The debate surrounding the EU’s announced punitive tariffs on Chinese EV imports now also concerns German companies in China. In a snap survey available to Table Briefings in advance, they have spoken out against the punitive tariffs. They do not see China’s current subsidies as unfair practices, as Joern Petring explains. After all, tax breaks for the purchase of EVs in China also benefit these foreign companies, as does subsidized electricity.
Three-quarters of companies in the survey stated that the overcapacity problem is real. However, instead of government subsidies being the main reason, they believe Chinese companies overestimated demand. Some economists share this view. That is why the German Chamber of Commerce in East China has called on Brussels to invest in its competitiveness rather than protecting the automotive industry with tariffs.
In today’s interview by Michael Radunski, US tech expert and author Chris Miller criticizes the fierce competition for the smallest and most powerful semiconductors between the US and China. He notes an escalation of the chip war in both countries – in terms of subsidies for their own industry and restrictions against their rivals, aiming to hinder their high-end developments. Miller believes the importance of older technologies – the so-called legacy chips – is underestimated. According to Miller, this also poses potential risks for the Western automotive industry and its supply chains.
In your fascinating book, you have proclaimed a “chip war” between China and the United States. So, how is the current situation on the battlefield?
It’s escalating, which only shows that semiconductors are central to the technology competition between China and the US. We have seen escalations on subsidies in both countries as they tried to develop the most advanced chips as well as escalations with regard to the restrictions that both have imposed, trying to limit the other’s development.
How far behind is China in the production of cutting-edge chips?
Well, there are a bunch of different ways you could try to measure it. In terms of manufacturing technology, the difference is not really between the US and China, but between Taiwan and China. TSMC, the leading Taiwanese firm, is around five years ahead of SMIC, the leading Chinese firm when it comes to manufacturing high-end chips. If you look at the design, it’s more difficult to have a clear benchmark as to how far ahead one country is over the other. But when you look at it across the supply chain, you see that China’s high-end semiconductors are still produced using largely imported tools from the US, Japan, and, most importantly, the Netherlands.
So, what is Europe’s role in all that?
Well, Europe’s most important role is obviously in the production of the lithography tools that are used to make chips. ASML remains the world’s only manufacturer of high-end lithography equipment. And its role becomes more important as the Dutch government has imposed restrictions on where ASML can sell these tools to. I thought it was striking when the Dutch Prime Minister met Xi Jinping last month.
Discussions focus on these high-end chips. However, you said that is the wrong focus.
Correct. We have get-all-around chips and we have legacy chips. And legacy chips are more important than many might think. Just look at the distribution of chips across the economy: The get-all-around chips are only used in high-sophisticated AI systems; this is still a very narrow area. However, most of the economy depends on the foundational chips, which are the chips that make all of our devices actually function: cars, smartphones, refrigerators or medical devices. But with regard to the current political tensions also rockets, drones and missiles.
In this context, you have warned Western governments to take a close look at China’s strategy. Why?
We should be concerned that China’s investments in these foundational chip production facilities have dramatically been going up. Today, most of the world’s foundational chips are produced either in the West or in Taiwan. But China is in the midst of constructing a very large number of new manufacturing facilities, which will have a meaningful impact on the markets.
What kind of impact?
Distorting effects. Questions of traditional trade concerns will be on the table as we have seen with solar panels or, recently, cars: Are these markets distorting? If so, what are the impacts on our firms? On whole industry sectors? There is also an economic security aspect to this debate as well.
Can you give us an example?
We should be concerned that if the Western manufacturing base becomes more reliant on components sourced from China, this could also give China political leverage, like it used to have with Taiwan, Korea, Australia, or Japan, where China restricted exports of certain materials in the past. The danger is that Western manufacturing becomes more vulnerable to that type of pressure. That is why policymakers should also look at legacy chips and China’s growing role in their production.
The automotive industry plays an essential role in Germany. The EU has just decided to impose extra tariffs on electric cars from China, and chips are an important part in all that.
Today, even Chinese-made cars still largely have Western chips inside them. But that’s changing. China just announced a target to produce 25 percent of the chips in Chinese-made cars domestically. That tells you that 75 percent of chips are still being imported from Western suppliers. But I think it’s clear where the change in the Chinese auto supply is headed: They want to produce more domestically and rely less on the West. Many types of chips used in autos are simpler. So, there is no reason why Chinese firms can’t produce them. The broad trend in China, which has had a fair amount of success in its effort to domesticate the production of these chips, is going to happen.
So, car industries need to be worried.
Not only car producers. That is a problem for all the suppliers of a lot of companies, too. If you look across the auto supply chain, not just the finished cars but also all the components that go in it, We are increasingly seeing China either catching up or, in the case of autonomous capabilities, overtaking legacy car producers. This is likely to be a new source of economic and political concern.
Germany spent a lot of money on bringing TSMC to Germany. The problem: TSMC will produce only twenty-two nanometer chips in Dresden. A waste of money?
I don’t think so. These chips might not be advanced enough to make a GPU processor for AI, but they’re perfectly advanced enough for many cars or industrial systems. And the European and German industrial base indeed needs a very, very large number of semiconductors of that caliber. It’s undeniable that Europe today is heavily reliant on imported components from Asia to power all the industrial systems and all the cars that make up the European factory base. That is a vulnerability. So, it’s entirely reasonable for Europe to boost its production of those types of chips.
What’s next in the semiconductor battle?
Because of the extraordinary investment in producing chips, China is going to be much more self-sufficient, close to self-sufficient, in the production of cutting-edge chips by the end of the decade. That also means China will be relying much less on Taiwan – and at the same time, the US is much more reliant on Taiwan than China. I think that could lead to a very destabilizing dynamic in the Taiwan Strait.
Chris Miller is the author of “Chip War: The Fight for the World’s Most Critical Technology,” a geopolitical history of the computer chip. He serves as Associate Professor of International History at the Fletcher School, where his research focuses on technology, geopolitics, economics, international affairs, and Russia. He received his PhD and MA from Yale University and his BA in history from Harvard University.
German companies in China are pushing for intensive talks between the EU and China to still prevent the introduction of punitive tariffs on electric cars. “It would also be a good idea for China to start negotiations with the European Union now to discuss where the problems lie and how they can be solved,” said Maximilian Butek, Managing Director of the German Chamber of Commerce in East China, on the occasion of a flash survey published on Monday (local time) on the business sentiment of German companies in China. “From an industry perspective, the worst outcome would be if these tariffs come into force,” Butek said.
Butek argued that the EU has the right to investigate subsidies for Chinese companies. However, German companies do not share the EU’s conclusion that the Chinese are engaging in unfair practices.
“In general, our companies do not complain about unfair subsidies in this area,” Butek explained. For example, the subsidies include tax incentives for the purchase of a new car, which are available to both foreign and local companies. Cheap electricity is also provided, from which everyone can also benefit. According to Butek, subsidies are also offered for rental costs and the purchase of land, which are also not limited to local companies.
The Chamber acknowledges clear overcapacity, which has also led to extremely low prices in other industries. However, it says that unfair state subsidies are not the main reason for this. “If you look at the cause of this overcapacity, it is essentially because companies have built up more capacity and demand has not been what they expected,” says Butek. “That’s why we now have these price wars.”
75 percent of the companies surveyed reported overcapacity in their sector. Almost all (96 percent) stated that this overcapacity affected their business. In addition, low prices are currently by far the biggest concern for companies, according to the Chamber survey. The ranking of their challenges is as follows:
However, Butek said he was convinced that the market would regulate the overcapacity itself. Ultimately, there will be consolidation. However, this is a medium-term effect that will not be resolved “within the next two to three years.” For German companies, this means persevering and, above all, becoming more innovative.
The Chamber recognized that Chinese companies have already become technology leaders in many areas. However, it added that this was not a surprise, but a transparent development over the last twenty years. The Chinese government and the private sector have invested strategically in research and development over the years, and these decisions are now bearing fruit.
According to Butek, the EU should respond to China’s innovative strength with strategic measures instead of taking protectionist measures such as tariffs. The EU should invest in its own competitiveness instead of protecting the automotive industry with tariffs. Specifically, he mentioned, for example, cutting red tape, solving the labor shortage through integration and education, and more support for research and development activities.
The Chamber’s flash survey also revealed other findings:
The Chamber clearly demanded that the EU should not erect any new barriers to Chinese companies. However, it also said that China must do more to ensure fair competition. “From the political side, German companies need fair competitive conditions and a transparent legal environment in China,” said Clas Neumann, Chairman of the Board of the German Chamber of Commerce in East China, reiterating the long-standing position of German companies.
Are you fenced in at work by folders and filing cabinets, grazing on bland lettuce leaves from the canteen, watering yourself in the cramped coffee kitchen? Is your boss giving you a hard time with his strict schedules and miserable salary? Then it’s time you were let out to pasture again!
In modern Chinese, this is called 放羊 fàngyáng – to let the graze (from 放 fàng as in 解放 jiěfàng “release, free” and 羊 yáng “sheep” or “goat”). So letting the sheep out is a synonym for having a run or being able to let off some steam – for example, when the boss is out. Then, as we all know, the mice will play (or the sheep and goats jump around in the meadow). So forget about looming deadlines and everyday routines every once in a while and jump over lush green hills instead.
Incidentally, there are many other Chinese words that can be combined with the verb 放 fàng. For example, kites (放风筝 fàng fēngzheng “to fly a kite”) or firecrackers (放鞭炮 fàng biānpào, 放炮 fàngpào for short). If you want to really brag, you let off big firecrackers (放大炮 fàng dàpào), which figuratively means “to talk big.”
But you can also let the school and learning out in China, which is called 放学 fàngxué “school’s over.” Meanwhile, the working population likes to let the holidays “run free” (放假 fàngjià “taking a break, going on vacation”). And let’s not kid ourselves: Sometimes a little wind can blow through the office (放屁 fàngpì “to break wind, to fart”) or – even more unpleasant – a “cold wind” can spread (放冷风 fàng lěngfēng “to spread rumors”). At the ping pong table in the ping pong paradise of China, people sometimes “release some water” (放水 fàngshuǐ), i.e., they hold back and occasionally allow their vastly outmatched opponent a few grace points to make them look less bad. In short: you water down your own game.
The next time you have trouble falling asleep during your office nap, instead of counting sheep, why not expand your Mandarin vocabulary herd? To warm up, perhaps start by saying “yǎng yáng” a few times to loosen your lips. This means “to breed sheep” (again: 养羊 yǎng yáng). Provided you hit the notes correctly. Otherwise, it will erroneously become an “itch” (痒痒yǎngyang). But you were probably about to scratch your head in despair anyway.
A few more woolly vocabulary words that will definitely help you separate the sheep from the goats:
Verena Menzel runs the online language school New Chinese in Beijing.
The debate surrounding the EU’s announced punitive tariffs on Chinese EV imports now also concerns German companies in China. In a snap survey available to Table Briefings in advance, they have spoken out against the punitive tariffs. They do not see China’s current subsidies as unfair practices, as Joern Petring explains. After all, tax breaks for the purchase of EVs in China also benefit these foreign companies, as does subsidized electricity.
Three-quarters of companies in the survey stated that the overcapacity problem is real. However, instead of government subsidies being the main reason, they believe Chinese companies overestimated demand. Some economists share this view. That is why the German Chamber of Commerce in East China has called on Brussels to invest in its competitiveness rather than protecting the automotive industry with tariffs.
In today’s interview by Michael Radunski, US tech expert and author Chris Miller criticizes the fierce competition for the smallest and most powerful semiconductors between the US and China. He notes an escalation of the chip war in both countries – in terms of subsidies for their own industry and restrictions against their rivals, aiming to hinder their high-end developments. Miller believes the importance of older technologies – the so-called legacy chips – is underestimated. According to Miller, this also poses potential risks for the Western automotive industry and its supply chains.
In your fascinating book, you have proclaimed a “chip war” between China and the United States. So, how is the current situation on the battlefield?
It’s escalating, which only shows that semiconductors are central to the technology competition between China and the US. We have seen escalations on subsidies in both countries as they tried to develop the most advanced chips as well as escalations with regard to the restrictions that both have imposed, trying to limit the other’s development.
How far behind is China in the production of cutting-edge chips?
Well, there are a bunch of different ways you could try to measure it. In terms of manufacturing technology, the difference is not really between the US and China, but between Taiwan and China. TSMC, the leading Taiwanese firm, is around five years ahead of SMIC, the leading Chinese firm when it comes to manufacturing high-end chips. If you look at the design, it’s more difficult to have a clear benchmark as to how far ahead one country is over the other. But when you look at it across the supply chain, you see that China’s high-end semiconductors are still produced using largely imported tools from the US, Japan, and, most importantly, the Netherlands.
So, what is Europe’s role in all that?
Well, Europe’s most important role is obviously in the production of the lithography tools that are used to make chips. ASML remains the world’s only manufacturer of high-end lithography equipment. And its role becomes more important as the Dutch government has imposed restrictions on where ASML can sell these tools to. I thought it was striking when the Dutch Prime Minister met Xi Jinping last month.
Discussions focus on these high-end chips. However, you said that is the wrong focus.
Correct. We have get-all-around chips and we have legacy chips. And legacy chips are more important than many might think. Just look at the distribution of chips across the economy: The get-all-around chips are only used in high-sophisticated AI systems; this is still a very narrow area. However, most of the economy depends on the foundational chips, which are the chips that make all of our devices actually function: cars, smartphones, refrigerators or medical devices. But with regard to the current political tensions also rockets, drones and missiles.
In this context, you have warned Western governments to take a close look at China’s strategy. Why?
We should be concerned that China’s investments in these foundational chip production facilities have dramatically been going up. Today, most of the world’s foundational chips are produced either in the West or in Taiwan. But China is in the midst of constructing a very large number of new manufacturing facilities, which will have a meaningful impact on the markets.
What kind of impact?
Distorting effects. Questions of traditional trade concerns will be on the table as we have seen with solar panels or, recently, cars: Are these markets distorting? If so, what are the impacts on our firms? On whole industry sectors? There is also an economic security aspect to this debate as well.
Can you give us an example?
We should be concerned that if the Western manufacturing base becomes more reliant on components sourced from China, this could also give China political leverage, like it used to have with Taiwan, Korea, Australia, or Japan, where China restricted exports of certain materials in the past. The danger is that Western manufacturing becomes more vulnerable to that type of pressure. That is why policymakers should also look at legacy chips and China’s growing role in their production.
The automotive industry plays an essential role in Germany. The EU has just decided to impose extra tariffs on electric cars from China, and chips are an important part in all that.
Today, even Chinese-made cars still largely have Western chips inside them. But that’s changing. China just announced a target to produce 25 percent of the chips in Chinese-made cars domestically. That tells you that 75 percent of chips are still being imported from Western suppliers. But I think it’s clear where the change in the Chinese auto supply is headed: They want to produce more domestically and rely less on the West. Many types of chips used in autos are simpler. So, there is no reason why Chinese firms can’t produce them. The broad trend in China, which has had a fair amount of success in its effort to domesticate the production of these chips, is going to happen.
So, car industries need to be worried.
Not only car producers. That is a problem for all the suppliers of a lot of companies, too. If you look across the auto supply chain, not just the finished cars but also all the components that go in it, We are increasingly seeing China either catching up or, in the case of autonomous capabilities, overtaking legacy car producers. This is likely to be a new source of economic and political concern.
Germany spent a lot of money on bringing TSMC to Germany. The problem: TSMC will produce only twenty-two nanometer chips in Dresden. A waste of money?
I don’t think so. These chips might not be advanced enough to make a GPU processor for AI, but they’re perfectly advanced enough for many cars or industrial systems. And the European and German industrial base indeed needs a very, very large number of semiconductors of that caliber. It’s undeniable that Europe today is heavily reliant on imported components from Asia to power all the industrial systems and all the cars that make up the European factory base. That is a vulnerability. So, it’s entirely reasonable for Europe to boost its production of those types of chips.
What’s next in the semiconductor battle?
Because of the extraordinary investment in producing chips, China is going to be much more self-sufficient, close to self-sufficient, in the production of cutting-edge chips by the end of the decade. That also means China will be relying much less on Taiwan – and at the same time, the US is much more reliant on Taiwan than China. I think that could lead to a very destabilizing dynamic in the Taiwan Strait.
Chris Miller is the author of “Chip War: The Fight for the World’s Most Critical Technology,” a geopolitical history of the computer chip. He serves as Associate Professor of International History at the Fletcher School, where his research focuses on technology, geopolitics, economics, international affairs, and Russia. He received his PhD and MA from Yale University and his BA in history from Harvard University.
German companies in China are pushing for intensive talks between the EU and China to still prevent the introduction of punitive tariffs on electric cars. “It would also be a good idea for China to start negotiations with the European Union now to discuss where the problems lie and how they can be solved,” said Maximilian Butek, Managing Director of the German Chamber of Commerce in East China, on the occasion of a flash survey published on Monday (local time) on the business sentiment of German companies in China. “From an industry perspective, the worst outcome would be if these tariffs come into force,” Butek said.
Butek argued that the EU has the right to investigate subsidies for Chinese companies. However, German companies do not share the EU’s conclusion that the Chinese are engaging in unfair practices.
“In general, our companies do not complain about unfair subsidies in this area,” Butek explained. For example, the subsidies include tax incentives for the purchase of a new car, which are available to both foreign and local companies. Cheap electricity is also provided, from which everyone can also benefit. According to Butek, subsidies are also offered for rental costs and the purchase of land, which are also not limited to local companies.
The Chamber acknowledges clear overcapacity, which has also led to extremely low prices in other industries. However, it says that unfair state subsidies are not the main reason for this. “If you look at the cause of this overcapacity, it is essentially because companies have built up more capacity and demand has not been what they expected,” says Butek. “That’s why we now have these price wars.”
75 percent of the companies surveyed reported overcapacity in their sector. Almost all (96 percent) stated that this overcapacity affected their business. In addition, low prices are currently by far the biggest concern for companies, according to the Chamber survey. The ranking of their challenges is as follows:
However, Butek said he was convinced that the market would regulate the overcapacity itself. Ultimately, there will be consolidation. However, this is a medium-term effect that will not be resolved “within the next two to three years.” For German companies, this means persevering and, above all, becoming more innovative.
The Chamber recognized that Chinese companies have already become technology leaders in many areas. However, it added that this was not a surprise, but a transparent development over the last twenty years. The Chinese government and the private sector have invested strategically in research and development over the years, and these decisions are now bearing fruit.
According to Butek, the EU should respond to China’s innovative strength with strategic measures instead of taking protectionist measures such as tariffs. The EU should invest in its own competitiveness instead of protecting the automotive industry with tariffs. Specifically, he mentioned, for example, cutting red tape, solving the labor shortage through integration and education, and more support for research and development activities.
The Chamber’s flash survey also revealed other findings:
The Chamber clearly demanded that the EU should not erect any new barriers to Chinese companies. However, it also said that China must do more to ensure fair competition. “From the political side, German companies need fair competitive conditions and a transparent legal environment in China,” said Clas Neumann, Chairman of the Board of the German Chamber of Commerce in East China, reiterating the long-standing position of German companies.
Are you fenced in at work by folders and filing cabinets, grazing on bland lettuce leaves from the canteen, watering yourself in the cramped coffee kitchen? Is your boss giving you a hard time with his strict schedules and miserable salary? Then it’s time you were let out to pasture again!
In modern Chinese, this is called 放羊 fàngyáng – to let the graze (from 放 fàng as in 解放 jiěfàng “release, free” and 羊 yáng “sheep” or “goat”). So letting the sheep out is a synonym for having a run or being able to let off some steam – for example, when the boss is out. Then, as we all know, the mice will play (or the sheep and goats jump around in the meadow). So forget about looming deadlines and everyday routines every once in a while and jump over lush green hills instead.
Incidentally, there are many other Chinese words that can be combined with the verb 放 fàng. For example, kites (放风筝 fàng fēngzheng “to fly a kite”) or firecrackers (放鞭炮 fàng biānpào, 放炮 fàngpào for short). If you want to really brag, you let off big firecrackers (放大炮 fàng dàpào), which figuratively means “to talk big.”
But you can also let the school and learning out in China, which is called 放学 fàngxué “school’s over.” Meanwhile, the working population likes to let the holidays “run free” (放假 fàngjià “taking a break, going on vacation”). And let’s not kid ourselves: Sometimes a little wind can blow through the office (放屁 fàngpì “to break wind, to fart”) or – even more unpleasant – a “cold wind” can spread (放冷风 fàng lěngfēng “to spread rumors”). At the ping pong table in the ping pong paradise of China, people sometimes “release some water” (放水 fàngshuǐ), i.e., they hold back and occasionally allow their vastly outmatched opponent a few grace points to make them look less bad. In short: you water down your own game.
The next time you have trouble falling asleep during your office nap, instead of counting sheep, why not expand your Mandarin vocabulary herd? To warm up, perhaps start by saying “yǎng yáng” a few times to loosen your lips. This means “to breed sheep” (again: 养羊 yǎng yáng). Provided you hit the notes correctly. Otherwise, it will erroneously become an “itch” (痒痒yǎngyang). But you were probably about to scratch your head in despair anyway.
A few more woolly vocabulary words that will definitely help you separate the sheep from the goats:
Verena Menzel runs the online language school New Chinese in Beijing.
