Given the strategic importance of semiconductors and how expensive new fabs are and how long they take to start production (if you start planning a new state of the art fab now it'll take ~5 years before it's ready to produce chips) it seems like perhaps we need to look a public-private partnerships here in the US. The Chinese government is funding fabs. While we tend to be squeamish about such things here in the US, it's likely we need to start looking at doing this. At the very least the US Gov could step in to capitalize two or three companies to start foundries similar to TSMC. When they get on their feet they would become fully private entities that would pay back any government loans as they become profitable. I'm not sure we have the time to wait to see if Intel will decide to go big into the foundry biz - they seem to vacillate on this pretty regularly.
The DoD's Industrial Capabilities report to Congress[1] that got posted on HN last week recommended exactly this:
> "Outside of the United States, foreign governments
and their citizens pay the lion’s share, one way
or another, of the cost of building the fab. The
companies do not. They take on the other massive
set of costs: running the fab. The hard truth is
that if the United States does not start doing the
same, our nation will continue to see its historically
low share of chip production continue to decline
to irrelevance."
The Chinese government is willing to spend what it takes to win and this is the reason why they will win. The US government is way too reluctant to spend in this regard. The Chinese government is investing hundreds of billions in artificial intelligence, hundreds of billions more in renewables, and so on. I don't see Congress giving a blank check to scientists and engineers, like China does.
Maybe eventually, but at the moment they lag some generations behind US/Japan/Taiwan/Korea. This, in spite of the fact that China has been dumping money into the industry for years.
There’s a narrative in the west that China is “willing to spend what it takes to win”, but at the same time, China’s spending is tied up by internal politics (also, corruption, pork, kickbacks) as much as US spending is. China is also, for example, willing to spend as much money as it takes to make a mega-blockbuster movie and yet keeps churning out flops (again, due to causes that are intimately connected with internal Chinese politics).
If you look at major US boondoggles like the F-35 program you might think of it as a partial success (the plane works) and yet a massive waste of money (we could have spent the money better), and some of these massive initiatives in China suffer from the same problems.
Exactly. Most narratives hang everything on simplifications like “willing to spend what it takes to win.” Reality is more complex and there are serious drawbacks to any real life examples.
A better comparison mould have been circa 2000 "asian tiger" policies of south korea, taiwan, etc. The idea was to subsidize industries with massive growth potential... on a 20-50 year horizon. On that sort of a timeline, F-35 program might be considered an ok success. More expensive than necessary, but better than not having invested. For this to make sense, fighter jets need to be a massive growth industry, and adjacent to other massive growth industries. Not sure if the US has appetite for generational investments in industries.
A lot goes into success and failure at something like this than the "correct theory" though.
Part of the idea behind letting the semiconductor industry decline is that it frees up capital and human resources to work on higher ROI stuff. It's hard to get a high ROI manufacturing, because manufacturing has a high "I." Building factories is capital intensive.
It's possible to make a decent case that it succeeded too. The US absolutely dominates the high ROI, high margin industries: Software, financial services, pharma. Design... Intangibles. You can't make a money machine like FB, Pfizer or JPMorgan if (a) marginal costs are real or (b) you need to invest capital in order to grow.
> Part of the idea behind letting the semiconductor industry decline is that it frees up capital and human resources to work on higher ROI stuff.
Yeah. That’s a very good point, something I haven’t really thought of. I think we could also invest more in semiconductor design, both in making more sophisticated designs and in making semiconductor design accessible to more people (both of which are already happening). I’m talking about “design” in contrast to manufacturing/process concerns. If the process changes slow down a bit, I wonder if we can get ASICs with lower NRE.
> The Chinese government is willing to spend what it takes to win and this is the reason why they will win.
But it's Taiwan that is doing the chip fabs in TSMC, not mainland China. While they do have some capacity in the mainland, it's best to not conflate the two when discussing the geopolitical situation.
I dont think the parents meant TSMC. China is indeed spending a hundred billion on establishing a Semi Conductor supply chain industry. If you count from 2013 ish, they expect to spend a total of $150B+ in 2025. From NAND, DRAM to General Fabs and other up and down stream in the supply chains. That number was projected in 2017/2018. I would not be surprised if they are pouring in even more resources now.
Luckily the Moat around leading edge, cost competitive DRAM / NAND and Modern Foundry is much much larger than I thought. Hopefully the world is not too late to react to it.
Do note that there is also plenty of pork/corruption in China. Massive amounts. We just understand the US pork/corruption better because we can read English-language news sources.
The F-35 seems to be selling like hotcakes, from looking at the orders american allies have for the plane. Lockheed is essentially a wing of the department of defence and lot of the "project overruns" are actually dollars spent on R&D and technology development. Defense pork is bad, but giving billions of dollars to aerospace, electronics, and radar engineers is a fantastic way to maintain an economic edge, especially when Lockheed, SpaceX, and Boeing dominate the global market thanks to US government funding
The problem is that when you have political allocation of capital, you create a very inefficient economy. Sure, if the goal is to copy someone else that has proven a successful approach you can make good progress with subsidies. But after you drive them out of business, you are stuck with this politically directed R&D agenda that has no one else to copy but is not able to innovate on its own. You quickly lose your way with inefficiencies.
This must be weighed against the fact that subsidized businesses will outcompete less subsidized businesses, and so if you want to bankrupt your foreign competitors you can do that by subsidizing your own domestic firms.
One approach is to not trade or impose targeted tariffs on government subsidies to help balance the scales. That was basically the idea of the 90s era trade agreements, which hasn't worked out so well, as targeted tariffs don't work. You apply a broad, long lasting blanket tariff on all goods coming from the offending country or nothing.
Another approach is to jump in with massive subsidies of your own and create a race to the bottom where every government has to subsidize any industry that some other government is subsidizing.
I'd like to throw restrictions on foreign capital inflows into the mix. A combination of banning capital inflows, some subsidies, and some broad, permanent tariffs against bad actors like China might be the best option to deal with the "spend anything to win" problem. Really we don't know.
What I don't want to see is governments rushing in to subsidize industry in a race to the bottom. That is bad for innovation as well as for democracy.
What the free trade crowd needs to realize that free trade is vulnerable to the subsidize-attack which can destroy your own industries, and right now they have an ideological commitment that is blinding them to this reality.
Yeah, for all the worry about (digital) semiconductors, the US’s solar cell capacity has atrophied. There are a few large thin film fabs, like First Solar, but NO operational large silicon cell fabs now that Panasonic has pulled out of the Tesla Buffalo factory (I hope Tesla replaces them) as part of their global reorienting away from cell manufacture. Violet Power is hoping to change that, but it’s remarkable how much the US relies on imported solar cells, with almost no domestic capacity.
Makes sense as the cells are a commodity and extremely cheap (7¢/Watt...). They’re a minority of solar panel costs (15-30¢/Watt) which are themselves a minority of installed solar costs (70-100¢/Watt utility, above $2/Watt residential), but it leaves the US heavily reliant on imports for the Green New Deal or related initiatives.
Violet power is interesting as they’re setup across the street from a shuttered polysilicon plant in Washington state IIRC. They’re planning to be vertically integrated in panel manufacture (& eventually use that silicon plant) for cells with extremely high efficiency (20 and eventually 30%) cells with a 50 year warranty lifetime (double the normal 25). It’s a good approach for a US company, IMHO. They want to eventually get to 5GW/year output capacity. Which sounds like a lot but is minuscule compared to what we need.
To transition to electrified everything, the US needs 1TW average electricity. We currently produce ~500GW average, 300GW of which comes from fossil fuels. Nameplate solar capacity is only about 10-20% of average electricity output (depending on lots of factors including seasonal effects), so to replace the 300GW average of fossil fuel electricity, we’d need 1500-3000GW of solar nameplate. To electrify everything, we’d need an additional 500GW average, for a total of 4-8 Terawatts of additional nameplate solar.
To do that over 20 years would require 200-400GW per year of solar cell and panel capacity output. And this is just the existing US demand. We need to be investing a ridiculous amount in solar factory capacity RIGHT NOW if we’re serious about climate action.
(Luckily solar panel factories only cost about 20¢/(Watt/year) in capital cost even in the US... maybe about the same for combined cell/wafer/silicon capacity for a total of 50¢/(W/year), so 200GW/yr vertically integrated factory capacity may only cost $100 billion to build out which is not that much when you think about it... Except we aren’t doing it.)
The US has never won any fight by their government being great. They've won a lot of fights by US capitalists grinding their opponents into powder and selling the remains for fertiliser.
If the governments go head to head, China wins easily. Their government is stuffed with PhDs, scientists and engineers. The US government has lawyers.
Just hours ago [1] H.R.5 — 116th Congress (2019-2020) was passed in the house. Also known as the Equality Act. It appears well intentioned, great name, but some of the demands are gonna be a challenge, specifically, bathroom accomodations, and potential to disrupt traditional women's programs.
Yep, I work in hardware design for defense. They dropped the Cadence license (no RFIC design for me), but I got to take Unconscious Bias training yesterday.
> I'm not sure we have the time to wait to see if Intel will decide to go big into the foundry biz - they seem to vacillate on this pretty regularly.
Historically, that's because the "foundry biz" has been small. If you check the revenue numbers in that chart, you'll note that TSMC is now larger than the rest of the foundry industry combined. They brought in almost $13B last year.
Intel 2020 revenue was $78B.
There just hasn't been incentive to go into that market. At best it would be a way to squeeze a few extra percent out of idle fab capacity. Now, obviously the trajectory here is not good for Intel. But that's because of technical details of fab process, it has nothing to do with their decision not to chase the foundry market.
Oh wow that's tiny for the largest foundry. And I gather that they are not just in the fab business but trying to integrate vertically into being an OSAT as well.
Edit: I mistook the number as revenue, not earnings. For apples-to-apples comparison, TSMC's annual revenue is closer to $40B.
Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me.
> Are you saying that Chinese semiconductor companies are outcompeting US semiconductor companies because they have greater access to capital? That doesn't seem right to me.
Suppose you have two companies in an industry where the start up cost is ten billion dollars. One can borrow ten billion dollars at 0% interest for the next five years, but they have to pay it back. The other just gets ten billion dollars from the government that they can keep.
Obviously the second company has a competitive advantage. The first has to charge higher prices in order to pay back the loan, which they can't do if the second undercuts them in the market.
This has been China's business model for decades. Then once all the competition is out of business they can raise prices to the point of profitability, but not to the point that anyone who hasn't already paid off their fixed costs can enter the market, and use the profits to do the same thing to the next industry.
Isn't that equivalent to starting up with VC money (and stocks, later)? You get billions to start up, and if you fail you don't have to pay anything back. It's the business model of Amazon, Uber, Tesla, Airbnb...
All of your examples are companies that were pioneers in immature markets. And then if you succeed, the VCs own your company. It's not charity.
Whereas China will give a Chinese company billions of dollars to unseat an incumbent in a mature industry and expect nothing in return except for that industry to be in China.
Fair, but the implication seemed to be that China was somehow not expecting ownership over the corporations in which it invests (since there was an implied contrast with VC investment where said ownership is expected).
That is: it goes a fair bit beyond merely keeping companies in a given geography.
Are you saying that the Chinese government is not subsidizing the entire semiconductor industry in China to drive companies outside of China out of business?
They have a documented history of doing this in multiple industries over the course of many years. Notice how substantially all of the consumer electronics devices that used to be made in the US or Japan or Korea or Germany are now made in China.
There's a big difference between receiving an amount of government subsidy, and the government funding almost everything with nearly no budget limits.
The former is definitely true, though China is not the only country engaging in such a practice.
The latter claim needs sources to back up.
If you look at the Chinese chip industry, then you see that a lot of money comes from the private sector. Huawei, Xiaomi, etc are investing a ton of money in semiconductor companies. SMIC got a lot of funds through a stock market IPO. Clearly it's not all government money.
There's also a big difference between investing in an industry with the goal of dominating the world and eliminating competition, vs the goal of becoming a sovereign equal. Why is it necessarily the former, and not the latter?
The reason why the Chinese government invests in many sectors, is because they want to be independent instead of being at the mercy of foreign sanctions. If it weren't for that, they'd happily buy from foreign suppliers because that's cheaper than developing the technology themselves.
There is another documented history: that of the US sanctioning China, preventing China from accessing all sorts of western technology. For example, the US denied China of space technology. So now, China has wholly self-developed space technology. China isn't selling space technology below production costs to kill competitors. China invested in this sector in order to safeguard their access to space. https://www.businessinsider.com/nasa-china-collaboration-ill...
The US forced TSMC to not supply to many Chinese companies, and TSMC isn't even a US company. The US is trying to kill the Chinese semiconductor industry, making it wholly reliant on foreign suppliers. For years, Chinese companies have bought from foreign semiconductor suppliers because those are better. But the US has now turned this matter into an existential crisis, a matter of survival. Is it then any wonder that China, both public and private actors, are now pouring billions into the domestic semiconductor industry?
> If you look at the Chinese chip industry, then you see that a lot of money comes from the private sector. Huawei, Xiaomi, etc are investing a ton of money in semiconductor companies.
A private sector which got so successful not least because government systematically robbed IP from competitors (Nortel...). Yes, western politics also messed this up, but no these are not "private" sector operations in the same way Tesla is.
> government systematically robbed IP from competitors
You do realize that's exactly how the US became an industrial power right?
The difference being that most companies were happy to provide access to their technology in exchange of reaping higher profits from penny on the dollar Chinese labor and expedited logistics
But ofc, you never hear that, or the fact that we are talking of a different country with different laws, the US is not entitled to enforce its laws in other nations after all
> If you look at the Chinese chip industry, then you see that a lot of money comes from the private sector. Huawei, Xiaomi, etc are investing a ton of money in semiconductor companies.
Where do you think those "private companies" got the money to build their businesses? Notice also that it's domestic (i.e. controlled by the Chinese government) "private companies" doing this.
China isn't allowed to just nakedly subsidize everything under trade agreements, so they have to do money laundering like that in order to get away with it.
> Clearly it's not all government money.
It doesn't actually have to be. All it has to be is enough government money to put competitors out of business.
> There's also a big difference between investing in an industry with the goal of dominating the world and eliminating competition, vs the goal of becoming a sovereign equal. Why is it necessarily the former, and not the latter?
Because the former results in one country being effectively the sole source in the world for certain products, e.g. cell phones, whereas the latter results in a domestic industry but not the destruction of all foreign industry in that market.
> The US is trying to kill the Chinese semiconductor industry
The US is trying to prevent the world semiconductor industry from becoming monopolized by China the same way they've been doing to so many other industries, because semiconductors have significant national security implications.
> Where do you think those "private companies" got the money to build their businesses?
By... selling stuff to people?
I'm sure they get government subsidies, but that's not all of their money, or even a majority.
> so they have to do money laundering like that in order to get away with it
I'd like to see some proof that 1) they launder money and 2) that it's in significant enough amounts as to allow companies to adopt a kill-the-rest-of-the-world strategy.
The latter part of your post basically boils down to "action X is evil when they do it, but not when we do it, because we're the good guys and they the bad guys". Where's the proof? Has China actually killed competition via years of state-funded undercutting, or is it just speculation that they might?
The offshoring of the production of consumer electronics devices is mostly the result of the free-trade policies of said countries, coupled with market forces. The growth centred around manufacturing has been the basis of Chinese prosperity and requires no speculating about devious motives to account for.
As for the Chinese government's massive spending and subsidization of key industries, it's largely due to being free of the particular ideological constraints which force the US government to entrust everything to the market (except the military industry) which has predictably led to brittleness and vulnerability.
The American approach does resemble the Chinese one in a sense. Whereas the Chinese government prefers to directly subsidize e.g. semiconductors, the US government pours unfathomable quantities of capital into a military capable of dissuading any country from capitalizing on the US's dependency on any of their industries. When this approach breaks down, as in the case of China, things tend to get very dicey.
> The offshoring of the production of consumer electronics devices is mostly the result of the free-trade policies of said countries, coupled with market forces.
This fails to explain why everything moved to China and not Mexico or Brazil or India.
> As for the Chinese government's massive spending and subsidization of key industries, it's largely due to being free of the particular ideological constraints which force the US government to entrust everything to the market (except the military industry) which has predictably led to brittleness and vulnerability.
Entrusting everything to the market works great when it's a level playing field. When a country is doing things that would be an antitrust violation if done by a company, that requires another country to stop them. Typically through the use of trade sanctions, i.e. tariffs.
> The American approach does resemble the Chinese one in a sense. Whereas the Chinese government prefers to directly subsidize e.g. semiconductors, the US government pours unfathomable quantities of capital into a military capable of dissuading any country from capitalizing on the US's dependency on any of their industries.
I understand now. Unfettered market freedom is the best way to organize things and at the same time, large-scale government intervention is an unfair competitive advantage.
> This fails to explain why everything moved to China and not Mexico or Brazil or India.
Of course, no industries moved from the US to Mexico, Brazil or India over the same period as China's rise.
> In other words it's completely different?
Yes, in the sense that a portion of massive Chinese government spending goes directly into producing things that people need, and almost all of massive US government spending goes into funding imperialist violence.
Tariffs don't do much to hurt the other country. What they do is hurt yourself by making your consumers pay more for things.
If you want to make your country more competitive, you want Asian-style industrial policy and export discipline - as found not just in China but in Korea and Japan.
Go tell apple this, they would be very happy to be able to be able to charge even more for what they produce from China, they would be quite pissed to know that someone along the production chain is making too much money where it could be them instead
The only difference between let's say Xiaomi or US located electronics is that the US ones are very, very happy to pricegauge the hell out of their customers, that's why so many are happy to buy in alibaba rather than let's say Amazon or eBay
Are you saying that western electronics companies could theoretically produce at a price lower than what Chinese companies charge today, if only those western companies didn't get killed off? Proof?
They’ve done it in the security industry. Look at Hikvision for an example, who have recieved billions of USD in direct loans, and even more billions of USD in credit from the Chinese government.
Loans... credit... meaning that they have to pay it back some day. How is this different from any other company in any other country lending money to grow? The original claim was an unlimited pumping of state money, which never has to be paid back, with the purpose of killing the competition.
And now that HKVision has 'won', have they raised prices and are they extorting the market, as the original claim said?
Review the part where they only do this until the competitors are out of business. It's called predatory pricing and is an antitrust violation when companies do it.
I'm saying that the Chinese government has determined that semiconductors are strategically important and is willing to pour yuan into fabs and developing their own process equipment industry. Semiconductor manufacturing is a very capital intensive business and the short-term market view in the West isn't well suited to remaining competitive in that space. Silicon Valley has very little to do with silicon anymore because our markets decided to pour money into other areas where the payoff is quicker.
That would be fine if the US and China were great friends and allies - like if it was the UK instead of China that was the semiconductor powerhouse. But things look stormy on the horizon. Even discounting a military conflict with China (not likely anytime soon, I think) an economic conflict seems very possible. As China begins to manufacture a larger share of semiconductors they could easily decide to favor their own internal industries that are customers of said semiconductors and not allow state-of-the-art chips to be sold outside (or to certain countries). We (the US) have done similar things in the past.
No. Dependence upon East Asian semi fabrication is a liability even if you're best buddies (as with Taiwan). TSMC was founded by Morris Chang -- hard to find a more reasonable, US-friendly, capitalist person in the industry -- but every time a butterfly flaps its wings in Asia-Pacific, we have to worry about the sanctity and continuity of our semiconductor supply chain.
NVDA just reported earnings and, while booming, it was not the blowout that you'd expect in the context of the greater demand picture for their products. That's in an environment where you don't have open multinational warfare in Asia-Pacific and their manufacturing partner TSMC is firing on almost all cylinders (water shortage excepted).
Fabs in the US and elsewhere in the Americas are more defensible in times of war, and more likely to prioritize demand from US companies when supply tightens.
US public companies are judged by the efficiency and timeframe of their returns on capital, which means that big long-term projects have to be carefully planned and justified.
That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers...
Additionally, Chinese companies operate in an environment where it's OK to steal foreign IP as long as the Chinese government approves of your business activity. So it's not just capital that the government uses to fertilize growth in its corporate nursery.
> That's not the case when the government gets involved. We've already seen China build a lot of other infrastructure for no reason. Highways, skyscrapers...
China urbanized 550 million people in the last 30 years.
They aren't building cities and highways to stand empty. They are building them in advance of demand. Sometimes the demand arrives a few months, or a few years after the infrastructure is in place. [1]
All those ghost cities you read about last decade? Most of them are now brimming with people.
In contrast, here in the US, we don't build housing until a decade after we need it (and when we do, the supply is anemic), so we have a crippling housing shortage in all major metro areas, which leads to sky-high rents. And through all that, we still have the occasional real estate bubble exploding, in a way that takes the entire world's economy down with it.
No corporation would finish construction of a factory ten years prior to the existence of demand. Companies like to lay out capex as close to income generation as possible. That comes from a shareholder-driven pressure for operational efficiency. It looks bad if Samsung (for example) spends $30B on a fab for which there is little demand. Fab utilization needs to be as close to 100% as possible; even at high utilization, the company doesn't break even on the fab for several years. Even if you assume 100% utilization, a fab may take a decade or more (from the time ground is broken on the facility) to break even on the investment.
In contrast, governments can leg out risk on big capital-intensive projects. Read the citations in the wikipedia article you referenced (avoid the blog post and the China-based publication) and you will see what I am talking about. A government's ability to build infrastructure without knowing whether there will be demand upon completion is how we end up with projects like HZMB that don't serve an existing commercial or private purpose.
The thing is, in China, government can create that demand, by moving government jobs to that city (thus bootstrapping the employment market as a primary employer), or having a state-owned enterprise open a branch office there (again, bootstrapping the employment market.)
Once there's a reason for people to live there, other services and businesses organically move in, to serve those people's market needs.
It's not just a matter of risk tolerance - it's also the ability to coordinate between employers and landlords, to optimize city planning.
That's a good argument for a different conversation. No sarcasm. It's a fair point but it takes a bit of a detour from the topic of semiconductors.
My point vis a vis semiconductors is that firms don't leap before they look. Governments can and do. You say they do it because they can guarantee demand. I say they can do it because they are more patient and risk tolerant. Either way, the logical conclusion is the same:
Firms can't lay out capex the way that governments can. Firms are held accountable for ROI, their shareholders have little patience for delayed gratification, and their ability to spend is very small relative to that of governments.
US sources of capital tend to have much higher time preference. Chinese sources of capital (i.e government entities) are willing to play the long game and accept below-market returns on capital for an extended period of time when it's building a strategically important industry.
Making chips in US makes little sense except to get the coveted tarif relief for the very few remaining highly tarriffed goods.
And if China decides to put sanctions on your fabs, you will just get a $10B microelectronics theme park on your hands because you will have nowhere to sell your chips.
Do not count the last point lightly. I'm fully serious saying that US will likely have nowhere to sell those chips to.
And that itself is an even bigger problem for US than it falling behind in semi competition by itself.
> And if China decides to put sanctions on your fabs, you will just get a $10B microelectronics theme park on your hands because you will have nowhere to sell your chips.
This is already happening. Except that the sanctions came from the US, not from China. The US forced TSMC not to sell to Huawei and other Chinese companies the US put on the entity list. Chinese companies that aren't yet sanctioned, are becoming reluctant to buy chips from foreign suppliers.
china biggest trade partner is europe and they are grooming Africa and other countries, so they with almost a modern economy will care little of sanctions. Maybe Us will get the kickback having to deal (aka subsidie)with unhappy lobbies
What's up with this language, being an economic partner is now "grooming"?
My country was literally coup'd by the US in order to maintain its access to my nation's natural resources through US/British companies, how is that for "grooming"?
> And if China decides to put sanctions on your fabs, you will just get a $10B microelectronics theme park on your hands because you will have nowhere to sell your chips.
China could also decide that they won't sell their more advanced chips to the US (or any chips for that matter if it got serious).
Ironically, this is exactly what's going on right now... Except it's the US denying advanced chips to China. The US forced TSMC and Samsung not to sell to Huawei for example.
