Why China Poses a Threat to the U.S. Semiconductor Market

January 6, 2017, 6:52 PM UTC
Applied Materials 300mm Wafer Manufacturing Plant
Technicians monitor a machine that manufactures 300mm silicon wafers at the Applied Materials Inc. Maydan Technology Center in Santa Clara, California, U.S., on Thursday, Sept. 1, 2011. Applied Materials Inc. develops, manufactures, markets, and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Photographer: David Paul Morris/Bloomberg via Getty Images
Photograph by David Paul Morris — Bloomberg via Getty Images

A blue-ribbon presidential panel on science recommended on Friday that the United States take steps to defend its dominance of the high-end semiconductor market against a stiff Chinese challenge.

The report follows plans by China to use a massive, $150 billion government investment in its semiconductor industry to expand the share of Chinese-made integrated circuits in the domestic market from its current 9 percent. Semiconductor chips are used in everything from computers to automobiles.

The President’s Council of Advisors on Science and Technology said the United States needed new tools to ensure China did not replace the United States as the leader in making high-end semiconductors that are key to national defense.

The report urged policy-makers to “respond forcefully” if Chinese economic policies, such as subsidies aimed at building Chinese expertise in semiconductors, limit the access of U.S. companies or thwart U.S. exports.

“The main goal here should be to deter dangerous Chinese actions,” the report said.

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Tools that could be used include the Committee on Foreign Investment in the United States (CFIUS), an inter-agency panel led by the Treasury Department that assesses Chinese investment to ensure it does not harm U.S. national security, the panel said.

Concern about China is one of the few areas where the administration of President Barack Obama and President-elect Donald Trump’s incoming team appear to agree.

In November, U.S. Secretary of Commerce Penny Pritzker said the United Stated would not accept China’s “$150 billion industrial policy designed to appropriate this industry.”

Under Obama, CFIUS stopped a series of Chinese acquisitions of high-end chip makers. Last month, he upheld a recommendation by CFIUS to block Aixtron’s 670 million euro ($717 million) sale to Fujian Grand Chip Investment Fund over national security concerns.

Last January, CFIUS prevented the sale by Philips of its U.S. lighting business to GO Scale Capital, made up of GSR Ventures, Oak Investment Partners, Asia Pacific Resource Development, and Nanchang Industrial Group.

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