Can the EU achieve its "chip ambition"? (Global Hotspot) EU | Chip | Hotspot

Recently, the EU has been continuously deploying around the chip industry, including providing large subsidies, accelerating investment in factory construction, and improving technology and production capacity. Experts point out that the EU's launch of a series of chip industry policies reflects the EU's strong willingness to develop the digital economy and seek strategic autonomy. However, the EU still faces multiple challenges in policy implementation.

Accelerate the reshaping of the competitiveness of the chip industry

According to the EU website, the European Commission recently approved an "important project of common interest in Europe" and announced an investment of 22 billion euros for chip project subsidies, of which 8.1 billion euros are for state aid and approximately 13.7 billion euros are for private investment. This project will invest in all key points of the chip supply chain, including materials such as wafers; Equipment for wafer production, chip production, packaging and assembly, and testing; Chip design and design automation tools; Different chip processes and chip manufacturing, packaging, assembly, testing, and system integration. This project involves 68 technology projects from 19 member countries and 56 companies, and is expected to expand the influence of the entire European chip supply chain.

According to the website of the French newspaper Echo, this is the sixth "important project of common interest in Europe" approved by the European Union. Compared to before, the financing amount for this new project is particularly huge. EU Internal Market Commissioner Thierry Brighton issued a statement stating that previously, chip related IPCEI only involved 32 projects from 4 member countries, and the scale and scope of this IPCEI have significantly expanded.

In April, the European Union reached an agreement on the European Chip Act announced last year to relax chip subsidy regulations. The bill plans to invest 43 billion euros to double the EU's chip production capacity to 20% by 2030. To this end, the European Commission proposes three action directions: providing support for large-scale technological capacity construction, ensuring supply chain security and investment flexibility, and establishing crisis monitoring and emergency mechanisms. The bill also requires improving the technological level of chip processes in EU countries, with plans to produce high-end chips of 2 nanometers and below by 2030.

In April, according to the newly finalized chip bill, the European Commission immediately approved a national aid, announcing support for Italian French semiconductor and chip manufacturer Gexin to build "the world's largest and most advanced manufacturing plant" in France. The total investment of this project is nearly 7.5 billion euros. According to Agence France Presse, the project is expected to increase Europe's existing chip production capacity by nearly 6% after completion.

Sun Yanhong, a researcher at the European Research Institute of the Chinese Academy of Social Sciences and director of the European Economic Research Office, told our reporter that after the outbreak of the COVID-19 epidemic, the EU accelerated its policy steps around the chip industry due to the tension in the global semiconductor supply chain. In 2021, chip shortages led to a significant one-third decline in car production in some EU member states compared to 2019. The production of industries, healthcare, defense, aerospace, and consumer electronics is also affected by chip shortages. In this context, the European Union announced the "Digital Compass Plan" in March 2021, proposing to increase the proportion of cutting-edge and sustainable semiconductor products produced by the EU to the global total output value from 10% to 20% by 2030. In February 2022, as a key initiative to implement the Digital Compass Plan, the European Union announced the long-awaited European Chip Act. Recently, the EU has released the "European Common Interest Important Project" for the chip industry, which is an important measure for the EU to implement the European Chip Act.

"Recently, the European Union has not only 'relaxed' its previously strict national aid regulations, allowing member states to provide large subsidies to the chip industry, but also adopted a model of EU level coordination and joint funding from member states to support the launch of large-scale chip projects. Previously, the EU had only launched similar models in individual cross-border projects such as' Airbus' and 'Galileo Plan'. This indicates the latest trend of the EU accelerating the reshaping of the competitiveness of the chip industry." said Sun Yanhong.

"The EU has recently launched policies for the chip industry at a fast pace, with multiple tools and strong efforts." Yan Shaohua, Deputy Researcher at the Center for China Europe Relations at the International Studies Institute of Fudan University, told our reporter that in terms of policy tools, in addition to the chip bill and "important projects of common interest in Europe," the EU has also supported the development of the chip industry through various measures such as the "Horizon Europe" and "Digital Europe Project.". These industrial policies focus on chip research and innovation, increasing chip manufacturing capacity, and cultivating talent in the chip industry. At the same time, they put forward specific requirements for cooperation with allies and partner countries.

"Take control of your destiny in your own hands"

The analysis points out that the EU is accelerating policy deployment with the aim of rescuing the declining competitiveness of the European chip industry.

According to British technology media Tech Monitor, in the 1990s, Europe once accounted for 44% of global chip production capacity. However, with the international division of labor and industrial transfer in the context of globalization, Europe currently accounts for only about 8% of global chip production capacity, and many links in the industrial chain rely on suppliers from other countries.

The Brookings Institution recently announced that Europe's capital expenditure in the chip industry has also experienced a decades-long decline. In the 1990s, Europe accounted for approximately 8% of capital expenditure in the global chip industry, while the Asia Pacific region accounted for approximately 10%; By 2022, Europe's capital expenditure in the chip sector will only account for 3% of the global total, while the Asia Pacific region has risen to 66%.

"For a long time, the EU has occupied a leading position in chip R&D and advanced equipment and other market segments. It not only has the most advanced EUV lithography mechanism manufacturers, but also has a number of chip manufacturers specializing in the design of specific semiconductor components, specializing in the production of automotive and industrial equipment chips. However, with the continuous restructuring of the industrial chain in the context of globalization, the EU's share of output value in the global semiconductor market has declined significantly. On the one hand, the EU is short of large-scale computer manufacturers, mobile phone manufacturers are also rapidly declining, and the demand for local chips is insufficient, and the investment of semiconductor enterprises has not kept pace. On the other hand, the high manufacturing costs in Europe have led to the continuous transfer of chip production links such as assembly, testing and packaging to East Asia. At present, the EU's chip manufacturing is mainly concentrated in relatively mature process nodes of 22nm and above It does not have the high-end chip manufacturing capability of 7nm and below, and the manufacturing of the latter is mainly concentrated in South Korea and Taiwan, China. The EU has recently launched a series of chip industry policies aimed at preventing the EU from being marginalized in the global chip industry and ensuring its position in the new round of digital revolution Sun Yanhong said.

At the same time, the development of the chip industry also reflects the strong desire of the European Union to achieve strategic autonomy.

Oxford University scholar Paul Timothy wrote on the Brookings Institution website that as a key factor in the digital economy, the stable supply of chips is a crucial step for Europe to achieve strategic autonomy. At a time of escalating geopolitical tensions and increasingly severe challenges posed by disruptive innovation, the EU's chip industry policy aims to strengthen the strategic autonomy of the European continent.

EU Internal Market Commissioner Thierry Brighton also stated in a recent statement that the EU hopes to accelerate the enhancement of industrial strength and "take control of its own destiny.".

"Currently, the European Union heavily relies on external supply in chip manufacturing. Against the backdrop of intensified geopolitical competition, the disruption of the chip supply chain may have an impact on the EU economy and society. The EU has recently launched multiple chip subsidy programs, reflecting the EU's consideration of strengthening the stability of the chip supply chain and reducing external dependence." Yan Shaohua said.

Faced with multiple constraints

Can a series of industrial policies achieve the EU's "chip ambition"? The analysis points out that the policy still faces multiple constraints in the process of promotion.

The EU will eventually face a clear funding gap. According to an article on the US POLITICO website, as inflation continues, the interest of EU member states in large-scale public investment is decreasing, and large-scale public investment may soon face political resistance.

"Compared with the huge investments announced by competitors such as the United States and South Korea, the EU's commitment to investment is generally not high, and its actual attraction to enterprises remains to be seen. In addition, after the energy crisis under the COVID-19 and the Russia-Ukraine conflict, the governments of member countries are generally nervous about public finances, and the actual amount of subsidies available is relatively limited. In the context of the post epidemic, private sector investment is not active. This will become the main limiting factor for the implementation of the EU chip industry policy." Sun Yanhong said.

At the same time, the EU chip policy may also face uneven subsidies. According to Bloomberg, semiconductor companies such as Intel, Infineon, and Corus have recently expressed their intention to strengthen their investment in building factories in Europe, but their factory locations are mostly concentrated in Germany, France, and other places.

"Under the stimulus of EU subsidy policies, some industries and companies are expected to benefit, but this benefit may not be balanced. Relatively speaking, large chip manufacturers with technological strength can obtain more subsidies, and countries with relatively abundant fiscal budgets such as Germany and France may also have an advantage in attracting enterprises to invest and build factories," said Yan Shaohua.

Supply chain fluctuations in related fields may also affect the implementation effectiveness of EU chip policies. "Due to the complexity of the chip supply chain, the current subsidies and support from the European Union make it difficult to fully support the development of every aspect of the chip industry. For example, the rare earth and other raw materials required for chip production are not controlled by the European Union, and fluctuations in the supply chain of key minerals involved in chips will compromise the effectiveness of the EU's chip policy," Yan Shaohua said.

In addition, the EU's accession to the global chip subsidy competition may also affect the development of the EU itself and the global chip industry.

According to a report on the US POLITICO website, Singapore and Malaysia recently stated that the EU and other economies providing high subsidies for chip projects may disrupt the "delicate balance" of the global chip market and create "false barriers" in the industry, and these costs will ultimately affect the EU, relevant countries in the industry chain, and global economic development.

"It is worth noting that the European Chip Act emphasizes that in order to ensure the safety and controllability of its semiconductor supply chain, in addition to increasing domestic production capacity, the EU will strengthen cooperation with 'like-minded' partners. Whether this ideological demarcating attitude will trigger a rise in protectionism and stir up the global semiconductor supply chain cooperation pattern still needs to be tracked and studied." said Sun Yanhong.

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