SMIC sells 28nm chips: analysis indicates it may drive “internal circulation”.

In the backdrop of increasingly stringent sanctions on Chinese chips by the United States, SMIC suddenly announced a 40% price drop for its 28-nanometer chips, reducing the price from $2500 to $1500. While this move may capture some market share, analysts believe that in the crucial high-end technology sector, the gap will widen, posing no threat to companies like TSMC and Samsung.

28-nanometer chips are primarily used in consumer electronics such as TVs, air conditioners, microwaves, and cars. The sudden price drop by SMIC has been met with applause from Chinese state media, believing it can break free from the blockade of Western countries like the United States through price wars and seize a large share of the international market. However, Japanese computer engineer Kiyohara Jin believes that the true demand and competitiveness lie in technologies of 3 nanometers and even 1.6 nanometers, crucial for cutting-edge sectors like AI. In this aspect, TSMC has demonstrated significant strength and a dominant market advantage.

Jin stated, “The 28-nanometer chips from China are considered low-end products and may find a market in smaller Asian countries that import affordable consumer electronics from China. However, Chinese enterprises have a history of taking the wrong path in product development by stealing or plagiarizing technologies from other countries. With the support of the Chinese government’s funding, they may imitate the 3-nanometer devices of other countries using multiple rough nanometer chips. But in the face of the U.S. containment and sanctions, China’s capabilities in developing high-end chips within the technology sector will weaken.”

A former employee at Quanxin Integrated Circuit Manufacturing (Jinan) Co., Ltd., Liu Wei (alias), informed Epoch Times that significant price drops by SMIC could only happen in China due to the high subsidies given by the Chinese government to chip-making companies. He emphasized that the companies either buy and study others’ products or engage in technology theft rather than genuine research and development, making them bold enough to engage in price reductions.

He emphasized, “Low prices easily capture markets, just like electric vehicles; with exorbitant subsidies from the Chinese government, they promote to Europe and grab market share through this product. Once Europe and other Western countries become dependent on Chinese products, the Chinese government gradually gains influence and can impact the politics of Western countries, achieving ulterior political motives through economic means.”

Sun Guoxiang, a professor of International Affairs and Business at Nanhua University in Taiwan, analyzed that with increasing geopolitical tensions, the price reduction may be a significant means for SMIC to further promote domestic substitution and reduce reliance on overseas supply chains.

Sun stated, “The purpose of SMIC’s price reduction may be comprehensive, considering short-term market expansion and long-term strategic layout requirements. However, whether they can successfully achieve their goals will depend on market demand responses, policy support continuation, and competitors’ reactions. If SMIC cannot break through the barriers of Western countries, the price reduction of its 28-nanometer chips is more likely a form of ‘internal circulation-driven’ economic strategy aimed to support domestic manufacturing in China.”

In recent years, the U.S. government has clearly imposed restrictions on Chinese semiconductor companies. Both Samsung and TSMC have chosen to leave China and decided to build factories in the United States. This will have a serious negative impact on Chinese enterprises heavily reliant on these two companies for high-end products.

Over the years, China has embarked on a vigorous chip-making campaign. With sluggish demand in key markets such as automotive and industrial, many chip companies have been forced to avoid bankruptcy through layoffs, salary reductions, or restructuring, creating many “substandard chip” enterprises.

“Many chip-making companies lack technology, aiming to deceive national financial subsidies and large funds, resulting in failed chip production and a slew of failed projects,” said Liu Wei.