China has outspent South Korea, Taiwan, and the United States combined on chip-making equipment. With a staggering $25 billion invested in just the first half of 2024, China is fast becoming the world’s largest spender in the semiconductor industry, according to reports from Nikkei. This aggressive investment comes as China pushes to reduce reliance on foreign suppliers and brace itself against potential Western trade restrictions.
China’s $50 Billion Bet on Chips
The $25 billion invested so far is just half of what China plans to spend this year. Industry insiders predict that Chinese semiconductor companies will allocate a total of $50 billion in 2024, a figure that dwarfs previous years. The motivation behind this spending spree is clear: ensuring a stable and self-sufficient supply of chips. These components are essential to industries ranging from consumer electronics to automotive and national security. Over a dozen new Chinese fabs (semiconductor fabrication plants) are expected to come online in the next two years, indicating that this surge in spending is more than a short-term strategy—it’s a foundational investment in China’s technological future.
China’s Expanding Fab Presence
Leading manufacturers like Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong aren’t the only players driving China’s investment. Smaller and mid-sized firms are also making substantial contributions, helping to push China ahead of its competitors. Notably, China’s new fabs are primarily focused on producing chips using mature technologies rather than cutting-edge nodes. This is due in part to China’s difficulty in acquiring the advanced equipment needed for next-generation chip production, a consequence of tightening export restrictions from the West.
Despite these challenges, China is the only major semiconductor market that increased its fab tool spending in 2024, even as the global economy slowed. Meanwhile, key competitors in Taiwan, South Korea, and North America have reduced their investment in semiconductor equipment.
Impact on Global Chip Equipment Makers
China’s massive spending spree has sent ripples through the global supply chain, particularly benefiting companies that produce chip-making tools. U.S.-based Applied Materials, Lam Research, and KLA, along with Japan’s Tokyo Electron and the Netherlands’ ASML, have all seen significant revenue boosts from Chinese clients. ASML, which specializes in the production of advanced lithography tools, reported that nearly half of its revenue now comes from China, underscoring how critical Chinese demand has become for global chip tool makers.
This demand has also driven the chip industry’s capital intensity above 15% for four consecutive years since 2021. In simple terms, this means that companies are pouring more money into maintaining and expanding production capacity, a direct result of rising semiconductor demand across industries.
What’s Driving Semiconductor Growth?
While the overall semiconductor market is experiencing healthy growth, certain sectors are surging ahead. Memory chips and AI-related chips have seen an explosion in demand, largely driven by the rise of AI-powered technologies, cloud computing, and data center expansions. However, the automotive and industrial sectors have experienced more moderate growth, as manufacturers recalibrate to match market conditions.
Future Outlook for China and the World
Though China’s spending on semiconductor capacity is expected to stabilize in the coming years, the broader semiconductor industry shows no signs of slowing down. Southeast Asia, the Americas, Europe, and Japan are all forecasted to increase their investments in chip-making equipment as global demand continues to rise.
China’s dominance in semiconductor spending sends a clear message: it is committed to leading in one of the world’s most critical industries. With the global chip race heating up, it remains to be seen how other nations will respond to China’s monumental push toward technological self-sufficiency.
For more on China’s chip-making investment, visit the full article on Tom’s Hardware.