Semiconductor Localization in China Accelerates to Full Speed
The localization of the semiconductor industry in China is a long-term proposition. Over recent years, the degree of localization across both upstream and downstream segments of China’s semiconductor industry chain has gradually improved. However, given the current volatile international and domestic situations, China’s semiconductor industry is being propelled to accelerate its development.
The localization of the semiconductor industry in China is a long-term proposition. Over recent years, the degree of localization across both upstream and downstream segments of China’s semiconductor industry chain has gradually improved. However, given the current volatile international and domestic situations, China’s semiconductor industry is being propelled to accelerate its development.
China's Semiconductor Industry Needs Innovation, Not Just Substitution
Ye Tianchun, Vice President of the China Semiconductor Industry Association, recently pointed out that while significant achievements have been made over the past two years in addressing key bottlenecks and gaps, simply filling those gaps may not necessarily drive sustainable growth. "Substitution should never be the theme of development," he emphasized. To achieve independent innovation, China’s integrated circuit industry needs to break free from path dependency and explore new development routes, focusing on "building an internal circulation and guiding dual circulation" to reshape the industry structure.
Semiconductor Equipment: A Golden Development Period
The past four years have marked a golden period for China's semiconductor equipment industry. The global chip shortage that began in 2020 triggered a wave of wafer fab capacity expansion worldwide, spurring rapid development in upstream equipment and materials. More importantly, the acceleration of China’s localization process, combined with fluctuating international dynamics, has pushed China’s semiconductor equipment sector into high-speed growth.
According to industry reports, Chinese mainland equipment can now cover nearly all stages of semiconductor manufacturing processes (except for photolithography), with significant breakthroughs in equipment localization across many areas, such as etching, CMP, thermal treatment, and thin-film deposition. The domestic localization rate for semiconductor equipment has grown dramatically, from 21% in 2021 to 35% in 2023. Many companies, including North Huachuang, Naura, Tongwei, and Jingce Electronics, are making continuous innovations in etching, ion implantation, testing, and core components.
China's Role as the Largest Semiconductor Equipment Market
China has become the world’s largest semiconductor equipment market. In the first half of 2024, China’s spending on chip manufacturing tools reached a record $25 billion, surpassing the total spending in Taiwan, South Korea, and the U.S. By 2026, global spending on 300mm wafer fab equipment is projected to grow by 11%, reaching $136.2 billion.
Responding to AI Demand: Storage Industry Seeks Innovation
The rise of AI is driving an increase in storage demand. Chinese storage companies are expanding DRAM capacity to compete in the market, particularly in DDR4 and LPDDR4 products. With the rapid growth of AI, high-performance HBM and large-capacity flash memory products are in great demand, providing opportunities for domestic DRAM manufacturers to gain a foothold in advanced storage technologies, including HBM and DDR5.
While China’s storage market is still heavily influenced by international giants like Samsung, SK Hynix, and Micron, the country is making headway in both memory and flash storage, especially in AI-driven applications. The "storage power" challenge in AI data centers presents significant opportunities for domestic storage manufacturers.
Silicon Carbide (SiC) Accelerates into the 8-Inch Era
One of the most exciting developments in China’s semiconductor industry is the rapid growth of the silicon carbide (SiC) sector. China has become a leader in SiC, with more than 100 companies in the country now involved in SiC development. The country is making significant progress in the production of 8-inch SiC wafers, with major companies such as XINLian Integrated and Silan Microelectronics leading the way. As electric vehicles (EVs) continue to grow in China, SiC’s role in power devices for EVs is a key growth driver.
Mainland China Becomes Key Player in Mature Process Capacity
China’s wafer foundries are poised to be the main growth force in mature semiconductor processes. By 2025, mainland China is expected to account for over 25% of the global market share in mature process nodes, particularly in the 28nm and 22nm ranges. Domestic players like SMIC and HuaHong Semiconductor are expanding their production capacity in these areas to meet the increasing demand for ICs used in smartphones, PCs, AI servers, and automotive applications.
Advanced Packaging: A Focus on 2.5D and Chiplet Technologies
As the semiconductor industry approaches the physical limits of transistor density and chip size, advanced packaging technologies such as system-in-package (SiP), 2.5D, and chiplet are becoming increasingly important. These technologies enable the continued scaling of performance without requiring further reductions in node size, thus ensuring that China remains competitive in the post-Moore’s law era.
Conclusion
In summary, the localization of China’s semiconductor industry is gaining significant momentum. From semiconductor equipment to storage and SiC technologies, China is pushing forward with ambitious plans for self-reliance and innovation. As AI, electric vehicles, and other high-tech sectors drive demand for semiconductors, China’s role as a global powerhouse in semiconductor manufacturing is becoming increasingly undeniable.
