Growth Market China Investing in China: Where Which Semiconductors Are Actually Manufactured

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China is striving for self-sufficiency in semiconductors and the development of the associated ecosystem. For European companies, it is interesting to know where which production clusters with which manufacturing focus are located.

China's race to catch up in semiconductors has a regulatory and a geographical component. Put under pressure by the boycotts from the USA and the EU, the central government in Beijing is issuing action plans and a comprehensive set of regulations to further expand its own chip industry. These guidelines are then implemented in the provinces with different priorities. The central government's 15th five-year plan, which covers the years 2026 to 2030, focuses on self-sufficiency in semiconductors and the development of all associated supply chains.

The plan has not even been officially adopted yet, but it is already being poured into local five-year plans of the provinces, where targeted clusters of the semiconductor industry are being expanded in an attempt at gradual specialization. The local governments are currently introducing differentiated five-year plans "based on their respective industrial base", as the chip industry portal Bandaoti Hangye Zongheng writes.

Although the various regions of China compete with each other as locations, it is a "differentiated competition" that is controlled by Beijing to prevent too much redundancy. In other words, the aim is to prevent the same products being produced everywhere and competition within China becoming too strong, as can already be observed in some other industries. Knowledge of these new focal points of the regional clusters is of crucial importance for European companies that supply to or produce in China.

Chip Clusters in Shanghai, Jiangsu And Zhejiang

If you look at where the most investment is currently being made in the semiconductor industry, the most important chip clusters are Shanghai and the Yangtze River Delta with the provinces of Jiangsu and Zhejiang, followed by the capital Beijing and an amazing recent up-and-comer, the province of Hubei. Two other important regional clusters can be found in the Pearl River Delta and Sichuan/Gansu.

The three clusters in the Delta alone, i.e. Shanghai, Jiangsu and Zhejiang, together attract more than half of all new investment in the industry. The geographical concentration of semiconductor manufacturing in China becomes even clearer when you see that the five regions mentioned above attract more than 80 percent of all capital, even though China has a total of 21 provinces and cities at provincial level.

Differently Weighted Chip Focal Points

Shanghai and the Yangtze River Delta are traditionally the strongholds of the foundry business in China, and the largest manufacturers such as SMIC can be found here. Beijing and neighboring Tianjin have a strength in chip design and rely on the many graduates from their leading universities.

The Pearl River Delta, which in this context also includes Guangzhou and Shenzhen as well as their respective hinterlands, is known for fabless design and the outsourcing of manufacturing to specialized foundries. The other regional clusters, such as those in Sichuan province (including neighbouring Gansu) or the up-and-coming technology hotspots in Hubei and Anhui, are growing through even greater specialization in individual future technologies.

A vivid example of this is the highly ambitious Anhui with its focus on dynamic memory chips and its recently decided focus on the interlinking of artificial intelligence, semiconductor and quantum industries.

Overall, Beijing, Shanghai and Shenzhen are leading the way with their ecosystems for logic chips (SMIC, Huahong, Huawei), while Wuhan in Hubei and Hefei in Anhui excel in the production of memory chips (YMTC, CXMT). In the targeted development of clusters, China's central planners are applying a principle that applied to the entire population in the era of the great reformer Deng Xiaoping: "Let some get rich first." This time, this refers to a few regions and industrial clusters that will hopefully gradually bring technological upgrading and faster GDP growth to the whole country in a few years' time.

Important: A Look at the Five-Year Plans

Anyone who wants to be successful in business in China in the coming years or is even looking for a suitable location for production lines would be well advised to take a detailed look at the individual five-year plans. Shenzhen, for example, lists integrated circuits as a strategic industry in its plan and also mentions specific disruptive and asymmetric technologies. The aim here is to become a "first mover" and play a leading role in advanced semiconductors.

In its five-year plan, Zhejiang Province also reveals its ambition to soon achieve breakthroughs in the 3 to 7 nanometer range and is also focusing on special segments such as AI chips and those with the latest generation of RISC architectures.

Beijing is promoting several local clusters. There is the northern district of Haidian, which is sometimes referred to as the "Silicon Valley of China" and now wants to focus more on basic research into chip architectures, state-of-the-art semiconductors and EDA software. This is also where the Zhongguancun district is located, with its high density of high-tech companies, in the direct vicinity of some of the country's top universities.

And then there is the suburb of Yizhuang in southern Beijing, whose Beijing Economic Technological Development Area (BDA) with its chip industry, robotics and automation, autonomous driving and other high-tech industries has been growing by an average of eight percent per year for years. This is one of several Chinese hotspots for embodied intelligence ("embodied AI"), which the head office has also placed at the center of its efforts over the next five years.

In addition to the existing foundries, the focus in Shanghai has recently been very much on dovetailing the chip industry with AI. With the help of programs such as "Model-Driven Shanghai", for example, the development of vertical AI models is to be promoted, while at the same time research into high-quality AI chips is being driven forward.

For CEOs and strategy managers in Europe, the differentiated technology plans of these semiconductor regions provide important information for the search for new customers and sales markets, as well as concrete instructions for adapting their own corporate strategy to growth opportunities in China. (sb)

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