US curbs: India, Vietnam can attract chipmakers who are leaving China

Geostrategic and political maneuvering mean the US curbs on chip exports to China can benefit India and Vietnam which can attract chipmakers will to relocate their businesses.

In this scenario, Southeast Asia has become a natural choice for factories looking to relocate outside of China, says a report by CNBC.

The curbs are the latest in a series of upheavals for the $600 billion global semiconductor industry. In recent years, chipmakers that were once attracted to China’s competitiveness in manufacturing chips have had to deal with increasing labor costs in China, supply chain disruptions due to Covid-19 restrictions, and rising geopolitical risk.

But these China-focused chipmakers are now finding new impetus to replicate those production lines elsewhere.

As such, they would want to move somewhere nearby so that production and yields can be as efficient as possible.

The CNBC, which quoted an expert, says the number of recent queries to KPMG from clients and prospects about expanding chip-making capabilities across Southeast Asia increased 30 percent to 40 percent, compared to before the pandemic.

In October, the US began requiring companies to obtain licences to export advanced semiconductors or related manufacturing equipment to China. Those businesses also need Washington’s approval if they use American equipment to manufacture specific high-end chips for sale to China.

Southeast Asia may also be seen as more attractive than chip-making powerhouses such as South Korea and Taiwan due to the region’s perceived neutrality amid ongoing trade tensions between the US and China.

“South Korea and Taiwan can’t camouflage themselves, but countries like Vietnam, India, and Singapore are positioning themselves as a third way, a neutral bridge between two titans,” Sarah Kreps, director of Cornell University’s Tech Policy Lab, told CNBC.

Vietnam

Vietnam has emerged as an alternative production base to China for global semiconductor makers. The country has invested billions of dollars in investments to set up research and education centers, attracting major chipmakers to shop there.

Samsung, the world’s largest memory chip maker, has reportedly committed to investing a further $3.3 billion in the Southeast Asian country this year start producing chip components by July 2023.

India

Meanwhile, India is also emerging as a production base for these chipmakers, as it has a growing pool of design talent in microprocessors, memory subsystems, and analog chip design.

Labour is bountiful and costs are low in India too. However, the country’s lack of manufacturing capabilities dulls its attractiveness.

“While India has tried to set up fabrication units in the past, the initiatives faced numerous obstacles, including the high capital expenditure investments for set-up cost,” an analyst said.

China still in the lead

Despite Asia’s rising attractiveness for chipmakers, experts point out that China still maintains a lead over regional economies in terms of its competitiveness in chip making.

In its “Made in China 2025” blueprint released in 2015, the country laid the groundwork for technological self-sufficiency in chip-making.

Today, China is still a major player and significant semiconductor producer, particularly for lower-end chips. By some estimates, China is the third largest semiconductor chip producer, garnering a market share of about 16% of global semiconductor production capacity — ahead of the US but trailing South Korea and Taiwan.

It is because China has spent a long time developing that skill set. It will take somebody else roughly the same amount of time to figure that out because the skill set doesn’t come immediately.

Not everyone agrees that Vietnam or India will be direct beneficiaries of US restrictions on Beijing.

“It is doubtful if Vietnam and India can benefit from the U.S. export controls on China, as they do not have strengths in fabrication capacity,” said Yongwook Ryu, an East Asia international relations researcher at the National University of Singapore.

However, he added that “a country or a firm that can produce quality chips at competitive prices — in other words, a nation or firm that can replace China or Chinese chip manufacturers — can emerge as a major winner in the future.”

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