China Quadruples Fundraising Pace for Chip Self-Sufficiency
(Nikkei Asian Review) — Chinese chipmakers have already raised more than twice as much from the equity market in 2020 than in all of 2019, with state-backed funds helping the nation’s effort to boost domestic output.
Chinese chipmakers have received 144 billion yuan ($20.5 billion) so far this year, including commitments, according to data through Sunday compiled by Nikkei from private databases, company filings and news reports. This far outpaces the 12-month tallies of recent years, including the roughly 64 billion yuan total from 2019.
While China has emerged as a major player in smartphone production and 5G telecommunications networks, the country produces only around 15% of the chips it uses. The U.S. has pushed to shut China out of the semiconductor market, aiming to head off the country’s dominance in the tech sector.
The threat of the U.S. cutting off supplies to China — which has already happened and could again — has fueled the stepped-up investment. ZTE was driven to the brink of collapse after American technology exports to the Chinese telecommunications equipment maker were temporarily banned in 2018. Huawei Technologies has also suffered disruptions to its supplies of cutting-edge chips.
The central and regional governments are setting up special funds dedicated to boosting domestic chip production. The China Integrated Circuit Industry Investment Fund, founded in 2014, had raised 140 billion yuan by 2019. A second fund was launched last fall.
The cities of Shanghai and Beijing have also set up their own funds, coordinating with the central government to strengthen China’s chipmaking industry.
A key beneficiary has been Semiconductor Manufacturing International Corp., or SMIC, which is on track to raise about 65 billion yuan groupwide so far this year. The company is listing on Shanghai’s STAR market, a Nasdaq-like tech stock exchange, as early as this month to secure up to 50 billion yuan in funding, while a group unit is set to receive $2.25 billion from investors including regional funds. China hopes to grow the company to rival Taiwan Semiconductor Manufacturing Co., or TSMC, the world’s largest contract chipmaker.
China aims to have domestically made chips satisfy 70% of its demand under the “Made in China 2025” initiative, designed to promote the country’s high-tech industries. But the share will only slightly exceed 20% in 2024, forecasts U.S.-based IC Insights. It is crucial for China to step up chip production as tensions with the U.S. grow.
China is a cutting-edge player when it comes to designing chips, such as those used to control smartphones. But it lags significantly on mass-producing chips, and on making semiconductor-manufacturing equipment. Some industry insiders say SMIC is two or more generations behind TSMC in technology.
Aggressive investments have helped China close the gap in production capacity. As of December, it ranked fourth in the world, according to IC Insights — ahead of the U.S. but behind Taiwan, South Korea and Japan. China is expected to climb to third place in 2020 and second in 2022.
But challenges remain in product quality, with only a handful of Chinese chipmakers competitive globally. One example is Huawei unit HiSilicon, known for designing cutting-edge logic chips used in smartphones and servers. Yet even HiSilicon relies on such contractors as TSMC for manufacturing.
This story was originally published by Nikkei Asian Review
Contact editor Yang Ge (firstname.lastname@example.org)
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