Chinese Semiconductor Stocks Surge: Expert Explains Why

China started its third state-run fund of $47.5bn in a bid to support the semiconductor industry. Why has the country done this, and what will be its impact on the semiconductor industry?

The Big Fund, established last week, is a part of China’s wider efforts to become a leader in all the major and relevant industries. This has been enshrined in the ‘Made in China 2025’ roadmap.

Why Did China Create a New Fund?

The fund was divided into three phases. The first phase saw an investment of $19.2 billion in 2014, while after five years, the second fund’s capital was increased to $28.2 billion.

The initiative aims to build China’s chip industry according to international standards by 2030 and invest mainly in manufacturing, design, equipment, and materials. At 17%, China’s finance ministry is the largest shareholder, while China Development Bank Capital is the second largest, with a 10.5% holding. Additionally, 17 entities are?registered as investors, including five major Chinese banks.

This recent development came after the Biden administration imposed further tariffs on Chinese EVs, increasing them fourfold to 100 percent. While tariffs for other items like lithium batteries, certain steel, and aluminium products were tripled from 7.5% to 25%, semiconductor duties will be doubled at 50% from August 1st.

Semiconductor Stocks On the Rise

After the news came, semiconductor stocks in China rallied. Chip-making companies, such as NAURA Technologies, registered a 3% gain this week.

Meanwhile, Hua Hong Semiconductor increased by 5.6%. Semiconductor Manufacturing International Corp rallied 8.6%, and GigaDevice Semiconductor added 1.7%.

Chinese stocks received further support after the release of industrial data showing positive results. The CES CN Semiconductor Index rose 3.3%.

Chinese Semiconductors: Expert Take

Marc Ostwald, Chief Economist at asset company ADM ISI, told Techopedia that China’s current efforts are directed toward greater self-sufficiency and stronger supply chains. These efforts are largely dictated by the actions taken by the US and, latterly, the EU to decouple and China’s perceptions about its national security interests.

“It still lags in high-end chips (Nvidia and Arm type), which is one area that the $47 billion will heavily be directed toward. There will doubtless be many claims that it has “stolen” some of the technology, but at the end of the day, it will develop its own variation,” Ostwald clarified.

When asked about the potential market for China in the face of rising tariffs, he commented:

“Start with the Global South, though India will doubtless be looking to work more with the West, and all of those countries focused more on developing their economies than getting embroiled in the NATO vs. SCO geopolitical tensions. The sad part of this is that this technological “cold war” will mean a vast amount of money will be spent on developing the same technologies (i.e., likely doubling research costs).”

Global Semiconductor Competition Intensifies

It isn’t only China where the semiconductor industry is undergoing pivotal changes, but the phenomenon seems to be true globally.

Korea

Recently, South Korea announced a $19 billion support package for its semiconductor industry. Last year, the country claimed to build the largest chip industry in the world, and the latest announcement is a part of creating what is being called a “mega chip cluster”.

President Yoon Suk Yeol also mentioned the creation of a $734 semiconductor ecosystem fund designed to support small and medium enterprises linked to the industry.

Samsung also announced a $330 billion 5-year investment plan in May 2022 to become a leader in the global chip making industry. South Korea provides 80 percent of the global memory semiconductors.

Malaysia

Malaysia has also joined the competition, aiming to attract $107 billion in investment to become an important semiconductor industry. The plan further entails the establishment of 10 local companies with an anticipated revenue between $210 million to $1 billion, for which the country aims to invest $5.3 billion in order to provide support.

Malaysia wants to build the world’s largest integrated circuit Design Park.” The country is important in the global semiconductor industry, providing 13% of global testing and packaging. Infineon and Intel have also invested considerably in the country.

UK

UK’s Semiconductor Institute has also announced that it will act as a bridge between academia, government, and the private sector to support the government’s Semiconductor Strategy, which has earmarked ￡1 billion for the sector’s growth.

Since the Semiconductor Strategy was launched, the UK government has invested ￡22 million in innovation and knowledge centers, along with an incubator, Chipstart. Silicon Catalyst UK Angels is partnering with this incubator to help budding companies in a bid to establish themselves in the global semiconductor game.

According to an industry outlook by Deloitte, the global semiconductor market will register a sale of $588 billion, 2.5% higher than the 2022 record revenue of $574 billion. With China stepping up its game and South Korea, Malaysia, the UK, and even India warming up, the global game of semiconductors is about to get even more interesting.