The rapid development of China’s economy, increasing demand for chips along with rising digitalization and intelligence levels have made the country the world’s largest consumer of chips. However, local chip production is very low in terms of self-sufficiency. In 2020, China’s chip production capacity ranked third globally, but it was revealed that 60% of this capacity came from foreign capital and local Chinese enterprises accounted for only 40% of the production capacity.[i]
As part of the technology war with China, the United States (US) has banned the supply of semiconductor components and related materials from Huawei and the Semiconductor Manufacturing International Corporation (SMIC), aiming to hinder the development of China’s leading companies. The restrictions on core technologies have negatively affected the development of China’s semiconductor industry. This war affects not only China and the US, but also the sustainable development of the global semiconductor industry.
In 2023, the volume of trade in chip products increased rapidly and many countries participated in this trade. However, problems such as shortages in chip supply and weakening economic ties pose a threat to the sustainable development of the chip industry. In 2019, the global epidemic reduced the efficiency of chip manufacturers and reduced China’s chip imports. This worsened the chip shortage and led to similar problems in other countries. The chip underpins industry, information and other sectors, affecting many areas such as national information security, economic security and national defense security.
The Biden administration has imposed further export restrictions on the sale of advanced chips and sophisticated chip-making equipment in an effort to limit China’s access to high-end Graphics Processing Unit (GPU) that could support artificial intelligence breakthroughs or power supercomputers and military applications. Professional packaging of chips significantly improves chip performance and packaging is emerging as a critical technology in the semiconductor industry.[ii]
As an important center in the semiconductor supply chain, Malaysia is seen as an important strategic partner for the assembly needs of Chinese chip companies. Malaysia has both experienced workers and affordable firms. Malaysia currently accounts for 13% of the global semiconductor packaging, assembly and testing market and aims to increase this to 15% by 2030. In addition, other countries such as Vietnam and India continue to expand their chip manufacturing services to minimize US-China geopolitical risks.
In this direction, after Covid-19, an increasing number of Chinese semiconductor design companies are partnering with Malaysian packaging companies for GPU assembly in Malaysia. It can also be said that trade between China and ASEAN countries has always had a strong bond and they tend to build a semiconductor ecosystem together.
Due to these practical problems, the security and sustainable development of the global chip supply chain involves dangers that may lead to problems in chip supply not only in China but also in other countries. Therefore, it is important to study the global trade characteristics of typical commodities in the chip industry chain, assess the soundness of the trade network of each link, and investigate the trade relationship between China and other countries to understand China’s sustainable trade situation in each link.
In conclusion, at a time when the international trade volume of chip products is rapidly increasing, problems in the global chip supply chain pose a threat to the sustainability of the industry. The global pandemic has exacerbated these problems by negatively affecting China’s chip production and exports. The chip, which forms the basis of many sectors, has strategic importance in many areas from national security to daily life.
US restrictions on chip technology are aimed at limiting China’s advances in artificial intelligence and military applications. This increases the importance of professional packaging of chips, and countries such as Malaysia that specialize in this area have become strategically important for Chinese chipmakers. Developments in the chip industry demonstrate China’s efforts to reduce its dependence on local chip production. Chinese chip companies partnering with Malaysian packaging firms can be seen as a step towards diversifying dependencies in the global chip supply chain.
In sum, these developments in the chip industry affect trade and security dynamics on a global scale and lead to strategic collaborations. This situation emphasizes the importance of international cooperation for the sustainable development of the industry.
[i] Yongli Zhang and Zhu Xianduo. “Analysis of the global trade network of the chip industry chain: Does the US-China tech war matter?.” Heliyon (2023).
[ii] “Chinese Chip Designers Hiring Malaysian Firms to Assemble GPUs”, Asia Financial, https://www.asiafinancial.com/chinese-chip-designers-hiring-malaysian-firms-to-assembly-gpus, (Erişim Tarihi: 19.12.2023).
