The confrontation with China extends far beyond the four-year border standoff along the Line of Actual Control (LAC). China’s pervasive challenge manifests itself across various domains, transcending the realms of land, maritime, and cyberspace. However, the true significance of this challenge lies in the realms of both traditional and cutting-edge scientific endeavours. China’s omnipresence in the scientific arena, encompassing both longstanding disciplines and emerging frontiers, demands our utmost attention and recognition.
The race for technological dominance between the United States and China extends far beyond the realms of cutting-edge advancements like artificial intelligence, quantum computing, and 5G networks. Amidst this high-profile rivalry, a crucial battleground is being overlooked – the legacy semiconductor industry. While the world’s attention is captivated by the latest technological marvels, a fierce contest is unfolding in the seemingly mundane realm of older semiconductor technologies. This lesser-known front could hold the key to securing a strategic advantage in the ongoing clash for technological supremacy between the two global powers.
While cutting-edge computer chips get most of the attention, the real unsung heroes are the older, larger transistor legacy chips. With transistor sizes of 14 nanometers and above, these trailing-edge or foundational semiconductors may not be glamorous, but they are absolutely essential. From cars to refrigerators, factory machinery to medical equipment, even military systems – legacy chips power the core functions of countless vital technologies. The research firm Rhodium Group aptly notes their pervasiveness is what makes them so critical. Sure, they lack the sizzle of the latest bleeding-edge processors, but these mature node chips are the dependable workhorses underpinning vast swaths of the global economy and national security infrastructures. Their importance cannot be overstated, even if they don’t get the spotlight.
The reliance of modern militaries on a consistent flow of semiconductor chips, even older and less advanced ones, was vividly highlighted during the ongoing conflict in Ukraine. Upon the capture of Russian military hardware, it was discovered that these systems were equipped with semiconductors salvaged from everyday household appliances such as dishwashers and refrigerators. This revelation serves as a poignant reminder that even the most technologically advanced armed forces are dependent on a steady supply of legacy chips, underscoring the critical importance of these components in modern warfare.
The global community must take notice of China’s assertive efforts to establish dominance in the critical semiconductor industry. Over the recent years, China has invested astronomical amounts of capital into the production of legacy chips, with the objective of attaining self-reliance and worldwide supremacy in this realm. In the year 2022, Chinese foundries secured an unprecedented 10 per cent share of the global market for the first time. Projections indicate that by the year 2027, China is poised to command a staggering 39 per cent of the legacy chip market, a feat that can only be described as remarkable.
The rapid expansion of China’s semiconductor industry is propelled by a tidal wave of government subsidies. These financial injections have enabled Chinese firms to expedite their growth and undercut foreign rivals on pricing. This strategy bears an uncanny resemblance to China’s previous dominance in solar panels and 5G infrastructure – inundating the market with low-cost, subsidised products until competitors are forced out of the arena. Seasoned industry analysts sound the alarm bell, cautioning that Chinese legacy chip manufacturers could replicate this playbook, rendering the rest of the world alarmingly reliant on China for these indispensable components.
The drive to bolster China’s semiconductor prowess is spearheaded by Semiconductor Manufacturing International Corporation (SMIC), the nation’s preeminent chipmaker. Backed by billions in state funding, SMIC has leveraged this substantial financial backing to aggressively undercut competitors and rapidly expand its market share.
However, a more concerning aspect is SMIC’s deep-rooted connections with the Chinese military, as meticulously documented in a report by defense expert James Mulvenon. This alarming revelation raises the ominous prospect of the People’s Liberation Army gaining control over a critical segment of the global semiconductor supply chain, posing significant implications for the industry and geopolitical dynamics.
The Indian government’s ambition to establish a thriving semiconductor industry is faced with a formidable challenge posed by China’s relentless pursuit of dominance in the legacy chip market. While India has allocated a substantial $15 billion fund to construct new chip fabrication facilities, this investment pales in comparison to China’s staggering $40 billion state-backed fund. The Indian fabs will be entering an already oversaturated market, flooded with an abundance of inexpensive Chinese chips. As utilisation rates for legacy fabs plummet and profit margins shrink, the newly constructed Indian facilities will find it exceedingly arduous to remain competitive, even with governmental support.
China’s current and projected production capacity for legacy chips dwarfs that of India, with major facilities expected to commence operations by 2025-2026. The sheer scale of China’s integrated circuit (IC) output is staggering, having surged by an astonishing 40 per cent, reaching an unprecedented 98.1 billion units. When the numbers are scrutinised, it becomes evident that India faces an uphill battle in its endeavor to establish a formidable presence in the legacy chip market, given China’s substantial head start and unrelenting commitment to dominating this crucial sector.
The infiltration of Chinese-manufactured microchips into critical Indian infrastructure systems raises alarming national security concerns. Investigative reports have uncovered a disconcerting practice whereby more than a dozen Indian companies have been illicitly supplying the government with Chinese-origin microchips, in contravention of established procurement regulations.
The potential presence of these undisclosed Chinese components in automobiles, computing devices, and essential infrastructure networks represents a grave vulnerability that could potentially be exploited for nefarious purposes, such as unlawful surveillance or malicious sabotage operations. This apprehension is exemplified by the 2020 Mumbai blackout incident, which has been attributed to a security breach involving Chinese-built components integrated into the power grid’s systems.
India possesses certain crucial strengths that it can capitalise on in the quest to establish itself as a player in the legacy chip industry. The nation harbors a thriving ecosystem dedicated to chip design, which could be tapped into to engineer specialised semiconductors – a realm where China has encountered hurdles. These include analog chips and microcontrollers, intricate devices that have proven challenging for Chinese firms to manufacture effectively. Although these companies have managed to double their stake in the analog chip market since 2019, their progress has been hindered by the inherent complexities involved in the design of such components.
While large-scale manufacturing of commodity chips may seem like an alluring prospect, India’s true potential lies elsewhere. The nation should concentrate its efforts on the high-value design aspects of semiconductor technology, an area that could set it apart from the likes of China. Regrettably, the current approach appears to be misguided, exemplified by the Tata Group’s $11 billion fab project, which will primarily focus on assembly, testing, and packaging rather than the innovative design work that could truly differentiate India in the global semiconductor landscape. By prioritising cutting-edge design capabilities, India could carve out a niche for itself, leveraging its intellectual capital to establish a unique foothold in this crucial industry.
To effectively mitigate the risks posed by Chinese dominance in the semiconductor industry and safeguard its supply chain, India must adopt a comprehensive and proactive approach. Foremost, a stringent ban on the use of Chinese-manufactured chips in critical infrastructure and government systems should be implemented, extending to contractors as well.
Furthermore, a robust monitoring regime must be established to trace the origin of every chip entering the country, encompassing details such as the product, company, and manufacturing location. This is crucial for customs authorities to gain visibility into the chip’s provenance, including the fabrication facility, ownership, and design origin, thereby enabling effective enforcement of restrictions.
Currently, the government lacks insight into the source of chips in imported goods, a concerning blind spot that necessitates immediate attention. Moreover, targeted export controls on chip design software and manufacturing equipment should be implemented in close coordination with the US and EU, with the aim of slowing China’s progress in this domain.
Concurrently, the Indian government should augment its support for domestic chip design and specialised manufacturing, focusing on areas where the country enjoys a competitive edge and China has faced challenges, such as analog chips and microcontrollers. Additionally, a long-term plan should be formulated to develop local suppliers for semiconductor-grade materials, equipment, and components, as these upstream chokepoints are equally essential as the fabrication facilities themselves.
The significance of maintaining control over the legacy chip market cannot be overstated. While these chips employ older technologies, they form the indispensable bedrock upon which the contemporary world is built. Surrendering this market to China would deal a catastrophic blow to both economic competitiveness and national security interests. However, should India navigate this situation adroitly, an opportunity presents itself for the nation to forge a lasting legacy of its own within this crucial domain.
(The writer can be reached at dipakkurmiglpltd@gmail.com)
