Semiconductor bankruptcies in China Wave of insolvencies among semiconductor manufacturers in China—a continuing trend?

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Unsettled times: The domestic investment boom in the semiconductor industry of the People's Republic of China seems to have hit its limits. The bankruptcy of the well-known company Shanghai Wusheng Semiconductor is causing analysts to fear that the wave of bankruptcies in China's semiconductor sector in 2020 is picking up pace again.

When we talk about the semiconductor industry, it's usually about the fact that our modern life would be unthinkable without chips made from materials that lie between electrical conductors and non-conductors. No modern electronic device would run without the chips that have gained complexity and lost size over the past decades. If you know something about the production of semiconductors and also have some capital backing you, you might think you're betting on a sure thing.

And the big corporations, like the world's largest contract manufacturer TSMC, are unlikely to be worried about their finances. The situation looks different for small manufacturers and apparently particularly for companies that have emerged in China in recent years, like mushrooms after a mild autumn rain.

Because the market is fiercely contested and the investments in the technology necessary for production are apparently making life difficult for a whole range of manufacturers. As reporters from the China Times recently reported, the company Shanghai Wusheng Semiconductor, which focused on the development and production of power semiconductors and power modules for the energy, automotive, and industrial sectors, had to file for bankruptcy. Financial difficulties, however, can also be detected in other places.

23 companies withdraw their initial public offering

In 2023 alone, 23 companies withdrew their IPO registration for going public. It seems that a wave of bankruptcy is sweeping over the Chinese semiconductor market. This is not new.

"Since 2014, when mainland China promoted the development of the semiconductor industry and the US sanctions against Huawei were increasingly tightened, there has been a concerted effort to break through. Hundreds of billions of yuan were plowed into industry subsidies, semiconductor parks sprang up everywhere, and countless companies flocked in, triggering a whole movement," writes China Times. In 2020 alone, over 50,000 companies were registered that were associated with the semiconductor industry. The same year also saw the start of the trend of unfinished semiconductor projects.

Fear of the wave of bankruptcies

In 2021, over 10,000 chip-related ventures had to be unwound again, as Anton Shilov from Tom's Hardware notes. There were nearly 6,000 in 2022, and almost 11,000 in 2023. Based on these experiences and with the news of Wusheng Semiconductor's bankruptcy, there are fears in the People's Republic that the wave of bankruptcies, which was believed to have stopped, is rolling again.

"Several high-profile projects have failed, including the collaboration between GlobalFoundries and Chengdu, which did not materialise, and the Wuhan Hongxin project, which was exposed as a fraud," said Shilov. The withdrawn IPOs also show that investments in the Chinese semiconductor market are currently being viewed rather cautiously.

"It is expected that the tightening of IPO guidelines in 2024 will make it more difficult for underqualified semiconductor companies to raise capital. Experts believe that higher stock exchange admission standards will result in more companies exiting the market due to financial challenges and increased difficulties in securing investments," says Shilov.

Is China's government unfazed—or is it actively counteracting the trend?

After the constantly raised and renewed sanctions on products exported to China by American manufacturers, the Chinese government continues to focus heavily on subsidizing the development and production of semiconductors in its own country. This is particularly evident through the investments in the Big Fund, with recently 43 billion euros made available in the Big Fund III for semiconductor equipment suppliers, and with initiatives such as the ban on AMD and Intel CPUs from government computers. Also, new regulations such as incentivizing the use of domestic products in electric cars play into these strategies.

Although the USA recently raised import tariffs for Chinese electric cars and the European Economic Area threatened to increase punitive tariffs as part of the EU Commission's anti-subsidy investigation, the Chinese electric car market continues to grow. The Federal Statistical Office Destatis reported 129,800 pure electric cars worth 3.4 billion euros imported from China to Germany in 2023. In the first quarter of 2024 alone, 40.9 percent of the electric cars imported by Germany came from China. This market will not disappear overnight. And apart from the EU economic zone and the USA, there are other lucrative markets for Chinese electric vehicle manufacturers, such as Central and South America or India. (sb)