U.S. Will Foil Interference in Semiconductor Market

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By Rossella Brevetti

Nov. 2 — The U.S. will not accept China’s “unprecedented state-driven interference” in the semiconductor industry that threatens U.S. companies, Commerce Secretary Penny Pritzker said.

The U.S. will make clear to China’s leaders at every opportunity “that we will not accept a $150 billion industrial policy designed to appropriate this industry,” she said in a speech at the Center for Strategic & International Studies.

Pritzker did not list any specific actions the U.S. would take against China but said that the U.S. would not allow any country to dominate the crucial semiconductor industry through non-market based state-intervention.

China announced a $150 billion package in 2014 to boost the share of Chinese-made integrated circuits in its market from 9 percent to 70 percent by 2025, Pritzker said.

The concern from the U.S. government and U.S. industry is that China's state-driven inference is a potential threat to the global semiconductor industry.

“Let me be clear: we will not allow any nation to dominate this industry and impede innovation through unfair trade practices and massive, non-market-based state intervention,” Pritzker said, adding that $150 billion is about half of all semiconductor sales last year. China also has attempted to acquire companies and technology based on government interests as opposed to commercial objectives, according to Pritzker. There have also been attempts by China to restrict access to its domestic market. “This unprecedented state-driven interference would distort the market and undermine the innovation ecosystem,” she said.

A U.S. industry representative told Bloomberg BNA that U.S. companies were looking for Pritzker to make a strong statement on the issue in advance of the U.S.-China Joint Commission on Commerce and Trade. The annual meeting is scheduled for the week of Nov. 21 in Washington, D.C., the source said.

President Xi Jinping is targeting the semiconductor industry for “indigenous innovation,” the source said, which is designed to create highly competitive domestic companies or “national champions” through government investment in state-owned and other enterprises. Such policies have the effect putting U.S. firms at a disadvantage.

The U.S. has launched World Trade Organization dispute cases against China in other sectors over discriminatory treatment favoring domestic over foreign companies. U.S. companies want Washington to take a hard line with Beijing on this technology as China represents 50 percent of global consumption of semiconductors, the source said, adding U.S. companies all too often feel compelled to cave to China’s demands to share intellectual property to defend their access to the Chinese market.

The U.S. semiconductor industry directly employs more than 250,000 workers. The industry ranks as the third largest source of U.S. manufactured exports. Companies in the semiconductor industry include Amkor Technology and Applied Materials. Many more companies, including General Motors, rely on semiconductors.

Supply Chain Study

China has used government resources to displace foreign companies in its domestic aluminum, steel and green technology markets, Pritzker said. The result has been depressed prices, job losses and significant damage to those industries, Pritzker said. “[I]t is imperative we take steps immediately to prevent a similar situation from unfolding in the semiconductor sector.”

China's “effort to move up the value chain should be the result of healthy competition and free and fair trade, not state-directed investments aimed at distorting global markets,” she said. Also, governments should not require technology transfer, joint-venture, or localization “as a quid-pro-quo for market access.”

The Obama administration will support the private sector in addressing challenges faced by the industry, Pritzker said. Among other matters, the President’s Council of Advisors on Science and Technology created a high-level working group that will release a report before the end of the administration on the challenges faced by the semiconductor industry. The report will also contain a blueprint for action by the next administration.

Commerce's Bureau of Industry and Security is working with industry on a study of the semiconductor supply chain. This will give Commerce more realistic assessment of the industry as policy solutions are developed, Pritzker said.

The Embassy of China in Washington, D.C., did not immediately respond to a request for a comment.

With assistance from Len Bracken.

To contact the reporter on this story: Rossella Brevetti in Washington at rbrevetti@bna.com

To contact the editor responsible for this story: Jerome Ashton at jashton@bna.com

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