Geopolitics and the changing landscape of global value chains and competition in the global semiconductor industry: Rivalry and catch-up in chip manufacturing in East Asia

This paper examines the changing landscape of GVCs and competition in the global semiconductor industry in the context of new geopolitics featured by the United States implementing “chokepoint” measures to limit the rise of semiconductor manufacturing in China. Overall, the paper finds that these US measures, like the IRA and CHIPS act, will have important impacts on semiconductor GVCs, especially in three types of memory (HBM, DRAM and NAND) and logic chips, and will slow down the speed and process of China's catching up and possibility of leapfrogging. By developing a conceptual framework for analyzing realism-based great power rivalries and national firm responses, we note that lead firms in South Korea and Taiwan can muddle through by reconfiguring their modes of GVCs, which can be summarized as “a bigger capacity and higher-ends in home bases and a smaller capacity and lower-ends abroad.” Analyses of US patents show that Korea and Taiwan have maintained their technological superiority in terms of both quantity and quality of their patents, compared to China, whereas Japan has lost its past superiority to China at least in patent quantity. We also find that the pace of China's catch-up is very fast in quantity, but slow in quality in key segments (DRAM, NAND and logic chips), except HBM which is the most recent segment where China has already surpassed Korea or Taiwan in terms of the number of patents. Whereas China has been catching up rapidly in the number of patents, it might encounter problems in turning that into market catch-up given the existing restrictions in accessing complementary technologies and chipmaking equipment, such as advanced lithography machines (EUV) or even more matured technologies (DUV), and software. Severely constrained by these technological entry barriers, the degree of catching up by China tends to be faster in lower-end products by foundry firms (e.g. SMIC), medium to high in NAND memory chips (e.g. YTMC), and slow or difficult in DRAM (e.g. CXMT). In the meantime, China has been making progress in domesticating value chains in diverse equipment and components in chip manufacturing.