25 billion US dollars China invests more in chip equipment than Korea, Taiwan, and the USA combined

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In the first half of 2024 alone, China invested USD 25 billion in machinery and equipment for semiconductor production, with projections suggesting this figure could reach USD 50 billion by year-end.

China spent more on chip manufacturing in the first half of the year than South Korea, Taiwan, and the USA combined. According to the economic newspaper Nikkei Asia, citing the semiconductor industry association SEMI, the country has already invested $25 billion in new manufacturing facilities and equipment for semiconductors in the first six months of 2024. None of the other mentioned countries spent more than $12 billion during the same period.

Forecasts from the semiconductor association indicate that these numbers are likely to rise even further: By the end of the year, experts from SEMI expect China to spend a total of 50 billion US dollars on back-end and front-end facilities.

China primarily hoards older technologies

"We observe that China continues to buy as much equipment as possible for its new chip manufacturing plants," said Clark Tseng, Senior Director of Market Intelligence at SEMI. "Concerns over potential further [export control] restrictions have prompted them to secure more equipment that they can purchase in advance."

The magnitude of the investment is even more remarkable given existing export restrictions that prevent China from acquiring technology to manufacture modern high-end chips. At the end of last year, the United States further tightened its existing Chips Act. This prohibits manufacturers and equipment suppliers from selling and supplying advanced chip technology, such as TPUs for AI acceleration or modern manufacturing facilities for producing semiconductors with cutting-edge process technology, to China. The EU has largely joined this ban - thus, the leading manufacturer of semiconductor production equipment, the Dutch company ASML, can currently only sell older technologies to China. However, this has not stopped China from spending enormous amounts to localize its chip production and thereby make its supply chain more independent from foreign deliveries as much as possible.

The global market is currently largely driven by increased demand for modern NAND memory chips and semiconductors for AI technologies—technologies that largely fall under the export ban to China. On the other hand, the market for legacy chips—semiconductors from older generations—is currently experiencing very minimal growth. The SEMI report speculates that only a portion of China's current investments goes into the construction of new fabs and facilities. The majority of purchases are likely being held in stock and not immediately installed, in case the USA and the EU further tighten their existing export restrictions.

China's investments drive the global market

China's investments are benefiting equipment manufacturers significantly. The Japanese company Tokyo Electron marked the largest revenue increase, deriving 49.9% of its total revenue from the sale of manufacturing technologies to China in the last quarter alone. American firms such as Applied Materials, LAM Research, and KLA respectively owe 32%, 39%, and 42% of their quarterly revenue to Chinese trade. For ASML, this figure stands at 49%—despite the company being unable to sell its most advanced equipment, which comprises about half of its total portfolio, to China due to existing export restrictions.

China's shopping spree in the manufacturing and equipment market has been unrelenting for six years now. Predominantly driven by investments from the Asian country, the capital intensity of the chip industry has been above 15% for four consecutive years since 2021, according to SEMI. Capital intensity, like global semiconductor revenue, is an important indicator of the balance between supply and demand in the chip industry.

"In the past 30 years, capital intensity was below 15%, and now it seems that a value above 15% is becoming the new normal," said Tseng, adding that too high a percentage might raise concerns about an oversupply. Nonetheless, SEMI expects that the total expenditures for building new fabs in China will "normalize" in the next two years.

Chip sales from the USA surpass sales from China

In this context, it is interesting to note that for the first time in five years, chip sales from the USA have generated more revenue than semiconductor sales from China: According to the industry association SIA, sales from the USA in July amounted to $15.4 billion, while China achieved only $15.2 billion in the same period. Worldwide, according to SIA, chip sales in July were $51.3 billion, 18.7% higher than in July 2003 ($43.2 billion) and 2.7% higher than in June 2024 ($50 billion).

This article was first published on our sister website www.ELEKTRONIKPRAXIS.de (german Language), Vogel Communications Group

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