Analysis: Chinese Chipmaker Rally Reflects Broader Industry Upswing

Shares of Chinese chipmakers experienced significant gains at the end of September due to newly announced economic stimulus measures, although these gains have since been partially reduced. These considerable growths in market valuations align with broader positive trends in the semiconductor industry.[para. 1][para. 2][para. 3]

Semiconductor Manufacturing International Corp. (SMIC), the leading chipmaker on the mainland, surged by 87% between September 26 to reach a peak not seen in four years, closing at HK$33.30 ($4.28), which positions the company's valuation at HK$265.5 billion after the boost.[para. 3] On the same timeline, another notable mainland chipmaker, Hua Hong Semiconductor Ltd., also saw its shares rise by 80%, marking a sharp increase in its market value to HK$55.9 billion.[para. 5]

Many other semiconductor stocks registered gains, as evidenced by stocks like Shanghai Fudan Microelectronics Group Co. Ltd. and BOE Varitronix Ltd., which rose 123.6% and 45.3%, respectively, echoing overall momentum in these industries.[para. 6] The Hang Seng Tech Index recorded a 3.05% increase, hitting a mark not seen in over two years, while the broader Hang Seng Index climbed up by 1.6%.[para. 8]

Analysts largely credit this boom to Beijing's most recent macroeconomic stimulus initiative. The intervention made Hong Kong's stock market more attractive to foreign capital, as lower overall valuations since 2020 created lucrative investment opportunities for keen investors during the mainland's National Day holiday trading pause.[para. 9] This indicates a resurgence for Hong Kong-listed chipmakers, with firming domestic consumer electronics demand poised to bolster production capacities at major wafer foundries.[para. 11]

During this time of recovery, SMIC and Hua Hong reported increases in their production as consumer electronics demand rebounds. From a low of 76.8% in Q4 of 2023, SMIC's capacity utilization recovered to 85.2% by the end of June, and Hua Hong's utilization surged from 84.1% to nearly 98%.[para. 11] However, these gains brought concerns regarding the potential oversupply of chips using mature process technology, fueled by boosted manufacturing.[para. 14][para. 15]

Despite these investor worries, which are largely centered around excess supply and increased domestic competition, some see a positive outlook. Foreign capital expressed concerns about whether aggressive capacity expansions would exacerbate the oversupply problem due to the generous subsidies for chipmaking equipment and competitive pricing pressures. In contrast, analysts like Brady Wang noted that the demand for specific integrated circuits helps keep SMIC's capacity utilization strong. This growth is attributed to China's strategic push toward chip self-sufficiency amid rising geopolitical tensions and growing markets like AI applications.[para. 16][para. 17][para. 21]

The strategic emphasis on self-sufficiency aligns with the broader goal to increase domestic production capabilities in mature process technologies, which are increasingly relevant within consumer electronics, automotive, and industrial sectors.[para. 21][para. 23] In particular, AI applications contributed substantially to semiconductor industry growth, reportedly adding at least a 10% increase in the market during the third quarter.[para. 25]

Globally, the semiconductor market is poised to grow by 17% year-on-year, reaching $620.2 billion, with China anticipated to account for nearly one-third of this value, bolstered by domestic demand and expanded capacity.[para. 27] However, the past week's stock volatility, including SMIC and Hua Hong's declines on Tuesday, reflects market challenges and sentiment shifts.[para. 28]