Spurred By US Sanctions, China Supercharges Its Chipmaking Industry

    The chip industry in China is growing much faster than the rest of the world after US sanctions on local champions, including Huawei Technologies and Hikvision, spurred demand for homegrown chipsets.

    What is More?

    According to data compiled by Bloomberg, 19 of the top 20 fastest-growing chip firms for the last four quarters are from the second-largest economy. Last year around the same time, there were just eight firms from China. The Chinese-based design software suppliers, processors, and chip-making are increasing their revenues more than global leaders ASML Holding NV or Taiwan Semiconductor Manufacturing Co.

    The supercharged growth in China underscores the tensions between Beijing and Washington in the $550 billion global semiconductor industry- a critical sector that has a role in everything today – from defense to future tech industries like autonomous cars and AI. In 2020, the USA started restricting sales of American technologies to Chinese firms such as Hikvision and Semiconductor Manufacturing International Corp. this helps to contain their growth but, in the process, also fueled a boom in Chinese chip-making and supply capacity.

    Shares of companies like Camricon Technologies Corp have doubled from the lows early this year, with analysts predicting more room for growth. Beijing is planning to invest billions of dollars in this sector under an ambitious program known as “Little Giants,” where the blueprint is to bankroll and encourage homegrown tech champs and buy Chinese chips to sidestep sanctions from the US.

    Some of the indigenous names that have grown and have caught attention are Yangtze Memory Technologies Co. which was considered an iPhone flash memory supplier to Apple Inc.

    Beijing’s main ambition is to wean away from the US, with more than $340 billion of imported chipsets in 2021. As local plants expanded capacity, orders for chip-making equipment’s from overseas suppliers increased by 58% last year. This is driving local business in turn. According to China Semiconductor Industry Association, sales rose 18% in 2021 to #150 billion (1 trillion Yuan).

    Chips shortages have persisted, forcing the world’s largest consumer electronics and automakers to curtail their production. This has also helped the local Chinese chipmakers quickly access the international markets and often sell components, especially for auto and PC, at a premium.

    The largest contract chip manufacturers Hua Hong semiconductors and SMIC have been operating their Shanghai based plants working at total capacity despite Covid -19 paralyzing the plants and logistics across China.

    SMIC reported a 67% growth in its quarterly sales and, along with other rivals like TSMC and Global Foundries, was helped by local authorities and cargo flights from Japan to deliver essential materials to chip plants.

    According to Morningstar, the aggressive capacity enhancement by Chinese manufacturers will elevate the global presence, putting aside long-term profitability fears.


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