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China’s efforts to boost its domestic semiconductor industry may be bad for the U.S. sector, a White House semiconductor working group said in a Jan. 6 report.
“Semiconductor innovation is already slowing as industry faces fundamental technological limits and rapidly evolving markets,” John P. Holdren, assistant to the President for Science and Technology and co-chair of the President’s Council of Advisors on Science and Technology (PCAST), said in a letter accompanying the report. “Now a concerted push by China to reshape the market in its favor, using industrial policies backed by over one hundred billion dollars in government-directed funds, threatens the competitiveness of U.S. industry and the national and global benefits it brings.”
U.S. semiconductor companies account for half of global sales, according to the report. Companies such as Intel Corp. and Qualcomm Inc. have pushed the technical bounds of semiconductor innovation in the $300 billion market, according to Bloomberg News. U.S. exports of semiconductors to China totaled $6.93 billion in 2015, according to a Dec. 21 Congressional Research Service report.
The White House issued the report, including several recommendations to counter Chinese policies, two weeks before President-elect Donald Trump is set to take office. Although Trump is expected to reverse course in other areas, he has already signaled he would take a tough stance against China. Trump’s transition team didn’t immediately respond to a request for comment.
Semiconductors are used in a wide range of technology products, from cellular phones to self-driving cars. They are also critical to U.S. defense systems when it comes to mitigating cybersecurity risks, according to the PCAST report.
The Semiconductor Industry Association, whose members include Intel, Qualcomm and IBM Corp., welcomed the report. “Semiconductors form the very foundation of America’s innovation infrastructure, enabling modern technologies critical to U.S. economic growth, national security, and global competitiveness,” SIA President and CEO John Neuffer said in a statement Jan. 6. “The new PCAST report highlights the strategic importance of our industry and the significant challenges it faces, including the rising cost and complexity of innovation and challenges from competitors abroad.”
The PCAST, an advisory group appointed by President Barack Obama, created the semiconductor working group in October 2016 to address the challenges of the industry.
China released a plan in 2014 to boost its domestic semiconductor industry so that it can rely less on U.S. and foreign suppliers. As of March 2016, the Asian nation had invested 43 billion RMB (6.61 billion USD) in expanding that industry, according to the CRS report. China has relied on subsidizing investment, encouraging domestic customers to buy only from Chinese suppliers, forcing transfer of technology for access to the Chinese market and stealing semiconductor technology trade secrets, the PCAST report alleged. A Chinese commerce agency, the State Administration for Industry and Commerce, didn’t immediately respond to a request for comment.
The PCAST said in its report that the U.S. should focus not on slowing China down, but on sustaining U.S. innovation. China will inevitably advance in semiconductors, regardless of U.S. progress, the PCAST said. The U.S. should focus on leading-edge technology, avoid copying Chinese policies and oppose Chinese actions that violate open trade and investment rules, the report said.
The group recommended that the administration explore a number of options: including creating a standing committee of industry experts and expanding STEM education investments. It also recommended selecting “moonshot” initiatives to accelerate innovation in ways that will have “society-wide benefits.”
“Ultimately, to maintain a strong and global competitive semiconductor industry, the United States needs an economic and policy environment that fosters innovation and keeps the U.S. industry at the technological frontier,” the PCAST said in its report.
But Mark A. Leahy, a partner at Fenwick & West LLP in Mountain View, Calif. who advises technology companies in the semiconductor and software industries, told Bloomberg BNA Jan. 6 that the PCAST’s recommendations could hamper U.S. semiconductor development. They could lead to tougher restrictions on Chinese investments of U.S. semiconductor companies, making it more difficult for those companies to build their businesses, he said.
“Discouraging investments from China could result in less sources of capital in the semiconductor space,” Leahy said.
To contact the reporter on this story: Alexis Kramer in Washington at aKramer@bna.com
To contact the editor responsible for this story: Keith Perine at firstname.lastname@example.org
Full text of the report at http://src.bna.com/lcU.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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