TSMC cannot afford to lose Chinese mainland market despite relentless US pressure: analysts

The US has reportedly "ordered" the Taiwan Semiconductor Manufacturing Co (TSMC) to halt sales of advanced chips, which are usually used in artificial intelligence (AI) applications, to Chinese mainland's customers. Analysts said on Sunday that despite relentless US pressure, the chipmaker from the island of Taiwan cannot afford to lose the mainland market.

The US Department of Commerce sent a letter to TSMC imposing export restrictions on certain sophisticated chips, of 7 nanometer or more advanced designs, destined for mainland that power AI accelerator and graphics processing units, Reuters reported on Sunday, citing anonymous sources.

The "order" will take effect on Monday, the report said.

In recent years, the US has relentlessly tightened restrictions on AI chip exports to China. However, businesses are driven by profit, and while TSMC may not be able to resist US pressure, it will undoubtedly seek ways to preserve some flexibility and room for negotiation, Ma Jihua, a veteran telecom industry observer, told the Global Times on Sunday.

Like many other chipmakers, it cannot afford to lose the mainland market, Ma said.

In a statement sent to the Global Times on Sunday, TSMC said it is a law-abiding company and is committed to complying with all applicable rules and regulations, including applicable export controls.

Citing an insider from TSMC, Taiwan island's local Economic Daily News reported on Friday that "the company is currently discussing how to respond to the new US regulations." The report also quoted an anonymous industry source as saying that it is unlikely TSMC will suspend shipments of the relevant products at this time.

TSMC hopes that the restrictions will only apply to mainland companies with products related to AI chips, without affecting other customers, such as those in the mobile chip sector, the local media reported.

In fact, the US decoupling policy toward China has introduced significant uncertainty across the industry globally. While Washington pressures its so-called allies to decouple from China, the reality is that there has been considerable resistance.

Peter Wennink, the former CEO of ASML, the world's leading lithography manufacturer based in the Netherlands, clearly stated in a media interview that the China accounts for 30 percent of its orders. Despite export restrictions, ASML will not abandon the market and will do everything possible to continue selling lithography machines to China, Sing Tao Daily reported in 2023.

Even with full implementation of AI chip export restrictions to China, the impact on the country's AI development would be limited, Ma said, noting that leading high-tech companies in China have also built sufficient computing power reserves, and the country's AI industry remains at the forefront of the world.

Chinese chip companies have made remarkable progress in recent years despite the ongoing US pressure, Ma said.

In the first seven months, China's semiconductor exports totaled 640.91 billion yuan ($89.27 billion), a 25.8 percent year-on-year increase. Among key export categories, this was the second-highest growth rate, trailing only that of ships, according to data released by the General Administration of Customs.

Meanwhile, China has steadily increased domestic production of semiconductors. In 2013, the ratio of domestic production to imports was 32.58 percent, but by the first half of 2024, this figure had risen to nearly 80 percent, highlighting a continuous rise in self-sufficiency and a significant boost in domestic production levels, domestic news site stcn.com reported in August.