in
public funding for R&D activities. These public funds aim to induce about $113 billion (€100
billion) in industry investment in manufacturing.79 The initiative called for a multipronged
approach that included easing access to capital financing by qualified companies; pooling EU,
national, and regional subsidies to enable larger-scale projects; and improving worker training.80
The commission said its goal was for European firms to account for 20% of global chip
manufacturing by 2020.81 The years-long program did not reach its market share goals but may
have helped to prevent Europe’s market share in wafer fabrication from declining. France,
Germany, Italy, and the United Kingdom received EC approval at the end of 2018 for a $2 billion
(€1.7 billion) joint microelectronics project focused on Internet-of-Things (IoT) chips.82
74 In 2018, Qualcomm, NXP’s rival, proposed a takeover of NXP, a move that it has since abandoned.
75 Page Tanner, “Germany to Drive Growth in European Semiconductor Market,” Market Realist, December 24, 2015,
at http://marketrealist.com/2015/12/germany-drive-growth-european-semiconductor-industry/.
76 “Semiconductors: European Chip Industry Aims to Get Back on the Map,” Handelsblatt, April 30, 2018, at
https://www.handelsblatt.com/today/companies/semiconductors-european-chip-industry-aims-to-get-back-on-the-map/
23582014.html.
77 For more on IMEC, see the center’s website at https://www.imec-int.com/en.
78 For more on the Aixtron Group, see https://www.aixtron.com/en/company/about-aixtron/company. For more on
ASML, see https://www.asml.com/en/technology. “Aixtron Sale Stopped,” DW, October 24, 2016; William Wilkes,
“Chinese Takeover of Aixtron Collapses after U.S. Ban,” The Wall Street Journal, December 8, 2016; and Jess
Weatherbed, “A major global chipmaking supplier claims an employee stole manufacturing secrets,” The Verge,
February 15, 2023.
79 European Commission, “Commission Proposes New European Industrial Strategy for Electronics—Better Targeted
Support to Mobilize 100 Billion Euro in New Private Investments,” press release, May 23, 2013, at
https://ec.europa.eu/commission/presscorner/detail/en/IP_13_455.
80 The initiative was named 10/100/20 to reflect its three main goals. SEMI, Supporting Competitive Semiconductor
Advanced Manufacturing, February 24, 2014, at http://www.semi.org/eu/sites/semi.org/files/docs/
SEMI%20Europe%20News-Feb%2024%202014.pdf. Also see European Commission, “Electronics Strategy for
Europe,” at https://ec.europa.eu/digital-single-market/en/electronics-strategy-europe.
81 Ibid.
82 Foo Yun Chee, “EU Okays $2 Billion Microelectronics Project by France, Germany, Italy, UK,” Reuters, December
(continued...)
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In July 2023, the EC and European Parliament approved the European Chips Act. 83 The stated
purpose of the act is to address chip shortages and strengthen Europe’s technological leadership in
semiconductors. The act seeks to mobilize $46.7 billion (€43 billion) in public and private
investment. The act also revives the commission’s previous goal of increasing Europe’s share of
the global semiconductor market to 20%. Areas of emphasis include investments in nextgeneration technologies and innovation in advanced chip design, packaging, and production. The
act also emphasizes the importance of trusted chips for critical applications and supply chain
security and the need for processes to better anticipate shortages and for partnerships with likeminded countries.84 The act also seeks to improve the business environment for investment in
chip production, financing for small firms, and talent development.85
As part of the compromises made to reach agreement between the EC and the European
Parliament, the act: 1) specifies that the Chips Joint Undertaking under the Chips for Europe
Initiative will be responsible for selecting the centers of excellence; 2) expands the definition of
“first of its kind” facilities to include semiconductor equipment production and design centers;
and 3) emphasizes the importance of international cooperation and IP protection in developing a
European semiconductor ecosystem. The agreement commits $3.6 billion in funding for the Chips
for Europe Initiative through existing frameworks. Specifically, it creates a new semiconductor
objective in the Digital Europe Programme and leverages funding from the Horizon Europe
research framework.86
In assessing provisions in the act, some experts at the Brookings Institution caution that “the
slowness of EU decisionmaking,” the absence of a specific public procurement mechanism that
would allow for bidding for semiconductor projects, and the lack of a process to coordinate
projects and screen foreign investments received by member states could impede implementation
of the European Chips Act.87 Moreover, the Brookings experts caution that the amount of publicprivate investment may be insufficient to meet the act’s targets. The proposed talent efforts do not
appear to address more systemic issues in the European innovation system, including the need for
competitive salaries to attract talent to particular projects.88 Despite these challenges, some
analysts see the effort as an important step forward in strategizing and coordinating thinking in
Europe on how to promote and protect technological innovation, including with regard to China.
Some analysts assess that while the plan could be more focused on European strengths such as
R&D, the plan appears to be helping stimulate new investments.89
18, 2018. Also see European Commission, “State Aid: Commission Approves Plan by France, Germany, Italy, and the
UK to give €1.75 Billion Public Support to Joint Research and Innovation Project in Microelectronics,” press release,
December 18, 2018. The European Commission needs to be notified and approve state aid (a subsidy or any other aid)
for projects by Member States, especially those that target a particular sector prior to its initiation.
83 “Semiconductors: MEPs Adopt Legislation to Boost EU Chips Industry,” Press Release, European Parliament, July
11, 2023.
84 Trusted chips refer to efforts by the U.S. government and military in cooperation with industry to control the supply
chain of production to ensure that the production of chips for sensitive applications are secure, reliable, and
trustworthy.
85 See European Commission’s Europe Chips Act homepage at https://commission.europa.eu/strategy-andpolicy/priorities-2019-2024/europe-fit-digital-age/european-chips-act_en.
86 Ibid.
87 Paul Timmers, “How Europe Aims to Achieve Strategic Autonomy for Semiconductors,” The Brookings Institution,
August 9, 2022.
88 Ibid.
89 See, for example, Alicia García Herrero and Niclas Poitiers, “Europe’s Promised Semiconductor Subsidies Need to
be Better Targeted,” Bruegel Institute, October 17, 2022.
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At the member-state level, in July 2022, the French government announced plans to invest $5.45
billion into joint European investment projects for semiconductors as part of part of France 2030,
a plan the government launched in late 2021 to support France’s industrial development in
strategic sectors.90 In December 2021, the government of Germany announced approval of
funding for 32 semiconductor materials, design, and manufacturing projects under the EC’s
Important Project of Common European Interest (IPCEI) program, which includes a $12 billion
investment fund for microelectronics projects.91 In May 2022, the German government
announced $14.7 billion in government support for semiconductor investment.92
In response to European government incentives, in March 2022, Intel committed to investing $88
billion in Europe over the next ten years. Initial commitments toward this larger target include
$19 billion for a foundry in Germany, $13 billion to expand a facility in Ireland, and $4.9 billion
for an assembly and packaging facility in Italy. Intel also announced plans to build a R&D center
and set up its main European foundry design center in France.93 In June 2023, Intel announced
that it will invest $4.6 billion to build a new assembly and test facility in Poland. The facility is to
test chips Intel will produce in Ireland and Germany.94 In July 2022, STMicroelectronics and
GlobalFoundries announced plans for a $5.7 billion wafer fab in France that reportedly is
receiving assistance from the French government.95 In June 2023, STMicroelectronics announced
that it would be investing in a joint venture with PRC state firm San’an Optoelectronics in
Chongqing China to produce silicon carbide power chips for autos, power, and other industrial
uses that will use STMicroelectronics’s proprietary manufacturing process technology.
(STMicroelectronics in 2020 formed a joint venture with Huawei to design smartphone and auto
chips.96) The facility is expected to cost $3.2 billion and is supported by STMicroelectronics,
San’an, and the PRC government. San’an is a member of the PRC government’s national
semiconductor investment fund, the China Integrated Circuit Investment Industry Fund, and
Fujian province’s semiconductor industry investment fund. Company details about the joint
venture indicate that it will advance PRC industrial goals of creating a compound semiconductor
foundry in China for San’an.
In May 2023, the United Kingdom (UK) government announced a semiconductor strategy and
commitment of some government financial support for the semiconductor sector in the UK. The
UK government says it will invest up to $245 million between 2023 and 2025 and then up to
$1.23 billion over the next ten years.97 The UK government’s strategy focuses on developing the
UK’s talent pipeline and improving UK industry’s access to semiconductor prototyping and tools.
The strategy concentrates efforts on strengthening capabilities in areas in which the UK’s
semiconductor industry already has competencies, such as semiconductor intellectual property
90 Anne-Françoise Pelé, “France Invests Over €5B in Semiconductors,” EETimes Europe, July 13, 2022.
91 “32 microelectronics projects ready to take off, Minister Habeck: ‘We Need to Bring the Production of
Semiconductors Back to Germany and Europe,” Press Release, German Federal Ministry for Economic Affairs and
Climate Action, December 20, 2021.
92 Dan Robinson, “Germany Makes New Move to Attract Chip Manufacturers,” The Register, May 6, 2022.
93 Kris Holt, “Intel Plans to Build a $19 billion Chip Plant in Germany,” TechCrunch, March 15, 2022.
94 Daniel Tilles, “Intel to Build $4.6 billion Chip Plant in Poland,” Notes from Poland, June 16, 2023.
95 Maria Deutscher, “STMicro and GlobalFoundries to Build $5.7B Semiconductor Fab in France,” Silicon Angle, July
11, 2022.
96 Cheng Ting-FAN and Lauly Li, Huawei Strikes European Chip Tie-Up as Fears Rise Over US Curbs, Nikkei Asia,
April 28, 2020.
97 Ryan Browne, “Britain Launches $1.2 billion Semiconductor Plan after U.S. and EU Splurge on Chips,” CNBC, May
18, 2023.
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(IP), chip design, and compound semiconductors.98 The strategy supports the leading UK chip
architecture firm ARM while also emphasizing the importance of open source chip architecture
provided by RISC-V. The strategy also focuses on support for innovation and start-ups, global
collaboration (particularly with South Korea, Taiwan, and Japan), supply chain resiliency, and
joint national security efforts with like-minded partners.99 The UK government has a mixed
record on securing its semiconductor capabilities from PRC state acquisition and appropriation.
For example, it took several rounds of pressure from the UK Parliament before the UK
government reversed its original decision to allow China to acquire the Newport Wafer Fab and
required the PRC firm Nexperia to divest 86% of its investment in the company.100 Additionally,
the UK government has not visibly acted to rein in the PRC government’s control of the China
operations of the UK’s leading semiconductor IP firm, ARM.101
India
India is a global leader in information technology (IT) software services and has been attracting
significant foreign investment in IT hardware. The Indian government has also sought to boost
investment in semiconductors and microelectronics. India has benefited from major U.S.
information technology firms such as Apple, Dell, and Flextronics that have turned to India in
seeking to move certain lower-end production out of China.102 India has also been a focus of U.S.
government efforts to develop secure supply chains in critical sectors, including semiconductors,
among allies and like-minded countries. In May 2022, the U.S. and Indian governments
announced a new initiative on Critical and Emerging Technology (iCET) and pledged cooperation
in defense and other strategic technologies, including semiconductors.103
In 2019, the Modi government launched the India Semiconductor Mission as a part of its
“Made in India” initiative. In late 2021, the government renewed its commitment of $10 billion
to develop India’s semiconductor industry with an emphasis on attracting foreign investment and
leveraging partnerships with U.S. and foreign firms. The government has committed to cover
50% of the costs of setting up a fab for any technology node size, and for the production of
displays, compound semiconductors, photonics, and sensors. The subsidies also cover chip
assembly, packaging, and test and design facilities.104
These efforts build on a series of incentive schemes that the Indian government has launched over
the past several years. The government’s Production-Linked Incentive (PLI) scheme seeks to
attract up to $25 billion in semiconductor investment and offers financial incentives over a four to
five year period of up to 6% of net incremental sales (assessed over a base year) of goods
manufactured in India. The initiative includes laptops, tablets, PCs, and servers.105 The
98 “National Semiconductor Strategy,” UK Department of Science, Innovation, and Technology, May 2023.
99 Christopher Cytera, “The Good, The Bad, and the Missing in the UK’s Semiconductor Strategy,” Center for
European Policy Analysis, June 6, 2023.
100 Eliot Beer, “UK to block sale of Newport Wafer Fab,” The Stack, November 17, 2022.
101 Zhang ErchiI, Qu Yunxu, and Guo Yingzhe, “In Depth: How SoftBank Wrested Back Control of Arm China,”
Caixin, July 5, 2022.
102 “Production Linked Incentive Scheme (PLI) for IT Hardware,” Ministry of Electronics and Information Industry,
Government of India, at https://www.meity.gov.in/esdm/pliithw.
103 United States and India Elevate Strategic Partnership with the initiative on Critical and Emerging Technology
(iCET),” White House Fact Sheet, January 31, 2023.
104 “Modified Programme for Semiconductors and Display Fab Ecosystem,” Ministry of Electronics and Information
Industry, Government of India, at https://www.meity.gov.in/esdm/Semiconductors-and-Display-Fab-Ecosystem.
105 “Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing,” Ministry of Electronics
and Information Industry, Government of India, https://www.meity.gov.in/esdm/pli.
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government’s Design-Linked Incentive (DLI) initiative offers financial incentives and
infrastructure support over a five-year period.106 The PLI scheme for Large Scale Electronics
Manufacturing has sought to boost domestic manufacturing and attract foreign investment in
mobile phone manufacturing, electronic components, and assembly, testing, marking, and
packaging (ATMP) facilities. The Scheme for the Promotion of Electronic Components and
Semiconductors (SPECS) has sought to position India as a global hub for design and
manufacturing, including in Electronics System Design and Manufacturing (ESDM), by
encouraging capabilities in core components. The program finances 25% of capital expenditures
for firms producing certain electronics and semiconductor components, including chipsets and
sub-assemblies.107 The Modi government has also created high technology clusters with a target
of building at least two new semiconductor fabs and two new display fabs. Under the plan, the
government is offering to fund up to 50% of the cost of fabs and up to 50% of certain costs for
design firms.108
Bureaucratic inefficiencies and water and energy shortages have reportedly affected India’s
ability to attract foreign investment.109 Despite these limitations, India is attracting new projects,
likely in response to growing global demand and efforts by IT firms to develop alternative
markets to China.110 In May 2022, ISMC—a semiconductor joint venture between Abu Dhabiheadquartered Next Orbit Ventures and Tower Semiconductors, an Israeli-based firm that Intel
sought to acquire before PRC antitrust regulators blocked the acquisition in August 2023—
announced plans to invest $3 billion in a semiconductor fab in India’s southern Karnataka state.111
India’s oil, gas, and mining conglomerate Vedanta is partnering with Taiwan’s Foxconn to invest
$19.5 billion to build a semiconductor and display fab in Gujarat, the home state of Indian Prime
Minster Modi. The Gujarat state is reportedly providing subsidies for capital expenditures and
electricity. Foxconn is providing the technology and Vedanta is providing the financing for the
project.112 In June 2023, U.S. memory firm Micron signed an agreement with the Indian
government to build a production facility in Gujarat. Micron said it is investing $825 million; the
Indian government is reported to be covering the remaining costs of the $2.75 billion facility.113
China
Key Policy Efforts
The scope and scale of China’s state-led efforts on semiconductors are unprecedented when
considering the amount of state funding involved, the Chinese government’s stated ambitions to
106 Shaumik Ghosh, "India-US Semiconductor Cooperation: Can India Insert Itself into the Pantheon of Global
Chipmakers with a Little Help from Washington?,” The Diplomat, December 12, 2022.
107 “Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS),” Ministry of
Electronics and Information Industry, Government of India, https://www.meity.gov.in/esdm/SPECS.
108 “Cabinet Approves Programme for Development of Semiconductors and Display Manufacturing Ecosystem in
India,” Government of India Press Release, December 15, 2021, at
https://pib.gov.in/PressReleasePage.aspx?PRID=1781723.
109 Srishti Khemka, “India’s Prospects in the Global Semiconductor Manufacturing Race,” Council on Foreign
Relations blog, December 21, 2022.
110 Ibid.
111 Munsif Vengattil, “Chip Consortium ISMC to Set Up $3 billion Plant in India's Karnataka,” Reuters, May 1, 2022;
Ashley Belanger, “China Blocks Intel’s $5.4B Merger with Tower Semiconductor,” ArsTechnica, August 16, 2023.
112 Munsif Vengattil and Aditya Kalra, “Vedanta, Foxconn to invest $19.5 billion in India's Gujarat for Chip, Display
Project,” Reuters, September 13, 2022.
113 “Micron Signs Preliminary Agreement for India Chip Facility,” Reuters, June 28, 2023.
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lead across all segments of the entire semiconductor value chain, the targeting of U.S. and other
foreign capabilities, and the particular methods that China is using. U.S. officials have assessed
many of these practices violate, circumvent, or otherwise challenge current global trade rules.114
The executive branch has expressed its concerns about the ways in which China’s state-led
semiconductor policies are pressuring or encouraging U.S. and other foreign semiconductor
companies to transfer key technology, IP, talent, and R&D to China, thereby boosting the
competitiveness of China’s semiconductor industry.115
In June 2014, the PRC government published a plan, Guideline for the Promotion of the
Development of the National Integrated Circuit Industry, with the apparent goal of establishing a
world-leading semiconductor industry in all areas of the integrated circuit supply chain by 2030.
The document included measures to support an aggressive growth strategy intended to meet 70%
of China’s semiconductor demand with domestic production by 2025. In 2018, China revised the
goal, setting an objective of expanding its domestic production of semiconductors (including
production by foreign firms in China) to meet 80% of domestic demand by 2030, as part of its
Made in China 2025 industrial strategy.116 The semiconductor market research company IC
Insights estimates that integrated circuits produced in China accounted for approximately 16% of
China’s total domestic market for semiconductors in 2020, valued at $143.3 billion.117 While
China is likely to fall short of its actual targets, such ambitious targets and policies tied to these
targets are accelerating efforts to develop China’s industry.
China’s policies feature a substantial and central role for the government in directing and
financing Chinese businesses to obtain foreign IP related to semiconductors. The Chinese
government uses production targets; subsidies; tax preferences; trade and investment barriers
(including pressure to engage in joint ventures); and antitrust, IP, procurement, and standards
practices that are widely viewed as discriminatory.118 The policies seek to leverage China’s
central role in global consumer electronics manufacturing and potential as a semiconductor
production hub to incentivize and pressure foreign companies to localize production, share
technology, and partner with the Chinese government and affiliated entities. To implement its
semiconductor plan, China created a government fund—the China Integrated Circuit Investment
Industry Fund (CICIIF)—to channel an estimated $150 billion in state funding in support of
domestic industry, state-directed overseas acquisitions, and the purchase of foreign semiconductor
equipment. In October 2019, China announced a second semiconductor fund with an estimated
114 “2022 Report to Congress on China’s WTO Compliance,” Office of the U.S. Trade Representative, February 2023;
“Report to the President: Ensuring Long-Term U.S. Leadership in Semiconductors,” Executive Office of the President,
President’s Council of Advisors on Science and Technology, January 2017.
115 CRS Report R46767, China’s New Semiconductor Policies: Issues for Congress, by Karen M. Sutter; James A.
Lewis, Learning the Superior Techniques of the Barbarians: China’s Pursuit of Semiconductor Independence, Center
for Strategic and International Studies, January 2019; and Office of the United States Trade Representative (USTR),
Section 301 Report, March 22, 2018, p. 113.
116 China’s State Council, “Guideline for the Promotion of the Development of the National Integrated Circuit
Industry,” June 2014; China’s State Council, “Notice on Issuing Several Policies to Promote the High-Quality
Development of the Integrated Circuit Industry and the Software Industry in the New Period,” Guofa (2020) 8, August
4, 2020; Center for International Governance Innovation, “Beyond ‘Forced’ Technology Transfers Analysis of and
Recommendations on Intangible Economy Governance in China,” CIGI Papers No. 239, March 2020, at
https://www.cigionline.org/sites/default/files/documents/no239_2.pdf; John VerWey, “Chinese Semiconductor
Industrial Policy: Past and Present,” USITC, Journal of International Commerce and Economics, July 2019; U.S.
Chamber of Commerce, Made in China 2025: Global Ambitions Built on Local Protections, 2017; and Made in China
2025 (2017), Publishing House of the Electronics Industry, 2017, in Chinese language.
117 Scott Foster, “Get Real about the Chinese Semiconductor Industry,” Asia Times, January 18, 2021.
118 For a discussion of China’s semiconductor policies, see CRS Report R46767, China’s New Semiconductor Policies:
Issues for Congress, by Karen M. Sutter.
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capitalization of $28.9 billion.119 In December 2022, reports indicated that China was planning to
roll out an additional $143 billion to support the development of PRC fabs and the capital costs of
related semiconductor manufacturing equipment. Bloomberg reported in January 2023 that these
plans might be on hold as the PRC government deliberated how best to structure its support, but
other reporting indicates that new funds may already be supporting the significant uptick in PRC
firms’ purchase of imported semiconductor equipment.120
Since August 2020, the PRC government has issued several new policy measures to boost the
development of its semiconductor and software industries. In August 2020, China’s State Council
issued the Notice on Several Policies to Promote the High-quality Development of the Integrated
Circuit Industry and Software Industry in the New Era, which provides a broad framework.121 In
March 2021, the Chinese government issued several implementing measures that include criteria
that companies must meet to qualify for government preferences, as well as tax and tariff
provisions. China’s new policies encourage U.S. and foreign semiconductor companies—
including those from Taiwan, Hong Kong, and Macau—to transfer certain technology, IP, talent,
and R&D to separate corporate operations in China that are registered under PRC laws and other
controls.
These policies target capabilities across the semiconductor value chain, including integrated
circuit (IC) design, fabrication, equipment, software design and tools, packaging and testing, and
materials. The policies offer preferential terms over a 10-year period—including tax, tariff,
financing, and IP protection—for firms willing to establish capabilities, including production
facilities, in China. The policies require companies to transfer certain IP—including a specific
number of invention patents, depending on the subsector—to ownership by a China-based
business that is legally separate from its corporate parent. This requirement potentially gives the
PRC government greater control over certain technologies, including through the use of China’s
new export control law. Incentives include a 10-year corporate income exemption for advanced
technology process nodes (28 nm and below), a 5-year exemption for fabrication lines of 65 nm
and below nodes, a 2-year exemption for 130 nm and below fabrication lines, and import duty
exemptions for IC manufacturers to purchase imported semiconductor materials and
equipment.122
119 Christopher Thomas, A New World Under Construction: China and Semiconductors, McKinsey & Company,
November 2015, at http://www.mckinsey.com/global-themes/asia-pacific/a-new-world-under-construction-china-andsemiconductors; Yoko Kubota, “China Sets up New $29 Billion Semiconductor Fund,” Wall Street Journal, October
25, 2019; Tianlei Huang, “Government-Guided Funds in China: Financing Vehicles for State Industrial Policy,” China
Economic Watch, Peterson Institute for International Economics, June 17, 2019; and OECD, Trade and Agricultural
Directorate, Trade Committee, “Measuring Distortions in International Markets: The Semiconductor Value Chain,”
November 21, 2019, pp. 94-95.
120 Julie Zhu, “China Readying $143 Billion Package for its Chip Firms in Face of U.S. Curbs,” Reuters, December 13,
2022; “Battered by Covid, China Hits Pause on Giant Chip Spending Aimed at Rivaling US,” Bloomberg, January 4,
2023; Monica Chen and Jessie Shen, “Chinese Foundries are Quietly Making Equipment Purchases,” DigiTimes,
February 3, 2023.
121 China’s State Council Notice of Several Policies to Promote the High Quality Development of the Integrated Circuit
(IC) and Software Industries in the New Era, Guofa [2020] No. 8, August 2020, available in Chinese language at
http://www.gov.cn/zhengce/content/2020-08/04/content_5532370.htm.
122 See CRS Report R46767, China’s New Semiconductor Policies: Issues for Congress, by Karen M. Sutter.
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State of China’s Industry and Role of Foreign Ties
China-headquartered semiconductor firms have made significant advances but remain dependent
on foreign technology, expertise, and global markets.123 China’s domestic semiconductor
production met 16.7% of China’s $186.5 billion market demand in 2021. Some analyses project
that this share could increase to almost 20% by 2025 but would fall short of the government’s
localization targets of 70% by 2025 and 80% by 2030.124 Of the $31.2 billion of chips produced
in China in 2021, PRC-headquartered firms produced $12.3 billion (an estimated 6.6% of total
market demand) while foreign firms operating in China produced $18.9 billion, according to
media reporting of industry estimates.125
China’s reliance on foreign technology highlights the ways in which U.S. and other foreign
industry ties are building China’s capabilities.126 China has looked to joint ventures and foreign
acquisitions to further its position in semiconductors. Leading U.S. technology firms with
semiconductor-related expertise have partnered with or have invested in Chinese state firms tied
to China’s national semiconductor plan.127 In fabrication, in 2015, Qualcomm and IMEC128
established a joint R&D venture with Shanghai Manufacturing International Corporation (SMIC)
and Huawei to support the Chinese firms’ efforts to make 14 nm logic chips.129 Foreign
acquisitions have positioned China in the advanced packaging market, including a 2015
acquisition of Singapore-based STATS ChipPac that was funded by China’s national
semiconductor fund.130 In 2016, China-headquartered Nantong Fujitsu took an 85% equity stake
in AMD’s packing and testing businesses in Malaysia and China. In 2015, Beijing E-Town
Capital, a shareholder in China’s national semiconductor fund, acquired U.S.-headquartered
Mattson Technology, thereby gaining specialized capabilities in etchers and rapid thermal
processing equipment and strip tools used in semiconductor production.131 In 2015, a PRC
123 OECD, Trade and Agricultural Directorate, Trade Committee, “Measuring Distortions in International Markets: The
Semiconductor Value Chain,” November 21, 2019, p. 21.
124 IC Insights, “China to Fall Far Short of its “Made-in-China 2025” Goal for IC Devices,” press release, May 21,
2020; “China Forecast to Fall Far Short of its "Made in China 2025" Goals for ICs,” Design and Reuse, January 7,
2021; and Che-Jen Wang, “China’s Semiconductor Breakthrough: SMIC’s 7nm process advancement – despite heavy
U.S. sanctions – will have major implications for East Asia,” The Diplomat, August 20, 2022.
125 Ibid.
126 Saif M. Khan, Maintaining the AI Chip Competitive Advantage of the United States and its Allies, Center for
Security and Emerging Technology, CSET Issue Brief, December 2019, p. 4.
127 John VerWey, Chinese Semiconductor Industrial Policy: Past and Present, USITC, Journal of International
Commerce and Economics, July 2019.
128 IMEC is the Belgium-based Interuniversity Microelectronics Centre, an international research and development
organization focused on nanoelectronics and digital technologies.
129 “SMIC, Huawei, Imec, and Qualcomm in Joint Investment on SMIC’s New Research and Development Company,”
SMIC, PRNewswire, June 23, 2016.
130 Securities and Exchange Commission, EDGAR System, Semiconductor Manufacturing International Corporation,
“Inside Information Announcement: Co-Investment Agreement and Investment Exit Agreement in Relation to
Proposed Acquisition,” December 22, 2014, at https://www.sec.gov/Archives/edgar/data/1267482/
000130901415000021/exhibit1.htm; and Mark Lapedus, “Consolidation Hits OSAT Biz,” Semiconductor Engineering,
February 18, 2016.
131 Securities and Exchange Commission, EDGAR System, at https://www.sec.gov/Archives/edgar/data/928421/
000119312515392660/d46587dex992.htm; “Mattson Technology, Inc. Announces Completion of Acquisition by
Beijing E-Town Dragon Semiconductor Industry Investment Center,” Yahoo! Finance, https://finance.yahoo.com/
news/mattson-technology-inc-announces-completion-131206198.html.
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consortium sponsored by China’s national semiconductor fund acquired Integrated Silicon
Solutions, Inc., and gained specialized chip expertise.132
PRC industrial policies incentivize aggressive tactics to acquire targeted technology, including IP
theft. Since 2016, U.S. government actions have sought to counter China’s statist industrial
policies by tightening foreign investment reviews and the licensing of dual-use technologies to
China (see “U.S. Export Controls”), and through actions against PRC IP theft. Since 2016, the
Committee on Foreign Investment in the United States (CFIUS) has thwarted or, through referral
to the president for action, blocked PRC state investments or acquisitions of several
semiconductor firms, including Aixtron, Fairchild, Lattice, Micron, Western Digital, and
Xcerra.133 Visible efforts by PRC firms to steal foreign semiconductor IP and know how to
advance China’s national semiconductor policies include, for example:
•
In 2018, the Department of Justice charged a Chinese state-owned company, Fujian
Jinhua Integrated Circuit, allegedly in concert with the Taiwan firm United
Microelectronics Company, for stealing technology for the manufacture of DRAM chips
from Micron Technology.134 The Department of Commerce sanctioned Fujian Jinhua by
restricting its access to U.S. technology through U.S. export controls.135
•
In a trade-secret case brought in August 2022 by U.S.-headquartered
FemtoMetrix, the firm’s employees who are PRC nationals allegedly stole
sensitive semiconductor process technology that is used by the U.S. military and
established a new PRC firm that is now using this technology. 136
In Europe, Aixtron was the previous target of an attempted PRC state-led
acquisition, and ASML reportedly has been a target of PRC IP theft.137
In June 2023, Applied Materials, a U.S.-headquartered semiconductor equipment
and display firm, filed a lawsuit against PRC semiconductor equipment firm
•
•
132 “GigaDevice to Merge with ISSI, Say Sources,” China Flash Market, November 22, 2016.
133 Allison Gatlin, “Micron Snubs Tsinghua, Favors Another Chinese Partnership: Analyst,” Investor’s Business Daily,
February 16, 2016; James Fontanella-Khan, “Fairchild Rejects $2.6bn Chinese Offer,” Financial Times, February 16,
2016. Joshua Jamerson and Eva Dou, “Chinese Firm Ends Investment in Western Digital, Complicating SanDisk TieUp,” Wall Street Journal, February 23, 2016. U.S. Department of Treasury, “Statement on the President’s Decision
Regarding Lattice Semiconductor Corporation,” press release, September 17, 2017; Securities and Exchange
Commission, EDGAR System, Xcerra Corporation, 8-K filing, February 22, 2018, at
https://www.sec.gov/Archives/edgar/data/357020/000119312518054209/d533034d8k.htm. See CRS In Focus IF10177,
The Committee on Foreign Investment in the United States, by Cathleen D. Cimino-Isaacs and Karen M. Sutter and
CRS In Focus IF12415, CFIUS Executive Order on Evolving National Security Risks and CFIUS Enforcement
Guidelines, by Cathleen D. Cimino-Isaacs, Stephen P. Mulligan, and Karen M. Sutter.
134 Department of Justice, “PRC State-Owned Company, Taiwan Company, and Three Individuals Charged with
Economic Espionage,” press release, November 1, 2018. The Department of Justice also announced a new initiative
aimed at countering IP theft from China. For more information, see “Attorney General Jeff Sessions Announces New
Initiative to Combat Chinese Economic Espionage,” press release, November 1, 2018.
135 Department of Commerce, “Addition of Fujian Jinhua Integrated Circuit Company, Ltd. (Jinhua) to the Entity List,”
press release, October 29, 2018 (effective October 30, 2018).
136 See “FemtoMetrix Taps Perkins Coie in Trade Secrets Suit over Semiconductor Tech,” ALM Law, September 1,
2022. Oral testimony and question responses by Alon Raphael, CEO, FemtoMetrix, at U.S. House Foreign Affairs
Committee, Subcommittee on the Indo-Pacific, Hearing on “Standing United Against the People’s Republic of China’s
Economic Aggression and Predatory Practices,” May 18, 2023.
137 For more on the Aixtron Group, see https://www.aixtron.com/en/company/about-aixtron/company. For more on
ASML, see https://www.asml.com/en/technology. “Aixtron Sale Stopped,” DW, October 24, 2016; William Wilkes,
“Chinese Takeover of Aixtron Collapses after U.S. Ban,” The Wall Street Journal, December 8, 2016; and Jess
Weatherbed, “A major global chipmaking supplier claims an employee stole manufacturing secrets,” The Verge,
February 15, 2023.
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•
Mattson, alleging a systematic theft of confidential trade secrets over a period of
14 months.138 China’s state-backed Beijing E-town acquired U.S.-headquartered
firm Mattson in 2016 to obtain semiconductors equipment capabilities that
China’s semiconductor industrial plans required. Applied Materials is charging
Mattson with a coordinated campaign to poach 17 of its top engineers and says
that the staff poaching led to the illegal transfer of its proprietary semiconductor
design fab production technologies and the company’s roadmap.139
Also in June 2023, South Korean prosecutors indicted a former executive at
Samsung, who also had worked at South Korean firm SK Hynix, under charges
of violating fair competition rules and South Korea’s Industrial Technology
Protection Act. South Korean authorities charge that he had worked with PRC
competitors seeking to build a copycat semiconductor fab to Samsung’s facility
in Xi’an China. He is charged with “wrongfully using” engineering data from
Samsung’s semiconductor factory, including the floor plan, description of core
production processes, and design drawings. He is reported to have hired 200
engineers from South Korea to work at the PRC facility.140
U.S. Export Controls
The U.S. government uses export controls to prevent China from acquiring leading-edge
technology, including semiconductors, which can be used for military as well as commercial
purposes. Export controls restrict and require licenses for the transfer of controlled
technologies.141 Despite U.S. export control actions since 2020, the United States for the most
part has sustained an open trade and investment posture toward China. U.S. actions have
narrowly targeted certain PRC firms or activities, and, with the exception of the October 2022
controls on advanced semiconductors, most controls have not involved country- or sector-wide
restrictions, thus permitting most commercial activity.
In December 2020, BIS reconstituted the Military End User (MEU) list for China and retightened license requirements for PRC firms on the MEU list.142 Since 2020, the U.S.
government has sought to curtail the export of dual-use technologies to certain PRC firms,
including PRC technology firms involved in semiconductors, such as Huawei, and SMIC, by
138 Anton Shilov, “Chinese Company Allegedly Stole from Applied Materials,” Tom’s Hardware, June 17, 2023.
139 Ibid. A roadmap is a confidential outline of a technology firm’s technology adoption plan and related strategies.
140 Michelle Toh and Gawon Bae, “Former Samsung Executive Charged Over Alleged Plans to Build Copycat Chip
Factory in China,” CNN, June 12, 2023.
141 The United States has imposed controls on exports from China related to semiconductors and semiconductor
manufacturing equipment in various forms since the Cold War. The U.S. Department of Commerce’s BIS and the
Department of State’s Directorate of Defense Trade Controls (DDTC) are the two primary agencies that administer
export controls. They focus on dual-use technologies, including semiconductor goods, which can potentially have both
commercial and military applications. In addition, DOD’s Defense Technology Security Administration (DTSA)
coordinates the technical and national security review of direct commercial sales export licenses and commodity
justification requests, including reviewing and commenting on proposed and final rule changes on export controls from
the Departments of Commerce and State. See also CRS In Focus IF11627, U.S. Export Controls and China, by Karen
M. Sutter and Christopher A. Casey.
142 The MEU list identifies foreign parties that are prohibited from receiving items described in Supplement No. 2 of
Part 744 of the EAR unless the exporter secures a license. These parties have been determined by the U.S. Government
to be ‘military end users,’ as defined in Section 744.21(g) of the EAR, and represent an unacceptable risk of use in or
diversion to a ‘military end use’ or ‘military end user’ in China, Russia, or Venezuela. BIS is to presume denial for
certain but not all dual-use items on the Commerce Control List (CCL) exports to these firms. Previously BIS had
waived license requirements for the export of CCL items to MEUs for non-military uses.
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placing them on the Entity List (EL).143 The EL identifies persons involved, or with the potential
to be involved with, activities contrary to U.S. national security or foreign policy interests.144
Many PRC military firms as well as PRC firms that support China’s defense industrial base,
however, are not on the MEU or the EL. Moreover, the PRC firms that BIS lists are in several
cases only part of a subset of a whole firm.145 Additionally, BIS handles licensing on a case-bycase basis even for firms on the EL that are subject to a “presumption of denial,” allowing it
discretion to issue licenses to otherwise restricted actors. In October 2021, the House Foreign
Affairs Committee released BIS licensing data for Huawei and SMIC from November 2020 to
April 2021. Many of the licenses involved semiconductor technology: BIS approved 113 licenses
for Huawei ($61.4 billion); and returned 48 ($29.8 billion) without action. BIS approved 188
licenses for SMIC ($41.9 billion), and returned 17 ($1.2 billion) without action. BIS licensing
guidance limits the extent to which U.S. restrictions apply and certain areas are not covered, such
as basic research.146 To date, BIS has not sought to question whether open source technology
platforms should be treated as basic research, including the technology transfer and
commercialization that is occurring through companies such as RISC-V.
China has worked around export control restrictions through corporate restructuring, the use of
R&D centers in the United States, and active participation in U.S.-led open source technology
platforms, such as RISC-V, as an alternative way to access U.S. semiconductor expertise.147 In
November 2020, China’s government, acting through the Shenzhen branch of the State-owned
Assets Supervision and Administration Commission of the State Council (SASAC), took control
of Huawei’s smartphone business, Honor, allowing the firm in the absence of subsequent BIS
143 BIS, “Commerce Addresses Huawei’s Efforts to Undermine Entity List, Restricts Products Designed and Produced
with U.S. Technologies,” press release, May 15, 2020, at https://www.commerce.gov/news/press-releases/2020/05/
commerce-addresses-huaweis-efforts-undermine-entity-list-restricts; and BIS, interim final rule and request for
comments, “Export Administration Regulations: Amendments to General Prohibition Three (Foreign-Produced Direct
Product Rule) and the Entity List,” 85 Federal Register 29849, May 19, 2020, at https://www.federalregister.gov/
documents/2020/05/19/2020-10856/export-administration-regulations-amendments-to-general-prohibition-threeforeign-produced-direct.
144 BIS typically requires a license for any U.S. export of Export Administration Regulation (EAR) items to those
entities that are listed. EL listings often presume an export denial, but licensing guidance—such as narrow or low
technology thresholds, partial listing of firms, and case-by-case approval—appears to facilitate the export of some U.S.
technology and CCL items to PRC firms on the EL. The EAR governs the export and re-export of certain commodities,
software and technology.
145 BIS typically requires a license for any U.S. export of EAR items to those entities that are listed. EL listings often
presume an export denial, but licensing guidance—such as narrow or low technology thresholds, partial listing of firms,
and case-by-case approval—appears to facilitate the export of some U.S. technology and CCL items to PRC firms on
the EL. See “Supplement No. 4 to Part 744 of the Export Administration Regulation,” BIS, U.S. Department of
Commerce, available at https://www.bis.doc.gov/index.php/documents/regulations-docs/2326-supplement-no-4-to-part744-entity-list-4/file.
146 For example, BIS licensing controls on Huawei do not apply to 4G, 6G, collaboration on technical standards, or
Huawei’s 5G business Honor that it sold to China’s government to evade U.S. export controls. BIS licensing guidance
for SMIC allows trade at and above the 14 nanometer (nm) node to continue without licensing requirements. BIS,
“Commerce Addresses Huawei’s Efforts to Undermine Entity List, Restricts Products Designed and Produced with
U.S. Technologies,” press release, May 15, 2020; and BIS, interim final rule and request for comments, “Export
Administration Regulations: Amendments to General Prohibition Three (Foreign-Produced Direct Product Rule) and
the Entity List,” 85 Federal Register 29849, May 19, 2020.
147 Thilo Hanneman, Daniel H. Rosen, Cassie Gao, and Adam Lysenko, “Two-Way Street: US-China Investment
Trends-2020 Update,” Rhodium Group, May 11, 2020; Michael Brown and Pavneet Singh, “China’s Technology
Transfer Strategy,” Defense Innovation Unit Experimental (DIUx), January 2018; Runhua Zhao, “Briefing: China Sets
up Domestic Chip Alliance,” Xinhua News Agency, November 9, 2018; “China Mobile Deepens O-RAN Research,
Showcasing Significant Achievements at MWC2019,” PRNewswire, February 26, 2019.
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actions to evade U.S. export controls on Huawei.148 Since restructuring, Honor has resumed
cooperation with Huawei’s original suppliers, including Intel, MediaTek, Micron, Microsoft,
Qualcomm, and Samsung.149 U.S. open source technology platforms offer PRC firms and
government institutes access to top U.S. technology talent to train and troubleshoot on particular
projects.150 For example, in 2019, Pingtouge, the chip subsidiary of PRC-headquartered Alibaba,
released its first processors—Xuantie 910 and Hanguang 800—that relied on foreign technology
and expertise shared through RISC-V to develop the chips.151
Effective August 12, 2022, BIS issued controls on electronic design automation (EDA) software
for the development of advanced logic chips that use a particular transistor architecture pursued
by semiconductor manufacturers to produce the most advanced logic chips at nodes of 3 nm and
below.152 In October 2022, BIS enacted new restrictions on the exports of certain advanced chips
which can be used for supercomputing and AI applications to China. Additionally, BIS introduced
new license requirements for various semiconductor equipment and services by U.S. persons that
are used in the production of advanced logic and memory chips in PRC facilities. These new
controls aim to slow the indigenous ability of China to develop and mass-produce advanced
chips.153 Licenses for exports to advanced semiconductor manufacturing facilities owned by PRC
companies face a “presumption of denial.” BIS has discretion on whether to approve or deny
licenses under the measures.
The U.S. government worked with counterparts in the Netherlands and Japan to strengthen the
effects of the controls and in an effort to prevent other companies from undermining U.S.
government export controls with sales of similar equipment and technology to China. In March
2023, the Netherlands announced restrictions requiring licenses on exports of certain
semiconductor manufacturing equipment and technologies under a new “national control list.”
The list of covered items was announced in June 2023, and entered into force on September 1,
2023.154 License applications are to be reviewed against three goals of preventing Dutch goods
148 Scott Livingston, “Huawei, HONOR, and China’s Evolving State Capitalist Tool Kit,” CSIS Brief, December 2020;
Chen Qingqing and Shen Weiduo, “Update: Former Chief Executive of Honor Zhao Ming becomes CEO of ‘New’
Company After Sub-brand Sold by Huawei,” Global Times, November 17, 2020; “Huawei Officially Sold Glory to
Shenzhen Zhixinxin: The Shareholder Structure Behind it is Disclosed,” Sina Technology, November 17, 2020.
149 Zhao Juecheng and Shen Weiduo, “Honor 50 Series Handset Powered with Qualcomm Chips Launched in
Shanghai,” Global Times, June 16, 2021.
150 The nature of open source allows participants in one country to gain from the technological expertise that resides in
another country. Proponents of open source technology highlight its ability to speed technology development, ensure
interoperability, and increase security by identifying and resolving problems more quickly. Critics highlight that open
technology platforms explicitly threaten the core IP that has been developed by leading U.S. software and hardware
companies. Others argue that open technology platforms are rapidly developing in a direction that could be used to
exploit gray areas or gaps in U.S. export control authorities. See Caroline Meinhardt, “Open Source of Trouble:
China’s Efforts to Decouple from Foreign IT Technologies,” Mercator Institute for China Studies, March 18, 2020; and
Laura Dobberstein, “Beijing wants to Level up China's Software Industry, with an Emphasis on FOSS,” The Register,
December 1, 2021.
151
Josh Horwitz, “Alibaba’s Chip Division Releases First Core Processor,” Reuters, July 26, 2019; Fangyu Cai,
“Alibaba Open Sources Its MCU to Boost AI Research,” Synched, October 10, 2019; Arjun Kharpal, “Alibaba Unveils
Its First AI Chip as China Pushes for Its Own Semiconductor Technology,” CNBC, September 25, 2019.
152 New ECCN 3D006 added to the CCL. Bureau of Industry and Security, "Commerce Implements New Multilateral
Controls on Advanced Semiconductor and Gas," press release, August 12, 2022.
153 BIS placed restrictions on items destined for fabs in the PRC producing logic chips at 16 nm or below, DRAM
memory chips at 18 nm and below, and NAND flash memory chips with 128 layers or more. Bureau of Industry and
Security, “Commerce Implements New Export Controls on Advanced Computing and Semiconductor Manufacturing
Items to the People’s Republic of China (PRC),” press release, October 7, 2022.
154 Baker McKenzie, "The Netherlands to introduce supplemental export controls for advanced semiconductor
(continued...)
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from contributing to unwanted end-uses, preventing supply chain dependencies, and maintaining
technological leadership.155 In May 2023, the Japanese government announced amendments to its
export control regulations that added some semiconductor equipment and production-related
items subject to controls as of July 23, 2023.156
U.S. export controls policy and licensing practices may be inadequate in light of progress that
leading PRC firms, such as SMIC and YMTC, have made in chip fabrication. For example, with
new plurilateral export control restrictions on certain EUV lithography equipment in place for
China, some analysts assess SMIC may continue to focus on an optical-only (non-EUV) approach
to fine tune its first generation 7 nm approach; other analysts assess SMIC could also go to 5 nm
or even 3 nm with such an optical-only approach.157 BIS added YMTC to the Entity List in
December 2022; some analysts assert that the resulting restricted access to U.S.-based equipment
suppliers and technical support will affect the ability of YMTC to mass produce the most
advanced NAND chips.158
•
•
SMIC has developed a high-density logic cell density that is similar to the first
generation 7 nm processes previously developed by Samsung and TSMC.
TSMC’s first generation 7 nm process was an all-optical process with no EUV
layers. SMIC’s CPP (a combination of gate length, contact width, and gate-tocontact spacer thickness) appears to be closer to a “10 nm” type process, which
may suggest that SMIC may be struggling to operationalize its advanced
technology processes.
In August 2022, YMTC reportedly started to produce and sell to its customers a
high density (200+ layers) 3D NAND using a technology it calls Xtacking 3.0.
YMTC has declined to publicly disclose more information about its process
technology, possibly because of concerns that this information about its use of
foreign technologies could inform future U.S. export controls.159 YMTC
reportedly uses process tools from U.S.-headquartered Lam and licenses
technology from U.S.-headquartered Adei (Xperi).160 YMTC is currently
operating one fab outside Wuhan, which the PRC government supported to keep
open in the early part of the pandemic by providing exceptions to shutdowns and
transporting workers to the facility.161 As of September 2022, YMTC’s second
production equipment," press release, June 30, 2023, https://sanctionsnews.bakermckenzie.com/the-netherlands-tointroduce-supplemental-export-controls-for-advanced-semiconductor-production-equipment/.
155 JD Supra, "The Netherlands joins the U.S. in restricting semiconductor exports to China," press release, March 14,
2023, https://www.jdsupra.com/legalnews/the-netherlands-joins-the-u-s-in-8545591/.
156 The additional semiconductor production technologies subject to control relate to cleaning, deposition, heat
treatment, lithography, etching, and testing. See Junko Suetomi, “Japanese Government Imposes Additional Controls
on Semiconductor Related Items,” Baker McKenzie, May 30, 2023.
157 Scotten Jones, “Does SMIC have 7nm and if so, what does it mean,” SemiWiki Forum, September 7, 2022; Che-Jen
Wang, “China’s Semiconductor Breakthrough: SMIC’s 7nm process advancement – despite heavy U.S. sanctions –
will have major implications for East Asia,” The Diplomat, August 20, 2022.
158 Bureau of Industry and Security, "Additions and Revisions to the Entity List and Conforming Removal From the
Unverified List," 87 Federal Register 77505-77518, December 16, 2022; TrendForce, "YMTC Could Abandon Market
for 3D NAND Flash by 2024 Following US Government’s Decision to Place It on Entity List, Says TrendForce," press
release, December 16, 2022, at https://trendforce.com/presscenter/news/20221216-11503.html.
159 Dylan Patel, Semi analysis Blogpost, August 12, 2022.
160 “Xperi Licenses Hybrid Bonding Technology to Yangtze Memory Technologies Co., Ltd. (YMTC),” BusinessWire,
October 12, 2021.
161 Cheng Ting-Fang and Lauly Li, “China Lets Wuhan Tech Plants Bypass Lockdown to Stay Open,” Nikkei Asian
Review, March 4, 2020.
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fab was reportedly almost built out with equipment, and the company planned for
two additional fabs each producing 100,000 wafers per month. YMTC has
received an estimated $24 billion in PRC government subsidies.162
PRC firms with long-standing U.S. ties, including firms that may have started and/or previously
identified as a U.S. firm, are moving rapidly to support PRC government efforts to localize
semiconductor supply chains. For example, Advanced Micro-Fabrication Equipment Inc.
(AMEC) is a leading PRC firm in semiconductor deposition equipment that began with a U.S.
incorporation and has straddled both markets for some time, presenting itself as both a U.S. and a
PRC firm. The firm is a validated end-user on the BIS EL.163 AMEC is among the PRC
technology firms that have used aggressive patent litigation tactics against global competitors to
challenge exclusive use of certain proprietary technologies, to pressure for better licensing terms,
and to create counter pressures on U.S. court procedures by initiating copycat versions of U.S.
cases in China’s courts.164 In another example, ACM Research is a key supplier of wafer cleaning,
electro-chemical plating and etching, and related packaging applications to China’s state
semiconductor fabricators, including YMTC and SMIC, as well as SK Hynix in Wuxi. ACM
Research is technically a U.S. firm with headquarters in California but most all of its operations,
including R&D, are in China.165
U.S. export control policies also may be inadequate in light of the counter pressures that Beijing
is imposing on U.S. and other foreign firms. These PRC pressures are intertwined with PRC
government incentives that aim to keep U.S. and foreign firms actively engaged and expanding in
China’s semiconductor market. Many large firms such as Apple have sought to remain in China
because of the importance of the market, the extensive investments they have made in China’s
production ecosystem, and in response to pressure from Beijing.166 In Apple’s efforts to shift to
markets outside China, for example, in some instances it reportedly brings along its key PRC
suppliers.167 The venture capital arms of some large U.S. technology companies have invested in
China’s semiconductor ecosystem and are developing PRC suppliers.168 In some instances, PRC
firms have allegedly sold businesses subject to U.S. export controls to other PRC firms to evade
the controls and continue to supply U.S. technology companies.169
162 “China's top memory chip maker treads path to semiconductor self-sufficiency as US ponders trade sanctions,”
South China Morning Post, September 26, 2022.
163 Established in 2007, the Validated End-User (VEU) program facilitates high-technology trade between the United
States and VEU-eligible countries (currently China and India). The VEU process reduces the licensing burden on
industry by allowing U.S. exporters to ship designated items to pre-approved entities under a general authorization
instead of under multiple individual export licenses. For a list of BIS Validated End Users, see
https://www.bis.doc.gov/index.php/documents/regulation-docs/2232-748-supp-7-veu-2/file.
164 Willis Ke, “Chinese IC Equipment Maker AMEC Wins Lawsuit Against Lam Research,” DIGITimes Asia, July 13,
2023; “AMEC Wins Injunction in Patent Infringement Dispute Involving Veeco Instruments (Shanghai) Co. Ltd,” PR
Newswire, December 8, 2017; “Veeco, AMEC and SGL Settle MOCVD Wafer Carrier Patent Litigation,”
Semiconductor Today, February 8, 2018.
165 Dylan Patel, “ACM Research, China’s Most Successful Semiconductor Capital Equipment Provider, Wins At SK
Hynix and Intel,” SemiAnalysis, July 18, 2022.
166 Patrick McGee, “What it Would Take for Apple to Disentangle Itself from China,” Financial Times, January 18,
2023; Wayne Ma, “Inside Tim Cook’s Secret $275 Billion Deal with Chinese Authorities,” The Information, December
7, 2021.
167 Cheng Ting-Fang and Lauly Li, “Vietnam to Make Apple Watch and MacBook for First Time Ever,” Nikkei Asia,
August 17, 2020; Saritha Rai and Sankalp Phartiyal, “Apple Gets a Boost in India as Chinese Suppliers Given
Clearance,” Bloomberg, January 17, 2023.
168 Kate O’Keefe, Heather Somerville, and Yang Jie, “U.S. Companies Aid China’s Bid for Chip Dominance Despite
Security Concerns,” The Wall Street Journal, November 12, 2021.
169 Qu Hui and Annick Bao, “Blacklisted Apple Supplier Offloads Camera Module Business,” Caixin, March 30, 2021.
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In response to U.S. actions on export controls, Beijing has retaliated against U.S. firms and
pressured foreign governments not to enact or enhance similar controls. Selected examples of
PRC economic pressures and use of coercion and countermeasures include:
•
•
•
•
•
In May 2023, PRC authorities initiated a cybersecurity probe against U.S. firm
Micron Technology and restricted PRC firms from procuring certain Micron
chips in what many industry analysts see as a thinly-veiled retaliation for the U.S.
controls.170
In July 2023, China’s Ministry of Commerce announced new export controls that
will require exporters to obtain a license for eight gallium and six germanium
products.171 China may have aimed to signal pressure to key users of these inputs,
South Korea and Japan, while also creating preferences and further pressure to
localize semiconductor production in China, for firms from these countries who
use the inputs domestically in China.
In August 2023, PRC antitrust authorities refused to approve U.S. semiconductor
firm Intel’s acquisition of Israel headquartered Tower, and may have sought to
extract technology concessions as a quid pro quo for approving the deal.172 Tower
would have given Intel key capabilities in its transition to serve as a contract fab
for other firms and also has unique chip technologies in areas such as LiDAR.173
In September 2023, the Wall Street Journal reported that PRC government
agencies ordered government workers not to use the Apple iPhone and other
foreign phones for work or for personal use in the office.174 The announcement
came just after Huawei announced the launch of its new phone, the Mate 60 Pro.
The Huawei phone announcement coincided with Secretary of Commerce Gina
Raimondo’s visit to China in August 2023 and some experts assess aimed at
showing how Huawei has been able to work around U.S. export controls.175
Some experts note that the PRC restrictions on Apple are similar to some of the
restrictions that the U.S. government has imposed on PRC firms such as Huawei
and TikTok, and may be aimed to retaliate at the U.S. government. The move
also may aim at pressuring Washington to lift certain restrictions.
The PRC government together with PR firms are also accelerating efforts to advance domestic
capabilities by boosting investment in key parts of the supply chain where China has gaps, by
incentivizing foreign firms to localize increasingly advanced technology capabilities in China,
and by requiring or promoting partnerships and joint ventures with PRC national champion firms
to ensure foreign technology transfer to PRC partners the development of these PRC partners’
170 Lingling Wei, “China Ratchets Up Pressure on Foreign Companies,” The Wall Street Journal, April 28, 2023.
171 “China Gallium, Germanium Export Curbs Kick In; Wait for Permits Starts,” Reuters, August 1, 2023;
“Announcement on the Implementation of Export Control on Gallium and Germanium-related Items,” PRC Ministry of
Commerce and General Administration of Customs, July 3, 2023.
172 Doug O’Laughlin, “China's Revenge: The Tower Semiconductor Deal is in a Tough Place,” Fabricated Knowledge
Blog, November 8, 2022; Lingling Wei and Asa Fitch, “China’s New Tech Weapon: Dragging Its Feet on Global
Merger Approvals,” The Wall Street Journal, April 4, 2023.
173 “China, South Korea Agree to Strengthen Talks on Chip Industry,” VOA News, May 27, 2023; Thomas Hale and
Leo Lewis, “China presses Japan to change course on chip export curbs,” Financial Times, April 2, 2023; “China
Slams Japan over Export curbs on Chipmaking Technology,” Bloomberg News, May 24, 2023.
174 Yoko Kuboto, China Bans iPhone Use for Government Officials at Work,” The Wall Street Journal, September 6,
2023.
175 Eva Dou, “New Phone Sparks Worry China Has Found a Way Around U.S. Tech Limits,” The Washington Post,
September 2, 2023.
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capabilities. China is leveraging areas where commercial activity is not controlled by the U.S. and
other governments or in areas where firms assess they have or will be granted export control
licenses by the U.S. and other governments. For example, China has prioritized advancing
capabilities in photoresists, to pressure Japan and reduce its reliance on Japanese photoresist
companies. 176 In response to the U.S. controls on advanced semiconductor technology announced
on October 7, 2022, U.S. firms Nvidia, AMD, and Intel have all announced plans for new
advanced chips that may be used for AI applications for the China market and that appear to come
just below the new BIS threshold for controls.177 In July 2023, Intel announced it would partner
with Inspur, a PRC firm on the BIS EL and the DOD and Treasury lists of PRC military firms, to
produce an advanced semiconductor chip.178 With Inspur on the EL, the deal raises questions
about whether such a partnership required and/or received a BIS license. The Dutch lithography
equipment firm, ASML, has highlighted that a great deal of its work in China involves mature
chip nodes and non-EUV equipment that is not controlled. ASML has said that its EUV
equipment exports are restricted and it will need to apply for export licenses from the Dutch
government for exports of its most advanced immersion DUV lithography systems.179
CHIPS Act Guardrails
While the CHIPS Act set a threshold that companies receiving financial awards under the act may
not produce semiconductor technology in China below the 28 nm node for 10 years, China’s
industrial policies consider and incentivize semiconductor technology at the 28 nm technology
node as advanced technology.180 This gap in approach between the United States and China
appears to leave China a strategic opening that could accelerate U.S. technology transfer and
offshoring in the 28 nm segment of semiconductor chips and related equipment and services to
China and relatedly allow for the potential concentration of global semiconductor capacity at this
technology node in China.181 The 28 nm node is cost effective for many applications that are
seeing increasing demand, including connectivity (e.g., 5G technologies, bluetooth, wireless);
power electronics for electric vehicles; display systems (e.g., mobile phone and television
screens); the internet of things (e.g., smart devices for watches and home applications); and
sensing applications. A great deal of current and emerging advanced semiconductor functions
leverage or have the potential to leverage the 28 nm node among other technology nodes. China
may take a leadership in mature technology nodes for which U.S. technology licensing, trade, and
investment are not restricted. Additionally, China may also make advancements through the
advent of new materials and semiconductor production and packaging approaches that allow for a
broader use of different types of chips and expanded functions for chips at current technology
nodes.
176 Rodney Chan, “China Urged to Step Up Photoresist Self-Sufficiency,” DIGITimes Asia, August 1 2023. A
photoresist is a light-sensitive material used in semiconductor manufacturing processes to form a patterned coating.
177 Stephen Nelis and Jane Lee, “Nvidia Tweaks Flagship H100 Chip for Export to China as H800,” Reuters, March 21,
2023; Tobias Mann, “AMD Says It'll Jump Through Uncle Sam's Hoops to Sell AI Ships to China,” The Register,
August 3, 3023.
178 Dashveenjit Kaur, “Intel Joins Nvidia in Tackling the U.S. Ban With an AI Chip for China,” TechWire Asia, July
14, 2023.
179 “Statement Regarding Dutch Government's Export Control Regulations Announcement,” ASML Press Release,
June 30, 2023; Lauly Li and Demetri Sevastopulo, “US Export Curbs Will Have ‘Limited’ Impact, Chip Tool Supplier
ASML Says,” The Financial Times, October 19, 2022.
180 See CRS Report R46767, China’s New Semiconductor Policies: Issues for Congress, by Karen M. Sutter.
181 Chris Park, “Potential Dependency Oversight in U.S.-South Korea Chip Policy,” Council on Foreign Relations
Blog, September 19, 2022.
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Some semiconductor industry experts say that there is a significant overlap in technology from
one node to the next, with new nodes incorporating approximately 80% of the technology from
previous nodes. This technology overlap potentially gives China an important baseline in critical
capabilities from which it could advance to smaller nodes.182 There are risks that China could lead
globally in 28 nm production and leverage this leadership position to move up the technology
value chain into more advanced applications and technology. China appears poised to gain
significant ground in this segment due to the scope and scale of China’s industrial policy efforts
and the degree of government support and prioritization. PRC firms benefit from state backing in
addressing challenges that companies generally face in shifting to more advanced levels of
production. Additionally, the size of China’s market and its role as the global center for consumer
electronics production and emerging technologies using chips, such as electric vehicles give it
unique advantages to scale production. While a shift into more advanced chips is challenging and
expensive, this is a top goal of China’s industrial policies and the PRC government is likely to
subsidize costs and support efforts to overcome these challenges.183
On September 22, 2023, the Commerce Department issued its final rule implementing the
national security guardrails of the CHIPS and Science Act.184 The final rule:
•
•
•
•
•
•
Issues several clarifications about the U.S. government terms and restrictions for
recipients of funding under the Act, including that the Department includes wafer
production in its definition of semiconductor manufacturing.
Places limits on the expansion and new construction of legacy facilities in foreign
countries of concern, such as China.
Prohibits recipients from adding new cleanroom space or production lines that
result in expanding a facility’s production capacity beyond 10% in countries of
concern. At the same time, the final rule potentially allows for some expansion
by including facilities that are currently undergoing construction, expansion, or
modernization as existing facilities.
Includes exceptions in the definitions of “joint research” and “technology
licensing” that exempt employees of the covered entity and related entities.
Restricts recipients of monies from engaging in joint research or technology
licensing with a foreign entity of concern that relates to a technology or product
that raises national security concerns but allows for existing agreements,
including with a country of concern, to continue. The restrictions do not apply to
activities related to international standards, patent licensing, and the ability to use
foundry and packaging services.
Outlines a notification process through which Commerce will determine
compliance. It clarifies that the Secretary has discretion to waive the recovery of
funds for violation of § 231.302 in circumstances where an appropriate
182 CRS discussion with U.S. semiconductor firm experts on September 21, 2022.
183 For the last several decades, manufacturers advanced to next generation nodes by shrinking electronic features (i.e.,
transistor) on the chip on a two-dimensional (2D) plane; after the 28 nm node, top manufacturers pursued threedimensional transistor architectures to continue advancing chip performance due to technical constraints leading to
many substantial changes in the manufacturing process and higher costs.
184 “Biden-Harris Administration Announces Final National Security Guardrails for CHIPS for America Incentives
Program,” Press Release, U.S. Department of Commerce, September 22, 2023; “Preventing the Improper Use of
CHIPS Act Funding,” Final Rule, U.S. Department of Commerce, September 22, 2023, https://publicinspection.federalregister.gov/2023-20471.pdf.
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•
•
mitigation agreement has been entered into and complied with by the covered
entity.
Clarifies that “foreign entity of concern” is limited to countries that are listed in
10 U.S.C. 4872(d), and applies to citizens, nationals or residents of those
countries while they are in any of the countries listed in 10 U.S.C. 4872(d). The
final rule was expanded to cover potential workarounds and includes entities in
which at least 25 percent of the person’s outstanding voting interest is held
directly or indirectly by any combination of persons who would otherwise be
foreign entities of concern themselves.
Removes from the list of semiconductors critical to national security those FDSOI semiconductors that relate to semiconductor packaging operations with
respect to semiconductors of a 28-nanometer generation or older. (see text box).
“Legacy” Semiconductors
On September 22, 2023, the Commerce Department issued its final rule implementing the national security
guardrails of the CHIPS and Science Act. Among its provisions. The final rule modifies the definition of “Legacy
Semiconductor” to include additional categories:
For the purposes of a semiconductor wafer facility: The definition includes a silicon wafer measuring 8 inches
(or 200 millimeters) or smaller in diameter and a compound wafer measuring 6 inches (or 150 millimeters) or
smaller in diameter.
For the purposes of a semiconductor fabrication facility: The definition includes a digital or analog logic
semiconductor that is of the 28-nanometer generation or older (i.e., has a gate length of 28 nanometers or more
for a planar transistor); a memory semiconductor with a half-pitch greater than 18 nanometers for Dynamic
Random Access Memory (DRAM) or less than 128 layers for Not AND (NAND) flash that does not use emerging
memory technologies, such as transition metal oxides, phase-change memory, perovskites, or ferromagnetics
relevant to advanced memory fabrication; and a semiconductor identified by the Secretary in a public notice issued
under 15 U.S.C. 4652(a)(6)(A)(ii).
For the purposes of a semiconductor packaging facility: the definition includes a semiconductor that does not
utilize advanced three-dimensional (3D) integration packaging.
The definition in the final rule excludes semiconductors critical to national security, as defined in § 231.118; a
semiconductor with a post-planar transistor architecture (such as fin-shaped field-effect transistor (FinFET) or gate
all around field-effect transistor); and a semiconductor utilizing advanced three-dimensional (3D) integration
packaging, such as by directly attaching one or more die or wafer, through silicon vias, through mold vias, or other
advanced methods. Only semiconductors utilizing advanced 3D integration packaging such as by directly attaching
one or more die or wafer, through silicon vias (TSV), or through mold vias (TMV) are not considered to be legacy
semiconductors.
Policy Implications and Issues for Congress
Congress has acted to provide almost $53 billion in support to sustain and boost U.S.-based
semiconductor fabrication capacity and U.S. competitiveness in the semiconductor industry.
Many U.S. allies and partners have long supported and subsidized their semiconductor industries,
and are again seeking to support their industries to maintain their competitive edge, revitalize
certain capabilities, and move into new areas. China arguably presents a unique and serious U.S.
policy challenge, as it is advancing rapidly across all segments of the supply chain and
technology levels, due in large part to the amount of state support and its market scale, as well as
through ties to industry, research universities, and open source technology in the United States
and U.S. allied countries.
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Congress laid out its legislative intent on this issue with the CHIPS Act of 2022. Given the
amount of money involved, the complexity of the semiconductor industry, the key role of global
supply chains, and the relative lack of U.S. government experience in industrial policy and
executing programs of this type, Congress might consider engaging in active oversight of the
implementation of this law. For example, Congress could engage regularly and actively in an
effort to understand implementation details as they are being shaped or announced. As Congress
oversees the implementation of the CHIPS Act of 2022, considerations include
Policy coordination and market competition among allies and partners
•
•
•
With regard to coordinated efforts with allies and partners, the U.S. government
is navigating tensions of both shared interests and market competition to ensure
that U.S. policy measures are effective. A key objective of the CHIPS Act was to
ensure U.S.-based fabrication to address advanced chip needs. Currently only
TSMC and Samsung produce chips at the most advanced nodes. U.S.-based
investment by these firms will likely be important as will advancing the
capabilities of existing and new U.S. firms. Some analysts have noted that
Europe will also need help from like-minded countries in Asia to realize its
policy objectives.185
In an effort to coordinate approaches to supporting the semiconductor industry, in
March 2022, the Biden Administration proposed a “Chip 4” alliance among the
United States, Japan, South Korea, and Taiwan to strengthen supply chain ties
and leverage the respective capabilities of each partner.186 In addition, the Biden
Administration has created a policy initiative to coordinate with India on
semiconductors and other technologies.187
Congress might assess progress and challenges in the Administration’s efforts to
work with U.S. allies and partners. Among issues Congress could consider are
whether U.S. efforts are consistent with the act’s direction to boost U.S.-based
capacity in semiconductor fabrication, U.S. advanced semiconductor capabilities
across the supply chain, and innovation. Among issues that have arisen are the
extent to which the U.S. government can assure U.S. and foreign companies that
it will protect their corporate secrets from being shared with competitors. Other
issues are outlined below in the discussion of economic effects and export
controls.
Economic and market effects and counter-effects
•
Congress gave the Secretary of Commerce significant discretion with regard to
programmatic activity and disbursement of funds, including which parts of the
supply chain or companies to prioritize and fund. Potential implementation risks
include spending or programs that do not sufficiently align to key goals,
programmatic waste, unintended or unforeseen market counter-effects, and a
failure to mobilize follow-on market activities that sustain or introduce new
investments and market activity in areas that the U.S. government seeks to
185 Arjun Kharpal, “Europe Wants to Become a Leader in Chips. But It’s Going to Need Help,” CNBC, February 10,
2022.
186 Dashveenjit Kaur, “Japan, US Join Forces to Stay Ahead in the Semiconductor Race,” TechHQ, August 2, 2022.
187 “Fact Sheet: United States and India Elevate Strategic Partnership with the initiative on Critical and Emerging
Technology (iCET),” Office of the White House, January 31, 2023.
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•
•
•
encourage. For example, there may be tradeoffs in prioritizing short-term over
long-term needs, or one market segment of the supply chain over another.
There is a risk that foreign governments will seek to outspend one another to
boost their industries and create serious market distortions in an industry already
susceptible to large market swings. There may be tradeoffs in favoring
established or new market players. A new government role may not necessarily
be as effective or efficient as market forces, and this new effort to rebalance
market and government roles may be hard to get right. Additionally, increased
government funding frees up some corporate capital with few conditions about
where and how firms will invest their own funds.
Congress might track new investment deals and patterns as well as market
effects. Congress could consider new measures that introduce an additional
market role. For example, Congress could consider whether to require or
incentivize matching corporate contributions among recipients of U.S.
government monies or seek other ways to pool or leverage private monies to
support its goals. In similar fashion, Congress might look to end user markets of
semiconductor chips to assess the extent to which Commerce’s allocation of
funds has addressed supply chain vulnerabilities and aligned with market
demand. Congress also might examine options to incentivize the use of U.S.
manufactured chips by particular end customers and industries, and incentivize
the development of production supply chains that use semiconductor chips
among allies and like-minded trade partners. For example, while the United
States has a large auto production base to use U.S.-produced semiconductor
chips, the information communications technology (ICT), consumer electronics,
and industrial electronics firms (e.g., data servers) do a great deal of production
offshore and may not necessarily be committed to using U.S.-produced chips and
developing such supply chains without additional policy measures. There may be
synergies as some consumer electronics production, for example, is shifting
outside of China to other markets, including Southeast Asia, India, and
Mexico.188
Congress might consider whether to require that U.S. policies to implement the
act explicitly seek to avoid counterproductive semiconductor subsidies
competition among allies and other friendly nations. With many countries
supporting increased semiconductor industry capacity, the United States and
others have shared interests in avoiding global overcapacity in the sector.
Congress could oversee the extent to which Department of Commerce and other
U.S. agencies are collaborating with allies and partners to ensure that respective
efforts are coordinated and mutually beneficial. Congress also might consider and
examine policy options to address potential future semiconductor overcapacity in
China. Following the U.S.-European Union Trade and Technology Council
(TTC) meetings in May 2022, both sides said that they would aim to avoid a
semiconductor subsidy competition by abiding by World Trade Organization
rules and setting “common goals for incentives granted in respective territories
188 For example, following a January 2023 agreement among the leaders of the United States, Canada, and Mexico, in
May 2023, the Semiconductor Industry Association and Arizona State University hosted the first North America
Semiconductor Conference, a new trilateral endeavor between the governments, academic institutions, and private
sectors of Mexico, Canada, and the United States that aims to create a more integrated semiconductor ecosystem in
North America. See Rina Pal-Goetzen, “North America Semiconductor Conference Meets in Washington to Advance
Ambitious Plan to Rebalance Supply Chain,” Semiconductor Industry Association Blog, May 19, 2023.
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•
•
•
and an exchange of information regarding such incentives on a reciprocal basis.”
This commitment appears to be quite broad and may be difficult to implement
without more specific policy efforts.
Given the number of governments offering semiconductor incentives, Congress
might also consider whether U.S. firms (and foreign firms) should be allowed to
accept, or be restricted from competing for, incentives from both the United
States and other countries, and how U.S. corporate investments overseas support
or detract from U.S. government supported-investments.
Congress might look to shape U.S. trade and foreign policies to more specifically
support the provisions and goals of the CHIPS Act. Congress might evaluate the
extent to which provisions in the act create the intended market effects, including
multiplier effects, in the U.S. market and more broadly across the global
semiconductor supply chain. Congress might consider whether to pursue new
measures to further incentivize market-based corporate activity. In this regard,
Congress might consider how to strengthen, shift, or develop new global supply
chains that align with the investments the U.S. government is making in the U.S.
semiconductor industry. For example, developing ICT and electronics production
in Mexico or Latin America might support the development of supply chains
centered on U.S. chip production that could sustain and create new drivers for
additional U.S.-based production.
Congress could assess what types and levels of government support for a
strategic industry such as semiconductors are effective and what types of current
or new plurilateral or global rules and principles should govern such investments.
Congress might also examine the ways in which governments’ support for
semiconductors are similar or diverge. For example, China’s policies stand out in
their requirements and incentives for foreign technology transfer and localization
and the use of state-funded acquisitions of foreign companies to gain capabilities.
Balancing, aligning, and leveraging industry and government expertise and goals
•
•
The use of a public-private partnership model to implement key parts of the
CHIPS Act, such as the formation of the National Semiconductor Technology
Center, leans on private sector leadership and goals.189 On the one hand, this
format helps ensure that industry expertise guides program development and sets
priorities. On the other hand, there may be risks that industry’s interests may not
be consistent with government goals, priorities, or requirements. Congress may
opt to consider mechanisms that ensure the alignment of these firms’ interests
with the interests Congress has expressed.
In this context, Congress might oversee how the executive branch considers
changes occurring within the industry and how technological and business trends
might affect U.S. programs and policies intended to promote and protect the U.S.
semiconductor industry. Congress might assess how agile current approaches are
in the event that adjustments are needed. Industry changes underway include the
use of new materials, open source technology platforms and architectures for
hardware and software, evolution of the fabless model, the trend toward smallernode chips, the creation and use of chiplets and system-on-chip (SoC) methods,
189 For more information on the National Semiconductor Technology Center, see CRS Report R47523, Frequently
Asked Questions: CHIPS Act of 2022 Provisions and Implementation, by John F. Sargent Jr., Manpreet Singh, and
Karen M. Sutter.
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AI applications, and the use of chips in a wider array of products and
applications.
National Security Guardrails
•
•
•
•
Congress might consider the extent to which current investment restrictions in
the CHIPS Act are adequate in general and to address specific concerns about
China or whether additional conditions and protections are needed to secure
federal investments and to help ensure intended outcomes. For example, while
the U.S. government is not restricting semiconductor technology at the 28 nm
node and above, PRC government policies incentivize investments in 28 nm node
chips, which are used in a wide range of popular commercial products (e.g.,
mobile phones and smart devices), as well as military systems. Congress may opt
to explore whether U.S. policy has left open a key semiconductor market
segment in which China can develop and advance with significant global market
effect. Congress might also assess to what extent U.S. export control policies, in
design and in practice, are aligned with CHIPS Act restrictions, and whether to
seek additional restrictions.
To what extent are existing restrictions on U.S. investment in China’s
semiconductor adequate to address U.S. national security concerns? To what
extent are additional conditions and protections needed to secure federal
investments and to help ensure intended outcomes? For example, while the U.S.
government is not restricting semiconductor technology at the 28 nm node and
above, PRC government policies incentivize investments in 28 nm node chips,
which are used in a wide range of popular commercial products (e.g., mobile
phones and smart devices), as well as military systems.
Congress might consider what the U.S. position on foreign collaboration in U.S.
semiconductor R&D should be, in light of potential competition and national
security concerns. Congress could examine whether current IP protections and
other provisions in the CHIPS program related to entities of concern are
adequate. Congress could determine whether there should there be closer R&D
partnerships with key allies and partners and, if so, under what conditions and
frameworks. Congress could determine the appropriate U.S. policy posture
regarding PRC ties and participation in U.S. basic and applied research related to
current and emerging semiconductor technologies and related fields.
In contemplating such provisions, Congress might opt to consider the lifecycle
and uses of a particular technology funded in whole or in part by the federal
government. Congress may also opt to consider any potential touchpoints for
China to access or obtain the know-how through the entire lifecycle of a
technology, from the initial research stage through commercialization. Relatedly,
Congress might consider whether China’s targeting of U.S. R&D capabilities and
its ability to leverage open source technologies merits additional U.S.
government oversight and controls.
In export controls, alignment and collaboration with key U.S. allies and trading
partners arguably is critical to prevent China from exploiting policy incongruity
toward semiconductor-related trade and investment. Government officials and
foreign firms are likely concerned that any restrictions on technology trade are
comprehensive and implemented consistently in practice to avoid scenarios in
which some firms are not restricted from certain trade while others are allowed to
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•
•
trade through licenses.190 U.S. policies will likely require or otherwise incentivize
other governments to respond in kind with U.S. aligned approaches or new
policies of their own.191 Some companies’ leaders have expressed concern that
such restrictions may result in lost market opportunities in China. There is a
question as to what extent companies are adjusting and creating new ways to
continue to operate in China in light of the new restrictions.192
In fall 2022, the Biden Administration announced new export controls on certain
advanced chips used commonly in AI applications and supercomputers, as well
as certain semiconductor equipment, software, and services for the production of
advanced chips in China. Additionally, the United States has reached an
agreement with the Netherlands and Japan to coordinate control of the export of
certain semiconductor equipment and other technologies to China. Congress may
opt to explore to what extent such controls will involve licenses or prohibitions
on exports, as well as how strong and comprehensive the provisions are with
regard to other types of chips and other parts of the supply chain that might
remain unrestricted or less restricted.193
Congress might explore whether to call for additional conditions or controls on
the export of U.S. semiconductor equipment, tools, and software, exports that
arguably play a critical role in advancing China’s fabrication capabilities. U.S.
sales of these items to China have increased nearly five-fold since 2014, when
the PRC government launched its national semiconductor policy. Congress might
consider whether to require the enactment of plurilateral controls and monitor
them in practice to ensure they are exercised as intended.
Author Information
Karen M. Sutter
Specialist in Asian Trade and Finance
Manpreet Singh
Analyst in Industrial Organization and Business
John F. Sargent Jr.
Specialist in Science and Technology Policy
190 “US likely to limit S. Korean production of advanced chips in China: US official,” Yonhap, February 24, 2023;
Gregory C. Allen and Emily Benson, “Clues to the U.S.-Dutch-Japanese Semiconductor Export Controls Deal Are
Hiding in Plain Sight,” CSIS, March 1, 2023.
191 Tobias Gehrke and Julian Ringhof, “The Power of control: How the EU Can Shape the New Era of Strategic Export
Restrictions,” European Council on Foreign Relations, May 17, 2023.
192 Stephen Nellis and Jane Lee, “Nvidia Tweaks Flagship H100 Chip for Export to China as H800,” Reuters, March
21, 2023.
193 Brad Glosserman, “High-Tech Tensions in the Japan-U.S. Relationship,” The Japan Times, November 8, 2022.
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Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
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under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
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Congressional Research Service
R47558 · VERSION 3 · UPDATED
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.