Chip Talk > EU's Microchip Dependency on China: A Legacy Threat
Amid geopolitical tensions and supply chain shifts, the European Union (EU) finds itself deeply entrenched in the global semiconductor tug-of-war. A recent European Court of Auditors (ECA) report has underscored a significant concern: the EU’s burgeoning dependency on China for its legacy chips. According to the report, China is currently the primary supplier for one-third of the EU's legacy chips - semiconductors crucial for the automotive and industrial sectors.
The facts laid bare in the ECA’s report, titled "Microchips: EU off the pace in a global race," indicate just how far the EU remains from achieving its ambitious semiconductor goals. The EU aims to capture 20% of the global chip market by 2030, yet as of the last forecast, its market share is expected to rise slightly from 9.8% in 2022 to just 11.7% by 2030, given the current trajectory.
Notably, legacy chips are pivotal for key market sectors such as automotive and green technologies—sectors where Europe has traditionally been a strong player. Despite having industry champions like Germany's Infineon, the Netherlands' NXP, and STMicroelectronics in this segment, the EU's domestic production capability falls short of meeting the surging demand.
The risks of this reliance are exacerbated by geopolitical dynamics. The U.S.'s stringent export controls on China have prompted the latter to pivot aggressively towards the legacy chip market. The EU's dependency signifies potential vulnerabilities, including exposure to supply chain disruptions and political leverage that China could wield.
As the report highlights, this heavy reliance has also contributed to a significant trade imbalance; the EU currently runs a €9.8 billion semiconductor trade deficit with China. This number is poised to grow unless strategic changes are implemented.
In response, the EU launched the European Chips Act in 2022, aiming to revitalize its semiconductor industry. However, the path forward is fraught with challenges—chief among them is funding. As the ECA notes, the EU Commission's contribution of €4.5 billion towards the €86 billion Chips Act budget is a mere fraction of global industry investments.
The lack of sufficient financial backing not only hampers progress but also highlights potential setbacks in meeting the 2030 objectives. Comparisons to the massive investments by global chipmaking giants reveal just how daunting the path to competitiveness is for Europe.
To mitigate these risks, the EU must not only innovate technologically but also create a more conducive investment environment to attract global players. Enhanced partnerships within member states could help bridge the funding gap while creating a sustainable supply chain that gradually reduces the EU's reliance on external markets.
In conclusion, the EU’s legacy chip dependency on China represents both a significant threat and an opportunity for reform. By leveraging policy, investment, and collaboration, Europe could potentially stabilize its supply chains and reinforce its standing in the global semiconductor arena. Understanding the dynamics of this dependency is crucial for policymakers and industry leaders alike to navigate the complex semiconductor landscape.
Published May 01, 2025
