China’s ailing chip sector needs more than state aid

China plans to expand to help developing countries face US export restrictions, but the fund can’t do much unless Chinese companies can break the cycle that stifles growth.

The government has set aside US$140 billion that may include subsidies for the purchase of domestically produced equipment, Reuters reported in December, possibly benefiting manufacturers such as China’s only semiconductor lithography specialist, Shanghai Micro Electronics Equipment Group (SMEE). The increasing export restrictions imposed by the United States on chipmaking technology prevent it from being used to create chips for applications such as intelligence that can be used by the Chinese military. But money alone is not enough to catch up with Western competitors who are on the front lines. SMEE and its regional partners mostly sell in-house chips and lack of exposure to high-end chip manufacturers such as Taiwan Semiconductor Manufacturing Co Ltd (TSMC) and Samsung Electronics Co Ltd in South Korea has made it difficult for them to solve engineering problems. himself. raise profit margins, industry officials and market observers said. “It prevents all the progress they make in R&D from going into mass production, and also prevents them from learning more tricks of the trade,” said Mark Li, China chip tracker at Bernstein.

SMEE did not respond to requests for comment. It’s hard to fix

Workers at SMEE and other Chinese companies in the region as pictured told Reuters that barriers to entry did not appear to be too high until supply chains became more global, engineering more complex and markets supported by companies such as the Dutch lithography giant ASML. Holds NV.

The management of SMEE – headed by a director from the state electricity company who founded the company in 2002 – had no experience in lithography, and the workers built their first machine by buying and learning how to use and read licenses and public documents, said a former SMEE engineer. . The company has successfully developed machines that can print circuits as small as 90 nanometers (nm) on silicon wafers – twenty years behind ASML. Nevertheless, it was hailed as a national breakthrough and won a local government award in 2018. SMEE hasn’t made much progress since, in part because of difficulties in getting equipment from overseas, the engineer told Reuters.

“Even if we would have built the machines, we would not have known how to care and maintain them,” said the engineer. Another former CEO of a Chinese chip manufacturer reported how, while working to master the etching process for 3D NAND Flash, the company was unable to achieve a crucial factor, namely channel spacing. or space size.

“We know what is needed to achieve this, but we are limited by the ability to create tools. Our American competitor has already solved this problem,” said the employee.

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