US and China set up semiconductor working group to ease tension in industry, improve supply chain security

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The China Semiconductor Industry Association (CSIA), a state-backed association of 774 Chinese businesses in the chips industry, said on Thursday that it has set up a working group with United States technology companies to create an avenue for communication on issues such as “export controls, supply chain security”.

The launch of the working group came amid speculation that the administration of US President Joe Biden is likely to relax certain trade restrictions against Chinese semiconductor companies to ease a global shortage of chips, a move that could help Chinese firms, from Huawei Technologies to Shanghai-based Semiconductor Manufacturing International Corporation (SMIC).

SMIC’s shares in Hong Kong surged 10 per cent and gained 5.5 per cent in Shanghai on Thursday.

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The working group is aimed at promoting “deeper mutual understanding and trust” between the Chinese and US semiconductor industries to solve concerns through dialogue and cooperation, the Chinese association said in a statement on its website. The counterpart of the Chinese association is the Washington-based Semiconductor Industry Association (SIA).

The working group, which will include 10 experts from both sides, will conduct meetings every six months to keep each other updated about technology and trade restrictions policies in Beijing and Washington DC and to work out policy proposals, according to the CSIA’s statement.

According to Washington-based SIA, the working group is about sharing public information regarding general trade matters, not easing export controls.

“SIA maintains regular dialogue with our industry counterparts around the world, including China, and this is part of that ongoing effort,” the group said. “SIA is committed to working with the US government on the shared goal of enhancing American semiconductor competitiveness while protecting national security.”

William Deng, an analyst at UBS in Hong Kong, said the working group could help improve communication in the semiconductor value chain in China and the US.

“Even if the US restrictions remain, better communication [between Chinese and US semiconductor industry players] can help mitigate supply chain disruptions,” Deng said. “A company in the value chain may have a better idea how to manage its inventory and production with [help from] the working group,” Deng said.

Deng added that the Biden administration is unlikely to lift the US export ban on key technologies to China as Washington has made it clear the country is a strategic competitor and that technology will be a key area of competition.

The announcement was made just hours after the announcement that US Secretary of State Antony Blinken and the White House national security adviser Jake Sullivan are expected to meet China’s most senior foreign policy official Yang Jiechi, and Foreign Minister Wang Yi, next week in Alaska, confirming a report by the South China Morning Post on Tuesday.

Blinken said earlier this month that China is the biggest geopolitical challenge for the United States in the 21st century. “China is the only country with the economic, diplomatic, military and technological power to seriously challenge the stable and open international system,” he said. “Our relationship with China will be competitive when it should be, collaborative when it can be and adversarial when it must be.

But there are already signs that the US may relax restrictions imposed on China. SMIC said last week that it has secured supply of deep ultraviolet (DUV) lithography systems from Dutch firm ASML in an amended purchase agreement worth US$1.2 billion, a move that could help ease supply chain risks for China’s chip-making champion.

The CSIA is an industry body backed by China’s Ministry of Industry and Information Technology. Its current chairman is Zhou Zixue, chairman of Shanghai-based SMIC.

China’s imports of semiconductors and diodes surged in the January-February period, reaching their highest year-on-year growth rate in six months. China imported 96.4 billion semiconductor devices in the first two months of this year, up 36 per cent from the same period a year earlier, according to data released by the nation’s customs agency on Sunday. Imports of diodes soared 59 per cent from a year earlier to 99.6 billion pieces in the two-month period.

Additional reporting by Mark Magnier

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