Global chip and semiconductor industry heavily reliant on Asia

19 April 2021 4 min. read
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Asia’s stronghold on the global semiconductor market has grown so strong that sanctions on China’s chip production have become a source of shortages around the world. Car production is being put on hold and tech companies are scrambling to get their supply. 

In scientific terms, semiconductors are materials – Silicon for instance – that can conduct electricity at high temperatures, unlike metals that lose their charge with heat.  In economic terms, they are used to produce chips for smart phones, computers, vehicles, televisions and digital cameras – among several products that sustain life and economy on a daily basis. 

As it stands, China occupies 15% of the global semiconductor production capacity – going on 24% in the next 10 years according to figures in the Financial Times. Powered by national stalwarts such as Samsung and the Taiwan Semiconductor Manufacturing Corporation (TSMC), South Korea and Taiwan are also strong contenders.

China dominates the global semiconductor market

In September last year, the US imposed sanctions on China’s semiconductor production – citing concerns that chips were being used for the military. The problem is that the US and other key markets lack production capacity to meet semiconductor demand, sparking a chip shortage globally with myriad economic repercussions.

An example is vehicles, which use chips for tech-powered production as well as services in autonomous vehicles. With a global shortage and prices shooting up, auto giants such as General Motors, Ford, Volkswagen and Toyota have had to scale down production. Over a million light vehicles could be affected early this year according to IHS Markit data.

Part of the problem is Covid-induced stockpiling, supply chain disruptions and extreme weather conditions across the US and Europe that prevented production. That said, the core of the issue is that China and other Asian economies simply hold the reins to global chip production. 

China has grabbed semiconductor market share from the US

Government incentives and cheap manufacturing have helped China capture the market from the US, which held 37% of global capacity back in 1990. Today, the US produces 12% of global semiconductors, while Europe – also a key producer three decades ago – now holds 9%. 

China is clearly the more attractive option for investors. A Boston Consulting Group (BCG) study with the US Semiconductor Industry Association – also from September last year – revealed that building and running a semiconductor production house in the US for a decade costs over 30% more than doing the same in China.

In fact, metal shafting facilities in China can be set up at half the price of the US – all owing to government support. More FT figures: well over 80 semiconductor projects have been launched via foreign direct investment (FDI) in China since 2015 – compared to 45 in the US, 37 in India, 36 in the UK and 29 in Taiwan. 

Asia edging ahead in the global auto market

With high costs and low capacity, the US is years away from semiconductor self-sufficiency. Apple’s chip supplier Qualcomm has been struggling to meet demand, while other global companies are turning to Samsung and TSMC following the sanctions. Last week, the Biden administration proposed a $50 billion package to boost semiconductor infrastructure in the US, which might help things along in the medium to long term. 

In the short term, Asia is strong, and getting stronger. Again, the auto market is a good touch point for broader trends. Serving high-growth markets such as South Korea and Japan, China is grabbing global auto market share from the US and Europe – which supply Mexico and Eastern Europe respectively.

The FT highlights East Asia’s rising automotive battery production – signaling a future stronghold on electrification as well. With a steady stream of semiconductors and a dominant position in automotive, Asia is well positioned to control global supply chains in the near future.