What are China's Semiconductor Ambitions: Growing Fabs and Potential Challenges

Introduction:

In recent years, China’s Semiconductor Ambitions has emerged as a formidable player in the semiconductor industry, with an ambitious plan to significantly boost its chipmaking capabilities. Barclays, after examining the plans of 48 chipmakers in China, predicts that the country could double its chip production capacity within the next five to seven years, surpassing current market expectations.

This blog post explores the reasons behind China’s rapid expansion in fabs, the potential impact on the semiconductor market, and the challenges it might face.

The Growth Trajectory:

China’s semiconductor sector is on an upward trajectory, driven by an extensive investment in new fabs. Barclays’ analysis suggests that the People’s Republic might expand its chip production capacity by 60% over the next three years.

Despite media attention on companies like SMIC, Hua Hong, and CXMT, many upcoming capacities have gone unnoticed, contributing to the underestimation of China’s semiconductor capabilities.

Underappreciated Local Players:

Barclays analysts Joseph Zhou and Simon Coles argue that local players in China are still underappreciated, with more semiconductor manufacturers and fabs than suggested by mainstream industry sources.

This underscores the depth of China’s commitment to becoming self-reliant in chipmaking, reducing dependence on foreign suppliers.

Focus on Legacy Processes:

The majority of China’s new production capacity is expected to focus on older process technologies, including 28nm and above. While these nodes may not represent the cutting edge of innovation, they cater to a broad range of applications, from home appliances to automobiles, ensuring a sustained demand.

However, the surge in production using legacy processes raises concerns about potential market oversupply.

Market Oversupply and Quality Concerns:

Barclays analysts express concerns about potential market oversupply, especially in the context of chips produced using legacy processes. While the demand for these chips remains high, the market may face challenges in absorbing the increased production capacity.

The analysts highlight that potential issues for existing chipmakers might only arise after 2026 when the new fabs come online and demonstrate their ability to produce quality chips.

International Scrutiny and Trade Measures:

The U.S. Commerce Department closely monitors China’s semiconductor ambitions, particularly in legacy technology. There is a possibility that the U.S. might implement tariffs or other trade measures in response to China’s increasing prominence in the semiconductor industry.

This comes at a time when China faces heightened high-tech export restrictions from the U.S. and its allies, prompting Chinese companies to accelerate their acquisition of crucial chipmaking equipment.

Conclusion:

China’s aggressive expansion in semiconductor fabs reflects its determination to achieve self-sufficiency in chipmaking. While the growth projections are impressive, potential challenges such as market oversupply and international scrutiny pose significant considerations.

Industry experts, policymakers, and market participants are closely watching China’s role in shaping the future of the semiconductor industry, as it undeniably evolves.