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Geopolitics: China’s growing importance for the European chip industry

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Politicization of the chip industry reaches new dimensions

  • In 2022, no other technology has seen as much politicization as the semiconductor industry. In October, the US escalated tech competition with China by expanding its export controls to de facto freeze China’s semiconductor industry. ​
  • The US also pledged $52.7 billion to build up domestic manufacturing and made it official US policy to “maintain as large of a lead as possible” over China.​

Eyes on EU supply chain resilience plans

  • The EU has unveiled its own plan to invest €43 billion to support domestic manufacturing capacities. The declared goal is to make the EU less vulnerable to geopolitical shocks in East Asia and reduce the growing dependency on China.​
  • Looking back, China’s semiconductor ecosystem increased in importance for Europe both as a value chain step, especially for “assembly, test and packaging” (ATP), as well as an end market. ​
  • In 2022, the EU imported €6bn worth of integrated circuits (IC) from China. This position is likely to further increase as China is investing heavily in mature node chips, which will continue to be essential for several industries, e.g. automotive. ​
  • As an export market, China is also crucial for the EU, making up more than 1/3 of IC exports. Restricting chipmakers’ access to China’s market will significantly hurt their competitiveness.​

EU policy needs to perform balancing act

  • The EU will face increased pressure from the US to expand export controls as well. However, EU policymakers will have to balance their approach to supply chain resilience with maintaining an open Chinese market for EU chipmakers.​
  • If European controls tighten significantly, downstream customers could turn to a Chinese supply chain to sanction-proof their operations. This could significantly cut into the market shares of European chip firms and increase, rather than decrease, dependence on China.​

Sinolytics is a European research-based consultancy entirely focused on China. It advises European companies on their strategic orientation and concrete business activities in the People’s Republic.

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