In a move that has triggered a backlash from the Chinese government, the United States has announced an investigation into American companies' procurement of Chinese-made legacy node chips. The Chinese Foreign Ministry spokesman, Wang Wenbing, has accused Washington of "weaponizing" trade issues and called on the US to respect international trade rules and market-based principles.

According to the US Commerce Department, the survey will focus on the use and sourcing of Chinese-manufactured legacy chips in critical American industries such as telecommunications, car manufacturing, and defense, citing national security concerns. The aim is to create a level playing field for legacy chip production and reduce national security risks posed by China.

China's memory chip maker, CXMT, has recently indicated a technological breakthrough in a paper, demonstrating the country's advancements in chip manufacturing. Ma Jihua, a veteran telecoms observer quoted in the Chinese nationalist tabloid Global Times, argued that the US citing national security concerns is merely a pretext to maintain its competitiveness in legacy chips. Ma emphasized that China has various advantages, including lower costs, faster research and development progress, and more diverse applications, compared to the US.

China's semiconductor industry has been expanding rapidly, with 44 semiconductor wafer foundries currently in operation and an additional 22 under construction, according to Taiwan-based IC research company TrendForce. The report suggests that China will further expand chip production at 32 foundries by the end of 2024. This growth has raised concerns from the US and the EU, which have been providing subsidies to attract global foundries to their shores in an effort to reshore chip production.

The value of China's US-bound exports of chips, such as processors and controllers, has seen a year-on-year growth of 17%, amounting to $1.3 billion in the first 11 months of 2023. However, total US imports of China-made integrated circuits declined slightly by 0.5% to $2.02 billion over the same period.

To reduce China's overall silicon capacity, US President Joe Biden signed into law the Chips Act, offering subsidies of up to $53 billion for wafer fabs built in the US. The act, which has been criticized as "chip hegemony" by Beijing, restricts chip makers receiving funding from expanding or building advanced semiconductor facilities in China for 10 years. According to ICWise, a Shanghai-based semiconductor consulting firm, this could potentially reduce China's overall silicon capacity by 180,000 equivalent 12-inch wafers per month by 2025.

As the US intensifies export controls on shipments of advanced chips and chipmaking tools to China, China has vowed to achieve higher chip self-sufficiency by investing billions of state money into the sector. The focus is initially on domestic substitution of parts and equipment for mature foundry processes, as older foreign-sourced technologies are easier to replace.

TrendForce warns that China's rapid expansion of mature process capacity, particularly with 28-nanometer and older technologies, may lead to a price war in products like image sensors and power management ICs, potentially impacting Taiwan-based foundries. However, China's global share of mature process capacity is projected to reach 39% by 2027, while its share of global advanced process capacity is expected to drop to 6% from 8% this year.

As US-China trade tensions continue to rise, the investigation into Chinese-made legacy chips adds another layer of complexity to the strained economic relationship between the two countries. The outcome of this investigation and China's response will undoubtedly impact the global supply chains and the future trajectory of the semiconductor industry.