Chip War Heats Up: China's Massive Investment in Semiconductor Equipment
Global, Thursday, 12 September 2024.
China’s semiconductor industry is rapidly expanding, with a 62% year-on-year increase in chip-making equipment purchases, totaling over $12 billion in Q2 2024. This surge underscores China’s push for technological self-sufficiency amidst US sanctions, driving global semiconductor gear sales growth despite contractions in other major markets.
China’s Strategic Investments in Semiconductor Equipment
China’s aggressive investment in semiconductor equipment signifies its strategic push to reduce dependence on foreign technologies. As the country navigates through the complexities of US-imposed sanctions, it has managed to increase its semiconductor manufacturing capabilities, contributing to a 4% rise in global semiconductor gear sales. This growth is particularly notable given the simultaneous contractions in major markets like South Korea, Taiwan, and North America[1].
A Global Technology Cold War
Semiconductors are at the heart of a global technology cold war, with the US and China vying for dominance in this trillion-dollar market. The US has initiated the $280 billion Chips and Science Act to bolster domestic chip production and restrict advanced chip sales to China[2]. Meanwhile, the European Commission’s €43 billion Chips Act aims to achieve digital sovereignty for Europe, though experts argue it may be insufficient[2]. These geopolitical maneuvers underscore the critical importance of semiconductors in modern technology and military applications.
The Role of Unicorns in China’s Semiconductor Ambitions
China’s integrated circuit (IC) industry has become a key breeding ground for unicorns—start-ups valued at over $1 billion. Despite a decline in overall funding, these unicorns have received substantial backing, particularly in the Yangtze River Delta, China’s industrial heartland. This region accounted for 40% of all Chinese unicorns in 2023, highlighting the government’s focus on fostering self-reliance and reducing dependence on foreign technologies[3].
Technological Self-Sufficiency Amidst Geopolitical Tensions
The intensifying US-China tech war has prompted China to heavily invest in semiconductor manufacturing equipment. The country’s $12 billion expenditure in Q2 2024 on chip-making tools, including those for wafer processing, assembly, packaging, and testing, underscores its commitment to achieving technological self-sufficiency. This strategic investment not only supports the domestic tech ecosystem but also positions China as a formidable player in the global semiconductor market[4].
Impacts on Global Supply Chains
The semiconductor shortage during the COVID-19 pandemic highlighted the vulnerabilities in global supply chains, causing over $200 billion in losses for the global auto industry[2]. With Taiwan accounting for over 65% of global chip manufacturing and South Korea for over 15%, the geopolitical tensions, particularly between China and Taiwan, pose significant risks to the stability of these supply chains. Any disruption could have far-reaching consequences for industries worldwide, from automotive to consumer electronics.
Conclusion
As the semiconductor industry continues to be a battleground for technological supremacy, the investments and policies adopted by major players like the US, China, and the EU will shape the future of global technology. China’s rapid expansion in semiconductor equipment purchases and the rise of unicorns in the IC sector reflect its determination to lead in this critical field. However, the ongoing tech war and geopolitical tensions will undoubtedly influence the dynamics of this crucial industry.