‘Made in China’ chip drive falls far short of 70% self-sufficiency
16% produced domestically as equipment delays hamper push toward 2025 target
BEIJING — The Chinese government’s goal of meeting 70% of its semiconductor needs through domestic supply remains a long way off, private-sector research shows, with an estimated self-sufficiency rate of 16% last year despite an all-out government push to boost production.
With the global semiconductor shortage showing no sign of abating, China’s low domestic supply is causing headaches for the world’s top auto-producing country. “The auto industry sources less than 5% of its semiconductor supply domestically,” said Ye Shengji, deputy secretary general of the China Association of Automobile Manufacturers.
The U.S. strategy of targeting China’s access to chips has made self-reliance a pressing issue for Beijing. The “Made in China 2025” initiative announced in 2015 has aimed to lift the country’s chip production from less than 10% of demand at the time to 40% in 2020 and 70% in 2025.
The government has laid out a slew of measures to achieve one of President Xi Jinping’s policy priorities, including stepping up investment by state-backed funds focused specifically on the industry.
The government also rolled out tax and other incentives for chipmakers last year. Investments in the field more than quadrupled in 2020 to 140 billion yuan, according to Chinese media. And 884.8 billion yuan — about $137 billion — worth of Chinese-made chips were sold last year, triple the 2014 figure.
Yet imports have swelled as well to keep up with rising demand across a range of fields, not least the auto industry as electric vehicles start to gain traction and autonomous-driving technology progresses. Purchases from overseas rose about 60% from 2014 to $350 billion in 2020.
China sourced only 16% of its semiconductors domestically last year, data from market research firm IC Insights shows. The figure is even lower, at 6%, after excluding foreign companies with facilities in China, such as Taiwan Semiconductor Manufacturing, Samsung Electronics and SK Hynix. While Chinese authorities put the domestic share of supply at around 30%, this is still short of last year’s Made in China 2025 target.
Delays in shipments of chipmaking equipment have bogged down progress. “There have been delays in receiving approval for 28-nanometer and 14-nanometer equipment” from U.S. authorities, SMIC co-CEO Zhao Haijun told an earnings briefing in August.
Though the government looks to build a semiconductor supply chain that is immune to U.S. sanctions, some say that task will be easier said than done.
“Semiconductors are premised on global division of labor,” said one expert. “No country can create its own independent supply chain.”
In addition to excluding foreign-owned entities from the online space, Xi’s administration has tightened its grip on society and ideology. A more inward-looking China would stymie the efforts of global semiconductor companies to cooperate. That in turn would paradoxically dim prospects for China to attain the high level of self-sufficiency it seeks.
Semiconductor Manufacturing International Corp (SMIC) gears up to double its production by 2025
25 September 2021
It is yet to be seen how successful SMIC will be in competing with more advanced manufacturers like those in Taiwan and Samsung
One of the unforeseeable consequences of the COVID-19 pandemic is the shortage of semiconductor chips across the world. According to a report from Susquehanna Financial Group, the global chip crunch has gotten worse since July, and the wait time—the gap between the companies placing orders for semiconductors and receiving them—has hit an all-time high at 21 weeks. It has impacted several sectors, especially the consumer electronics and automobiles industries. The situation is much worse for a few Chinese companies who face the dual challenge of logistics disruption caused by the pandemic and US sanctions. However, Semiconductor Manufacturing International Corp (SMIC), China’s would-be national semiconductor champion, is determined to fill in the void by scaling up.
SMIC is on track with the construction of new chip fabrication plants in different cities, despite lingering risks of US restrictions that may prevent its acquisition of production equipment. On September 3, SMIC announced its plan to establish a new factory in the Lin-Gang Special area—part of Shanghai’s free trade zone. The proposed US $8.87-billion worth foundry has a planned monthly production capacity of 100,000 12-inch wafers. Earlier in March this year, SMIC announced that it would work with the Shenzhen government to invest in a US $2.35 billion project to produce 28 nanometre (nm) and above integrated circuits to produce 40,000 12-inch wafers per month. Last year, it unveiled its plan to partner with Beijing Economic-Technological Development Area Management Committee (BDAC) to develop facilities to produce 12-inch wafers. If all this is accomplished, SMIC’s output should nearly double by 2025. The new investments aim to ease the semiconductor shortage while reducing Chinese demand for imported semiconductors.
Despite the strong state support, SMIC is at least a decade behind the global chip giants in technology. SMIC’s most advanced production lines can manufacture 14 nm Fin Field Effect Transistor chips, while Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung are currently producing 5 nm chips and are moving towards 3nm. This means SMIC can cash in by producing automotive ICs and other semiconductor products for consumer electronics that are currently in short supply. Still, it cannot climb up the value chain anytime soon as it cannot produce advanced chips used in cell phones and PCs.
Lack of talent and access to advanced technologies are significant challenges in the path of SMIC. Since investment in research and development does not yield results instantly, SMIC has been building up its management and technical expertise by aggressively recruiting and generously rewarding engineers from foreign firms, especially TSMC, which has irked Taiwan. On the other hand, apart from putting SMIC on the export blacklist, the US has been trying to block the supply of advanced lithography machines from other countries to China.
The world’s fourth-largest chip foundry, SMIC, seems to be China’s best hope at achieving self-sufficiency in semiconductors. However, it is yet to be seen how successful that bet would be.The views expressed above belong to the author(s).