China investigates whether CHIPS and Science Act harms its chip companies

The Chinese Ministry of Commerce (MOFCOM) announced it has received complaints from domestic companies about unfair subsidies provided by the Biden administration to U.S. chipmakers under the CHIPS and Science Act, reports state-owned GlobalTimes. As a result, China launched an investigation into U.S. government subsidies, claiming they harm Chinese chipmakers that produce chips on mature process technologies, Reuters reports. 

The Chinese Ministry of Commerce alleges that subsidies under the CHIPS and Science Act, which allocated $52.7 billion for U.S. semiconductor production, research, and workforce development, give American companies an unfair edge. These subsidies reportedly allow U.S. chipmakers to export mature node chips to China at reduced prices, undermining Chinese competitors. 

While the aim of the CHIPS and Science Act was to bring back production of logic and memory chips on leading-edge nodes back to the U.S., the U.S. government awarded billions of dollars to companies that produce chips on specialty or mature process technologies. The list of such companies is not too long and includes contract chipmakers GlobalFoundries and SkyWater Technologies, as well as integrated device manufacturers Microchip, Polar, and Texas Instruments. While there are makers of GaN, SiC, InP semiconductors which received subsidies, the objections cited by GlobalTimes and Reuters only mention 'mature node chips.' 

To get subsidies from the U.S. government, companies must invest millions or billions from their own pocket, therefore  they don't really cut down their CapEx budgets (which could allow them to reduce costs and lower prices). So it's unclear whether the allegations of MOFCOM have merits. However, the U.S. government's subsidies are aimed to make American chipmakers bigger and more competitive in general. 

This is not something that China likes as the country has built and continues to build dozens of fabs that are focused on making chips on 28nm-class process technologies and less-advanced nodes. Most, if not all, of these fabs are constructed with significant subsidies from the Chinese government. Chips made on mature nodes tend to be very cheap, but they are essential for everyday products like home appliances and communication devices, so their addressable market is vast. 

Last year, Barclays predicted that China could expand its chip production capacity by 60% over the following three years, and the vast majority of this capacity will be dedicated to mature nodes. China is certainly interested in ensuring that those fabs have enough customers as it aims to flood the market with cheap chips designed to replace equivalents made in Europe and the U.S.