China's chip sector needs more than state money to dull impact of US restrictions: Industry players

SHANGHAI: China plans to splurge to help its chip sector overcome US export curbs, but money can only do so much unless Chinese firms can break from a cycle that hinders innovation and traps them at the low end of the value chain, industry players said.

But money alone is not enough to catch Western rivals who are generations ahead. SMEE and local peers mainly sell to domestic chip foundries and the lack of exposure to advanced chipmaking facilities of the likes of Taiwan Semiconductor Manufacturing Co Ltd and South Korea's Samsung Electronics Co Ltd has made it difficult for them to independently solve engineering problems and move up the value chain, industry workers and market watchers said.

People who worked at SMEE and other Chinese firms in areas such as etching told Reuters how barriers to entry did not seem too high until supply chains became even more global, the engineering more complicated, and the market cornered by firms such as Dutch lithography giant ASML Holding NV. SMEE has not made any major advancements since, in part due to difficulties in procuring equipment from abroad, the engineer told Reuters.

"We knew what it takes to do that, but we were limited by the equipment's design capability. Our U.S. rival had already solved that," the staffer said.Some people in the industry have urged a complete rethink in the way China can catch up by focusing on what the next era of chipmaking could look like rather than compete with overseas peers in trying to make circuits on chips denser and denser.

In the meantime, Chinese chip firms have become even more isolated since restrictions the United States imposed in October that barred U.S. companies such as Lam Research Corp and Applied Materials Inc from supplying equipment that can produce relatively advanced chips without a licence.

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