eu tackles reliance on chinese legacy chips
Brussels, Friday, 13 December 2024.
The European Union is taking strides to lessen its dependence on Chinese-made semiconductors, particularly legacy chips. These chips, although technologically simpler, are crucial as they make up about 75% of the global semiconductor demand and are used in diverse industries such as automotive and aerospace. China currently holds a significant 30% share of the market for these chips, far outpacing the EU’s 13% share. This disparity poses economic and strategic risks for the EU, especially highlighted by chip shortages during the pandemic. The EU’s approach now emphasizes reducing these dependencies by focusing on promoting and partnering strategies rather than just protective measures. This shift is part of the EU’s broader 2023 Economic Security Strategy aimed at diversifying its technological dependencies. As China plans to expand its production further, the EU faces a challenge in ensuring a stable supply chain for its industries.
Market dynamics and supply challenges
The European Union faces a critical supply gap in legacy semiconductor production. Projections show the EU will need an additional 12.7 million wafers annually by 2030, while current fab buildouts will only produce 4.5 million wafers per year [1]. This leaves a significant shortfall of 8.2 million wafers that must be imported. China’s dominance in this sector continues to grow, with Chinese fabrication facilities operating at nearly 80% utilization and the country expected to account for 40% of global planned expansion in legacy chip production by 2030 [1].
Strategic policy response
The EU’s approach to addressing these dependencies has evolved significantly. Rather than focusing solely on protective measures, the 2023 Economic Security Strategy emphasizes ‘promote’ and ‘partner’ initiatives [1]. This shift comes as export controls prove less effective against China in the legacy chip segment compared to advanced semiconductors [1]. The European Commission has launched an industry survey to gather data on legacy chip sourcing, though outcomes regarding data sufficiency remain uncertain [1].
Global context and export controls
The semiconductor landscape is increasingly shaped by geopolitical tensions. The United States has implemented stringent export controls targeting China’s semiconductor capabilities since 2022 [2], with updates in 2023 and 2024 addressing technical gaps and legal circumvention [2]. These measures have prompted international alignment, with Japan and the Netherlands joining the restrictions [2]. However, domestic political instability in key partner countries and China’s countermeasures, including critical minerals export restrictions, complicate the effectiveness of these controls [2].