State money may not be enough to dull impact of US curbs on China chip sector

SHANGHAI: China plans to splurge to help its chip sector overcome US export curbs, but money can only do so much unless Chinese firms can break from a cycle that hinders innovation and traps them at the low end of the value chain, industry players said.

The government has earmarked $140 billion that could include subsidising the purchase of domestically produced chipmaking equipment, Reuters reported in December, likely benefiting manufacturers such as China’s sole semiconductor lithography specialist, Shanghai Micro Electronics Equipment Group (SMEE).

The outlay was in response to the United States increasingly tightening export restrictions of chipmaking technology for fear it could be used to produce chips for applications such as artificial intelligence which could be used by China’s military.

But money alone is not enough to catch Western rivals who are generations ahead. SMEE and local peers mainly sell to domestic chip foundries and the lack of exposure to advanced chipmaking facilities of the likes of Taiwan Semiconductor Manufacturing Co Ltd (TSMC) and South Korea’s Samsung Electronics Co Ltd has made it difficult for them to independently solve engineering problems and move up the value chain, industry workers and market watchers said.

“This prevents whatever advances they make in R&D from getting into mass production, and also limits them from learning more tricks of the trade,” said Mark Li, who tracks China’s chip sector at Bernstein Research.