China Pursues Semiconductor Self-Reliance Amid US Sanctions... Blind Investment Boom

50,000 Companies Register Semiconductor Businesses...Most Are Technology Experts
Semiconductor Firms Raise $38 Billion...Lack of Core Technology

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] The Wall Street Journal (WSJ) reported that in China, where supply shortages are worsening due to U.S. semiconductor export restrictions, companies lacking experience and technology are rushing in, turning investments into blind ventures. It has been pointed out that China needs to start with foundational investments in semiconductor talent development to catch up with semiconductor technology that lags behind not only the U.S. but also Taiwan by about five years.

On the 16th (local time), WSJ cited data from market analysis firm S&P Global Market Intelligence, reporting that Chinese semiconductor companies have raised approximately $38 billion through public offerings, private equity, and asset sales. The amount of funds secured is said to be more than double that of last year.

The reason Chinese semiconductor companies could raise such large sums is due to expectations stemming from the Chinese government's policy-driven efforts to foster the semiconductor industry. In a situation where semiconductor supply shortages are worsening due to U.S. sanctions, the government’s plan to grow the semiconductor industry is based on the calculation that profits will be guaranteed.

However, the problem is that everyone is rushing into the semiconductor industry indiscriminately. According to WSJ, more than 50,000 Chinese companies newly registered semiconductor-related businesses this year, which is four times the number five years ago. Even companies in industries hardly related to semiconductors, such as food service or real estate development, have listed semiconductors as new business ventures. Since August, the Chinese government has promised tax exemptions and government funding support for semiconductor companies, leading many companies to enter the semiconductor field aiming for subsidies.

China is facing a situation where semiconductor supply cannot keep up with demand, not only due to U.S. sanctions but also because of the rapidly growing electric vehicle market?the largest in the world?and the 5th generation (5G) network project aimed at nationwide coverage, as well as surging investments in solar panels. However, China’s share of semiconductor production in the global market is only about 5%, and it relies heavily on imports because its technology lags behind U.S. and Taiwanese companies by more than five years.

The Chinese authorities have set semiconductor technology self-reliance as one of the major national goals. Since May, President Xi Jinping has ordered the acceleration of development in core industries including semiconductors, announcing an investment of $1.4 trillion (about 1,700 trillion KRW) by 2025 for the development of third-generation semiconductors. However, WSJ pointed out that the semiconductor sector is unlikely to achieve satisfactory results through massive capital investment alone, unlike simple manufacturing or heavy industry.

It is also known that Chinese authorities are concerned about resource waste due to blind investments. WSJ quoted a source from China’s National Development and Reform Commission saying, "Companies with little experience and technology have recklessly rushed into the semiconductor sector," and "some local governments, without understanding the semiconductor industry, have started blind projects." Earlier in May, Huawei Chairman Ren Zhengfei also stated in an interview, "The IT industry mistakenly thinks that money alone can solve everything like building roads or bridges, but semiconductors cannot be done with money alone," adding, "We must first nurture experts in basic sciences such as mathematics, physics, and chemistry."

Accordingly, the Chinese government plans to nurture 250,000 semiconductor experts by 2022 and has decided to significantly increase support for semiconductor-related departments in universities. Although $13 billion has been invested in semiconductor talent development across six regions in China, WSJ reported that many difficulties are being faced as education through external personnel or exchange student programs has become difficult due to U.S. sanctions.

This content was produced with the assistance of AI translation services.