China-Russia bonhomie ominous for India’s global chip making dream

New Delhi: As the US invests billions in local semiconductor manufacturing to end its dependence on China, the bonhomie between Chinese President Xi Jinping and his Russian counterpart Vladimir Putin can be seen as an effort by Beijing to somehow negotiate on raw materials needed in semiconductor manufacturing.

Russia and Ukraine are major producers of two key materials used in semiconductor manufacturing – neon and palladium.

Ukraine represents about 70 to 80 per cent of the global supply of neon, while Russia produces about 35 to 45 per cent of the world’s palladium supply.

For many years, chip manufacturing has been consolidated in Southeast Asia and China.

However, in recent days, India and the US have come closer to establishing a semiconductor supply chain and innovation partnership under the framework of India-US Commercial Dialogue.

China, which is the leader in chip manufacturing, is wary of the changing dynamics and is keen to explore new avenues to continue holding its leadership position in the global semiconductor industry.

The China-Russia summit, according to experts, can be one such attempt to control the raw material supply to nations which align with the US Chips Act and are investing hugely in the country.

Washington’s Chips and Science Act and its requirements for companies receiving incentives are likely to put South Korean chipmakers’ ability to navigate business uncertainties and balance between the US and China to the test.

The Biden administration has announced conditions for subsidies under the $53 billion act, designed to revitalise the American chip industry, secure supply chains and keep China’s technology advances in check.

According to Global Times, South Korea’s semiconductors export to China, its largest trade partner, almost halved in January, impacted by the US’ stepped-up chip war against China.

The Ministry of Trade, Industry and Energy said that South Korea’s exports in January fell 16.6 per cent year-on-year to $46.3 billion. Chip sales, the country’s top export item, plunged 44.5 per cent to $4.8 billion.

However, Chinese experts said South Korean chipmakers can’t afford to lose the massive Chinese market.

The South Korean ministry has said it will continue to closely consult with the US government to relay South Korean chipmakers’ concerns and positions on the issue.

Samsung Electronics and SK hynix, the world’s two largest memory chip makers, have significant semiconductor manufacturing operations in China, with Samsung producing some 40 per cent of its NAND flash and SK hynix manufacturing about half of its global DRAM chips in China.

In the US, Samsung is building a $17 billion chip facility in Taylor, Texas, and SK hynix has said it planned to select a site for a semiconductor packaging plant there in the first half.

However, being squeezed between the intensifying US-China tech rivalry is nothing new for the two chipmakers, according to Yonhap news agency.

Last October, Washington announced a set of measures that restrict exports of advanced semiconductor manufacturing equipment to companies in China.

The sweeping export curbs, among other things, demand companies receive a license for equipment exports to Chinese firms that make advanced chips, such as DRAM chips that are 18 nanometers (nm) and below, NAND flash chips with 128 layers or more, and logic chips 14 nm and below.

The two firms then received a one-year waiver from the US government through close consultation and discussion with Washington.

India, which is a close ally of Russia, has also embarked upon a semiconductor manufacturing journey and wishes to become a global chip hub.

Ashwini Vaishnaw, Minister for Electronics, Railways and Telecom, said this month that the government is focused on strengthening the semiconductor industry for India.

“We are talking to all stakeholders in the semiconductor industry. It’s a new industry and an uphill task, but we are committed to do what is needed,” he said while addressing the CII Partnership Summit.

“We should see a vibrant semiconductor industry in the next three to four years,” the minister added.

The Indian government has approved Rs 76,000 crore ($10 billion) to attract investments in the field of semiconductors and display manufacturing.

Vedanta and Foxconn recently signed a Memorandum of Understanding (MoU) with Gujarat government to invest Rs 1,54,000 crore to set up India’s first semiconductor and display manufacturing plant.

As India and the US double down on local semiconductor manufacturing, the municipal government of Guangzhou in China has invested 200 billion yuan ($29 billion) to establish funds that will help spur activities involving semiconductors.

With the recent supply chain issues in the chip market due to the Russia-Ukraine war, and now a China-Russia summit, India needs to play its diplomatic cards well in order to become a global chip manufacturing hub.

–IANS

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