Thank You, Mr. Trump - China Should Become the World's 3rd-Largest Semiconductor Manufacturer by 2024
China does not yet have the know-how of Taiwan for the most advanced chips, but for how long?
The White House is probably already biting its fingers. The US sanctions imposed by former President Donald Trump in 2019 against Huawei and then in 2020 against SMIC, the Chinese semiconductor giant, are paradoxically accelerating China's rise in this ultra-critical sector. And Chinese chipmakers are posting record results.
In 2021, sales of chips made in China grew by 18%. For the first time, the symbolic 1,000 billion yuan (more than $150 billion) mark has been passed, according to the China Semiconductor Industry Association, the official industry body. Knowing that in 2020, the Chinese chip industry had already recorded a growth ... of more than 30%, according to the Semiconductor Industry Association (SIA), which defends the interests of the American industry.
As a result, in five years, China's share of global chip production has doubled. With 9% of the market, the world's second-largest economy has already overtaken Taiwan and is on a par with Japan and the European Union (10%). If the Chinese industry manages to maintain a 30% growth rate over the next three years, Xi Jinping's country could double its market share again. With a potential 18% market share in 2024, China would then be just behind the United States and South Korea, according to the SIA.
Initially, however, US sanctions, in the broader context of the trade war between China and the United States, were a blow to Chinese champions in the sector. These measures were aimed at cutting them off from their suppliers in the United States. For this purpose, Washington had placed on its famous “Entity List” some 300 Chinese companies, including Huawei, SMIC, the champion of video surveillance Hikvision or the world leader in drones DJI. Once on this list, the companies concerned can no longer source free from the United States, unless they have a special license.
Huawei was thus deprived of the 5G chips from the American Qualcomm that used to run its high-end smartphones. Due to the lack of chips, the Chinese giant was forced to launch 4G models and its market share melted like snow in Europe. For SMIC (which produces chips), the warning shot was mainly on the stock market. Since its last peak in July 2020, the group's share price on the Hong Kong stock exchange has been halved.
A growing demand
But faced with this blow, China has organized itself. The country has been seeking for years to reduce its dependence on foreign countries and become more autonomous on these components that are essential for 5G, aeronautics, automotive, Internet of Things …
Between January and April 2022, the country still imported $134 billion worth of chips, according to customs. The American sanctions have only accelerated this strategy of independence and upmarket, with a flood of public money and state plans in the long term.
SMIC, for example, has significantly increased its capacity (+20% in one year) to meet the growing demand of its Chinese customers like Huawei. And the Shanghai-based group will invest $5 billion in 2022 in three new factories in addition to the six existing ones. Other Chinese foundries are also boosting capacity. In 2021 alone, $26 billion has been invested in 28 new plants across the country, according to SIA.
In addition, a slew of Chinese companies is getting into the semiconductor business, but on the upstream side, including chip design and development. In 2020, 15,000 new Chinese companies entered the sector, according to the SIA. Like Huawei, Alibaba, Baidu, and Tencent are also working on their in-house chips.
China does not yet have the know-how of Taiwan for the most advanced chips, but for how long?
Despite this rise, China does not yet have the know-how to develop the most advanced chips. At this stage, Taiwan's TSMC, the world's largest chipmaker, retains technological leadership by far. The 5-nanometer chips generate 20% of its turnover and its first 3 nm chips, even thinner, should leave its factories by the end of the year...
The United States has understood this. Donald Trump even convinced TSMC to build a $12 billion factory in the heart of Arizona, to the great displeasure of Beijing. On Monday, June 21, 2022, Eric Schmidt, the former head of Google, urged Washington to get even closer to TSMC and Samsung, while “America is about to lose the battle of the chips.” According to the American SIA, China will be able to catch up with its technology “over the next decade”.
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