China’s new semiconductor regulations mandate 60% domestic content, forcing firms like SMIC to shift suppliers. Southeast Asian hubs see increased investment as US companies relocate production.
China’s updated semiconductor origin rules, enforcing a 60% domestic value threshold for chipmaking equipment, have prompted SMIC to redirect 40% of orders to Japanese suppliers, accelerating regional supply chain shifts across Southeast Asia.
Policy Mechanics and Corporate Responses
China’s Ministry of Industry and Information Technology (MIIT) implemented revised semiconductor origin rules on 05 July 2024, requiring third-party audits for domestic value claims. This follows SMIC’s strategic pivot to source 40% of etching tools from Japan’s Tokyo Electron Limited (TEL), as reported by Caixin on 08 July. Applied Materials confirmed to Reuters (09 July) the diversion of $900 million worth of 7nm-capable equipment from China to Malaysia and Texas facilities.
Regional Shifts and Manufacturing Sovereignty
Digitimes Asia documented a 32% YoY increase in Penang’s semiconductor FDI, with 12 US firms expanding Malaysian operations. Vietnam’s $1.4B Bac Ninh semiconductor park, approved 11 July, offers tax incentives to attract displaced suppliers. TSMC’s Nanjing fab now sources 58% of materials locally through Sinopec-supplied photoresists, bypassing US components entirely.
Technological Decoupling Risks
Yangtze Memory Technologies’ testing of Huawei-developed lithography prototypes signals reduced reliance on ASML. South China Morning Post (05 July) revealed certification delays due to stricter MIIT audits, while South Korean chip exports to China surged 28% in Q2 2024. “These rules aren’t tariffs—they’re IP transfer mechanisms disguised as compliance,” noted TechInsights analyst Dan Hutcheson.
Historical context: China’s 2021 semiconductor self-sufficiency drive achieved 45% domestic production for mature nodes, per CCID data. The Made in China 2025 initiative previously targeted 70% domestic chip production by 2030. Comparatively, the EU Chips Act allocates €43B in subsidies without mandatory IP sharing, highlighting divergent approaches to tech sovereignty. In 2023, US export controls restricted China’s access to sub-14nm equipment, accelerating the current localization push.
