Introduction
China’s imports of semiconductor manufacturing equipment have surged to a record $26 billion in the first seven months of 2024, underscoring the country’s determined efforts to bolster its semiconductor production capabilities amid escalating restrictions from the U.S. and its allies.
As tensions continue to rise over technology access, China has been stockpiling machinery from key suppliers, including ASML Holding NV, Tokyo Electron Ltd., and Applied Materials Inc., to secure its semiconductor future.
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Brief Overview
- Record Imports: China imported nearly $26 billion worth of semiconductor manufacturing equipment in the first seven months of 2024, setting a new record.
- Shift in Purchases: Chinese companies are increasingly buying older, unrestricted machinery from key suppliers like ASML, Tokyo Electron, and Applied Materials due to tightened export controls from the U.S. and its allies.
- ASML Sales Surge: ASML’s sales to China rose by 21% in Q2 2024, with older systems accounting for nearly half of its total revenue.
- Growing Output: China’s semiconductor output is expected to grow by 14% in 2025, potentially reaching one-third of global production capacity.
- Strategic Self-Sufficiency: China’s aggressive investment in domestic semiconductor manufacturing is part of a broader strategy to achieve technological self-sufficiency by 2025.
- Geopolitical Tensions: The U.S. and its allies are likely to continue tightening restrictions, creating challenges for China’s semiconductor ambitions.
China’s Semiconductor Equipment Imports Soar
In the first seven months of 2024, Chinese companies imported nearly $26 billion worth of semiconductor manufacturing machinery, according to data from China’s General Administration of Customs. This figure surpasses the previous high set in 2021 and highlights China’s aggressive approach to securing the necessary tools for chip production as it braces for further restrictions from the U.S., Japan, and the Netherlands.
Major equipment manufacturers like ASML, Tokyo Electron, and Applied Materials have driven the surge in imports with increased sales to China.
These companies have seen significant increases in sales to China, particularly for older, less advanced machinery that remains outside the scope of current export controls.
Impact of U.S. and Allied Export Controls
The U.S., along with its allies Japan and the Netherlands, has been tightening export controls on semiconductor technology to curb China’s advancements in critical technologies like artificial intelligence (AI) and advanced semiconductor manufacturing. These restrictions have primarily targeted cutting-edge equipment, forcing Chinese companies to shift their focus to acquiring older, but still essential, machinery.
Image Credits: Bloomberg
The impact of these export controls is evident in the shift in Chinese purchasing patterns. While China has been blocked from accessing the most advanced lithography equipment, it has significantly ramped up its acquisition of older systems. This strategy has allowed Chinese firms to continue advancing their semiconductor production capabilities, albeit at a slower pace.
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ASML’s Strategic Sales to China
ASML Holding NV, the Dutch company that is the sole supplier of the most advanced extreme ultraviolet (EUV) lithography machines, has seen its sales to China grow despite the restrictions. In the second quarter of 2024, ASML’s sales to China surged by 21%, accounting for almost half of the company’s total revenue. These sales primarily consisted of older, unrestricted systems, which are crucial for manufacturing mature semiconductor technologies.
China’s Semiconductor Manufacturing International Corp. (SMIC), the country’s leading chipmaker, has relied heavily on ASML’s older lithography machines to achieve technological milestones. Last year, SMIC made headlines by using these older systems to produce chips at the 7nm process node, a significant achievement given the limitations imposed by export controls.
China’s Growing Semiconductor Output
Despite the challenges posed by U.S. and allied export controls, China’s semiconductor industry continues to grow. According to the trade group SEMI, Chinese chipmakers are expected to increase their output by 14% in 2025, reaching a production capacity of 10.1 million wafers per month. This growth would represent nearly one-third of the global semiconductor industry’s output.
In 2024 alone, Chinese companies achieved a 15% increase in wafer production, driven by aggressive investment in domestic manufacturing capabilities. This expansion is part of China’s broader strategy to reduce its reliance on foreign technology and become a global leader in semiconductor manufacturing.
The Global Implications of China’s Semiconductor Strategy
China’s rapid expansion of its semiconductor manufacturing capabilities has significant implications for the global technology landscape.
As Chinese firms continue to invest in domestic production, they are increasingly challenging the dominance of established players in the semiconductor industry, such as Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics.
Furthermore, China’s push to develop its semiconductor industry is likely to exacerbate tensions with the U.S. and its allies.
The U.S. government has made it clear that it views China’s technological advancements as a threat to its national security and economic interests. As a result, the U.S. is expected to continue tightening export controls and pressuring its allies to do the same.
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China’s Long-Term Semiconductor Ambitions
China’s efforts to secure semiconductor manufacturing equipment are part of a broader strategy to achieve technological self-sufficiency.
The Chinese government has set ambitious goals for the country’s semiconductor industry, aiming to produce 70% of its semiconductor needs domestically by 2025.
To achieve this goal, China has been investing heavily in research and development (R&D), talent acquisition, and the construction of new semiconductor fabs. The Chinese government has also been providing substantial financial support to domestic semiconductor companies, helping them to expand their production capabilities and compete on the global stage.
Challenges and Future Outlook
While China has made significant progress in expanding its semiconductor manufacturing capabilities, it still faces several challenges.
The most pressing issue is the continued reliance on foreign technology, particularly for the most advanced semiconductor manufacturing equipment.
Despite its efforts to develop domestic alternatives, China remains dependent on imports for critical components and machinery.
Moreover, the increasing geopolitical tensions between China and the U.S. pose a significant risk to the country’s semiconductor ambitions.
The U.S. is likely to continue tightening export controls and working with its allies to limit China’s access to critical technologies. This could slow China’s progress and create additional hurdles for its semiconductor industry.
However, China’s determination to achieve technological self-sufficiency is unlikely to waver. China plans to keep investing in its semiconductor industry, aiming to close the gap with global leaders and reduce its vulnerability to external pressures.
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Conclusion
China’s record $26 billion in semiconductor equipment imports in 2024 highlights the country’s urgent efforts to build a robust semiconductor industry amid escalating restrictions from the U.S. and its allies.
As China continues to stockpile essential machinery and expand its domestic production capabilities, it is poised to become a significant player in the global semiconductor market. However, the road ahead is fraught with challenges, and the outcome of this intense geopolitical and technological competition remains uncertain.