1. Lessons for Europe from China’s quest for semiconductor self-reliance
- Author:
- Alicia Garcia-Herrero and Pauline Weil
- Publication Date:
- 11-2022
- Content Type:
- Policy Brief
- Institution:
- Bruegel
- Abstract:
- Semiconductors are a critical input to production of information and communication technology and many other goods. The major economies want to be able to produce chips at home to avoid excessive dependence on supply chains in an increasingly unpredictable world, where trade is being compromised because of national security concerns. China was first in terms of timing and scale of funding to support its its semiconductor industry. Since 2015, China has spent $150 billion upgrading its semiconductor industry. Success, however, has been limited. China’s massive industrial policy effort has been most successful in increasing capacity for assembly of chips, though that is also the least value-added part of the semiconductor supply chain. Progress on chip design and fabrication in China remain underwhelming. The United States has also started implementing its $50 billion package to support the production of chips. The European Union, meanwhile, has not yet fully finalised its main semiconductor initiative, the European Chips Act. China’s experience offers a number of lessons. First, chip fabrication requires massive fixed asset investment and, therefore, large subsidies, but with no guarantee of success. Second, one reason for the underwhelming results of China’s semiconductor policy is US containment, through export controls and other measures. In this respect, the EU should find it easier than China to upgrade its chips industry but, given the costs, focusing on the highest-end part of the supply chain would be the best approach. Assembly and production of lower-end semiconductors already face overcapacity, given the financial resources already invested by China.
- Topic:
- International Relations, European Union, Economy, Trade Policy, and Semiconductors
- Political Geography:
- China and Europe