Why China opposes the US’ FABS and CHIPS act?

• Regarding the CHIPS act, US lawmakers are meant to meet today to open formal negotiations on a compromise measure that would fund US$52 billion in semiconductor manufacturing subsidies
• The US senators reckon that China doesn’t want them to pass this bill despite the latter investing heavily themselves in their local semiconductor industry

The United States (US) lawmakers are expected to negotiate on two similar and massive semiconductor-related bills today to enable a resurgence of chip manufacturing in America. The Bipartisan Innovation Act, a combination of the CHIPS and FABS Act, is apparently opposed by China, as the motive is to improve the US’s competitiveness against them. Washington is in fact claiming that Beijing has been lobbying US officials to fight against this alongside certain other bills in Congress.

As reported recently, the US House and Senate lawmakers are initiating formal negotiations today, on the compromise measure that would fund US$52 billion in semiconductor manufacturing subsidies and boost US competitiveness with Chinese technology. It could, however, take months to reach a final deal.

Based on a Reuters report, US Commerce Secretary Gina Raimondo has emphasized that China is fighting the attempts in Washington because it fears a more competitive US punch. In fact, Beijing had been apparently pushing US executives, companies and business groups to fight against any China-related bills in Congress.

“It doesn’t surprise me at all. China doesn’t want us to pass this bill. They know that this bill will enable us to outcompete them,” Raimondo said, adding that even China had invested a substantial amount (US$160 billion) in domestic semiconductor production. “The last thing they want is for us to invest US$52 billion.”

For context, the US negotiators will have to hash out the differences between the House and Senate versions of major legislation to compete with China: the Senate’s US Innovation and Competition Act (USICA) and the House’s America Competes Act. Both bills appropriate US$52 billion to fund the Chips for America Act and reshore the semiconductor industry back to the States, but only the House bill includes critical provisions to provide the talent necessary to make sure these federal investments actually pay off.

Then there is the FABS Act — an important complement to the manufacturing incentives and research investments in USICA and America COMPETES. The bipartisan legislation passed earlier this year would establish an investment tax credit to incentivize semiconductor manufacturing, design, and research in the US.

Even Semiconductor Industry Association’s (SIA) president and CEO John Neuffer, said in a March statement that “Coupled with funding the CHIPS Act, enactment of a tax credit for semiconductor manufacturing and design as set forth in the House’s FABS Act are parts of a complementary, holistic strategy — and both are needed to produce robust, predictable, and durable incentives to restore US semiconductor leadership. We urge leaders in Congress to swiftly enact the bill and fund the semiconductor manufacturing incentives and research provisions in the CHIPS Act.”

China’s attempt to slow down the bills has been apparent for months, as a November Reuters report stated that China’s embassy in Washington had sent letters pressing executives to urge members of Congress to alter or drop specific bills that seek to enhance US competitiveness. To top it off, Chinese officials even warned companies they would risk losing market share or revenue in China if the semiconductor bill becomes law.

According to the SIA, the modern semiconductor manufacturing market share in the US  has fallen from 37% in 1990 to only 12% today. If no investments are made, this is likely to fall even further over the next decade — partly the reason why industry leaders like Intel’s CEO Pat Gelsinger and even President Joe Biden urged for the bill to be completed as soon as possible.

“We’ve already wasted several quarters since the Senate acted last year, and now it’s time for us to move forward rapidly,” Gelsinger said recently. Without the funding, Intel would continue to build out new fabs in Arizona and Ohio, Gelsinger added, but the expansion would take longer, and it wouldn’t be as comprehensive.

“The CHIPS Act is intended, from my perspective, to enable me to go bigger and faster than the bold commitments that we have already made that have received very negative responses from Wall Street,” he said. “We want to do more and faster. This is all about restoring US [competition], bringing back this mantle from Asia on a critical industry, not only for our economy but also our national security.”

Biden on the other hand is urging legislators to “pass the damn bill and send it to me”. He added that the sum will encourage semiconductor companies to build facilities in the US and help prevent the types of chip shortages that currently undermine the automotive and electronics industries. It’s going to help “strengthen our economic and national security,” Biden said. “It’s no wonder the Chinese Communist Party is literally lobbying — paying lobbyists — against this bill passing.”

Even the CEO of Micron Technology Sanjay Mehrotra echoed his support for the CHIPS for America Act but also urged Congress to pass refundable tax credits for the industry that he said would help the US be more competitive versus subsidies and tax incentives offered in fab-rich Asia. “Timing is of the essence. Other countries are moving forward. We need to catch up in this area to get a level playing field,” he added.