Chips splurge dismissed as a lost cause

The US Senate on Wednesday approved a bill that will provide $52 billion in subsidies to domestic semiconductor manufacturers in an effort to counter competition with China, but many industry observers say it won't work.

By a 64-33 vote, the chamber passed the CHIPS and Science Act, formerly known as the CHIPS Act. The subsidies of around $52 billion to chip companies are aimed at encouraging chipmakers to set up production plants in the US.

The bill will head to the House of Representatives, where it is likely to pass this week, and then on to President Joe Biden for his signature before it becomes law.

China's Foreign Ministry spokesman Zhao Lijian said on Thursday that China firmly opposes the Act as it includes clauses that limit normal science and technology cooperation between China and the US.

"It's the US' own business how it develops itself, but the US should not obstruct normal China-US exchanges and cooperation in science, technology and culture, even less should it deprive China of, or undermine, its legitimate development rights and interests," Zhao told a daily news conference.

Bilateral science and technology cooperation benefits both countries, and is helpful for the shared progress of humanity, Zhao said, adding that limitations and decoupling will harm not only others but also the US itself.

"In the meantime, China has insisted on basing its national development on its own strength. Any limitation or crackdown will not stop the development of China's science, technology and industries," Zhao said.

In response to the passage of the bill, George Koo, a retired international business adviser in Silicon Valley, told China Daily: "I see two challenges. Fifty-two billion dollars for semiconductor investments will move the needle, but barely."

Industry experts have said that the funding is far from enough to bring back chip manufacturing to the US, given the expense and complexities of building a semiconductor foundry, which costs almost $20 billion.

"And the added question is whether the United States still has the required skills after being dependent on offshore manufacturers for decades. Lack of the necessary technical skills can't be fixed in an instant," Koo said.

The legislation, in addition to the chip-sector subsidies, will provide $81 billion to the National Science Foundation along with generous tax credits for investments in semiconductor manufacturing.

Advocates of the bill have been promoting it as a solution for a global shortage of chips that has caused price hikes and supply chain disruptions in several industries. But critics say it won't solve the problem because the chip factories won't be completed for years, and the demand for chips has already slowed.

The US share of global semiconductor manufacturing capacity has been declining in recent decades－from 37 percent in 1990 to 12 percent today.

Manufacturing moved out of the US because of lower costs in Asia. The costs of owning a new chip factory in the US are roughly 30 percent to 50 percent higher than in Asia, according to the Semiconductor Industry Association.

The decline in domestic chip manufacturing has spurred calls for legislation to bring chip production back to the US and bolster the competitiveness of the US semiconductor industry.

Senator Bernie Sanders has called the legislation a "bribe" and has argued that chip companies are, in effect, extorting US taxpayers.

'Corporate welfare'

Senator Ron Johnson, who voted against the bill, called the package "more corporate welfare".

Included in the CHIPS and Science Act are provisions that would prohibit companies from building most types of new semiconductor manufacturing facilities in China "or any other foreign country of concern" for a decade after receiving federal funding.

The administration of Donald Trump started export controls on chips and chipmaking equipment three years ago to try to contain China's development. The Biden administration is considering new steps to prevent China from buying chipmaking equipment.

"The Biden administration's belated attempt to suppress China's semiconductor industry appears to have backfired. China has found workaround technologies that bypass the aging American IP that Washington has embargoed," David Goldman, a columnist for Asia Times, wrote in a recent article.

Koo takes a similar view. "The Biden administration and the US Congress remain convinced that the way to suppress China from making economic progress is to deny it access to American technology and know-how," he said.

Wang Qingyun in Beijing contributed to this story.