How China Is Trying to Turn the US CHIPS Act to Its Favor

When the Chips and Science Act (frequently referred to as the CHIPS Act) was signed into law in August, President Biden and Congressional lawmakers celebrated. 

The legislation included subsidies to bolster America’s domestic semiconductor industry and tackle supply chain vulnerabilities, addressing key national security concerns with China. The Biden administration boasted that the CHIPS Act would lower costs, create jobs, strengthen supply chains, and counter China.

But China has not taken the news lying down. The PRC has mobilized a strategic communications campaign to undermine support for the Act.

“A perfect example of overreacting and coercion,” tweeted Hua Chunying, a spokesperson for the PRC’s Ministry of Foreign Affairs, shortly after the bill became law. Hua drew an analogy of the world as a classroom, where everyone is studying hard to get good grades, and suddenly, one student cuts the electricity and threatens the other students in the name of upholding classroom order. “Anyone like this guy? Seriously?” she added.

As Hua’s tweet suggests, the PRC counter-offensive aims to depict the U.S. as a fading global hegemon trying to tip the global playing field back in its favor. It has three main messages: 

PRC Claim #1: The CHIPS Act will backfire and hurt U.S. companies. This message is mainly aimed at Americans, and aligns with recently increasing PRC efforts to influence U.S. domestic politics through social media, both through open campaigns and shadowy bot networks and false-front accounts. While U.S. chip companies can still sell lower-end semiconductor chips in the Chinese market, PRC officials have claimed that a harder decoupling could cost in U.S. semiconductor companies 18 percent of their global market share, 37 percent of their revenue, and up to 40,000 jobs. In 2021, Chinese state media notes, Intel’s revenue was $74.7 billion, of which 30 percent was from China. The PRC argues that subsidies from the CHIPS Act will be insufficient to lure companies away from Chinese markets.

The PRC has also argued that many U.S. chip companies depend on China’s industrial base to maintain their global competitiveness. The PRC Ministry of Commerce asserts that the cost of building and operating in China is 37 percent lower than in the United States, and that a self-sufficient local supply chain in the U.S. will require at least $1 trillion in up-front investment and at least $45 billion in annual operating costs. As a result, the argument goes, consumers could see a 65 percent increase in semiconductor prices. Decreased revenue will also cut into R&D and erode U.S. competitiveness. Obviously, the celebration of the CHIPS Act by those in support of increasing U.S. competitiveness with China shows a far different take in Washington DC. 

PRC Claim #2: The CHIPS Act violates WTO rules. This message to the wider world is notable because China has a long history of such violations and because the regime has used so many parts of its government to push it.

Take the Foreign Affairs ministry, whose efforts have gone far beyond Hua’s tweets. The CHIPS Act is “economic coercion,” declared Wang Wenbin, another MFA spokesman. At least ten Chinese embassies—including those in the U.S., Korea, Libya, France, and Brazil—and six consulates have issued statements declaring Beijing’s opposition to this expression of a “Cold War mentality.”

But it was not just the diplomats' messaging. The Ministry of Commerce’s efforts include a warning from spokesperson Shu Jueting (“The U.S. continues to generalize the concept of national security and abuses export control measures”), while even Jiangxi Province’s Yudu County government has gotten involved, calling the CHIPS Act “economic terrorism.”  

Beyond the government came statements of disapproval from the China Council for the Promotion of International Trade, China Chamber of International Commerce, China Semiconductor Industry Association, and the China Institute of International Studies. These bodies also claim that the CHIPS Act violates rules of the World Semiconductor Council, founded in 1999 to facilitate the long-term growth of the semiconductor industry, and they call upon the global community to mitigate damage caused by the Act. All of these are party affiliated/controlled groups, showing a unified messaging line that is not just “whole of government,” but whole of society..

PRC Claim #3: This kind of American isolationism will backfire and spur market growth within China. “No restriction or suppression will hold back China’s science and technological development and industrial progress,” the MFA’s Wang proclaimed. VOA itself has noted that Chinese chipmakers might find willing customers in Russia and Iran, both under heavy U.S. sanctions. Of course, if this line of argument was true, shouldn’t Beijing be celebrating?

These three messaging campaigns are notable not just for their potential to shape the narrative on the CHIPS ACT inside the US, China, and in the global marketplace, but also in how they offer clues into how the Chinese government may respond in the months and years ahead. While Beijing may use its influence to sway other countries’ policies, invest heavily in its own companies, and speed up their technology diversion operations to get around U.S. controls, there is not much more they can do in response without inflicting unacceptable damage upon themselves. For example, sanctioning chipmakers such as TSMC, Intel, Nvidia, and SK Hynix by stopping their sales in China would do more damage to the Chinese economy than it would to the U.S., and lead to premature closing of P.R.C. facilities. Moreover, trying to force semiconductor equipment companies like Nikon to choose between China and the U.S. could also backfire. Further, while China has invested huge sums of money into its chips sector in an effort to become more self-reliant, such efforts have been largely disappointing. 

Nevertheless, while China’s options appear limited in the short-term, the chip war is only beginning to heat up, and the U.S. must prepare for whatever China may eventually throw at it.

SZ Tan is a Senior Analyst with BluePath Labs.

P.W Singer is senior fellow at New America and co-founder of Useful Fiction LLC.