US government needs more balanced perspective on semi manufacturing investment in China, says report

July 22, 2005 – The US-Taiwan Business Council’s most recent report says the US government needs a more balanced perspective on semiconductor manufacturing investment in China. “Semiconductor Report – Second Quarter 2005” is the latest in a series of quarterly reports examining emerging trends in the integrated US-Taiwan-China semiconductor industry.

The number of new semiconductor fabs being built in the US is on a steady decline, while China and Taiwan are seeing remarkable growth. In fact, SEMI recently projected that China will add 20 new wafer fabs between 2005 and 2008. In 2004, China and Taiwan were the world’s fastest growing markets for chipmaking equipment, with 132% and 166% growth respectively, while North America was the slowest at 23%.

“The result of this manufacturing gap, and in particular the rising scale of investment in China’s semiconductor industry over the past several years, has prompted an increasingly cautious US government response and has fueled concerns that growing overseas chip production could be detrimental to the US economy, US national security, and the US semiconductor industry,” said Council President Rupert Hammond-Chambers.

“Of course, the US should continue to support domestic chip production, but this must be done in conjunction with allowing greater access to Asia. What US policymakers are failing to take into consideration is the nature of the global semiconductor industry, where contract chipmaking by foundries in Taiwan and China is on the rise due to the exorbitant costs associated with owning and operating wafer fabs.

“The US has greatly benefited from the fabless business model, and is now the world’s leader in both chip design and chipmaking equipment. To remain competitive globally, US businesses cannot disregard factors such as favorable investment incentives and the value and cost-savings of having chipmaking in close proximity to electronics goods manufacturing – much of which is done by Taiwan businesses in China.”

Of primary concern to the US government is the ability to secure a steady supply of semiconductors to support US defense capabilities, and to limit China’s access to chip manufacturing and design technology that could potentially be used to challenge US security guarantees in Asia.

According to Hammond-Chambers, however, “Advocating overly strict technology controls would not reverse US dependence on Asia and emerging markets like China for semiconductors, and would only impede economic growth. The US should instead focus on encouraging sufficient domestic chip production through investment incentives, while at the same time working with its allies to formulate flexible overseas investment policies that balance national security concerns with global economic necessities.”


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