Capital market eyes chip sector as global sales share of Chinese semiconductor expected to rise to 17% in 2024
Global sales share of Chinese semiconductor expected to rise to 17% in 2024
Published: Jan 24, 2022 07:30 PM


The US House of Representatives will soon introduce a bill to increase US competitiveness as it relates to China and boost federal spending on semiconductors, Speaker Nancy Pelosi said on Friday as the Biden administration seeks to boost domestic chip production, Reuters reported.

Domestic chip production is the US' own prerogative, but its attempt to undermine the Chinese industry could have unintended effects, as China's chip industry continues to develop with more attention from capital markets, according to analysts. 

The reported that the number of Chinese chip design companies has jumped up by 26.7 percent to 2,810 in 2021 from 2019's 1,780, citing Wei Shaojun, deputy director general at China Semiconductor Industry Association.

This speed of growth is unprecedented, well above rates in comparable countries, and that of market expectation, Xiang Ligang, an independent tech analyst, told the Global times on Monday.

"Chinese chip manufacturing industry has accelerated its development forward 10 years," he said. 

Fueling the boom

According to domestic corporate portal Qichacha, by September 2021, there were 86,400 chip-related enterprises in China, up from the 20,900 in 2020, representing year-on-year growth of 207.39 percent.

A major reason for the current wave of chip investment is the US blockade and export restrictions, a co-founder of one major Chinese AI companies told the Global Times on condition of anonymity.

"Previously, as long as we have chips to use, not too many people bother with the idea of producing domestically manufactured chips. After being stuck, the whole industry began to realize the value of chips, both from a security and economic point of view," the individual said.

Tian Runjuan, vice general manager from BOCOM International Science and Technology Innovation Private Fund Management (Shanghai) Co, also noted that the investment market for semiconductor circuits is becoming increasingly crowded, especially after 2019, with the opening of the Science and Technology Innovation Board, and the establishment of the Beijing Stock Exchange, which allowed technology-driven enterprises to quickly enter the secondary market.

Since 2019, BOCOM International has set up a number of science and technology innovation funds on the Chinese mainland to invest across the semiconductor field, including design and material equipment.

Enterprises have been more focused on development of core technologies brought about by the China-US trade war, and combined, these factors have ushered in a relatively large development opportunity, Tian said.

"Although the investment track for the semiconductor industry is very crowded at the moment, we expect that the next five to 10 years will still be a golden period for the industry, given the policy support, a process of domestic substitution, and a demand in China's downstream market and semiconductor's nature as the crown of basic technology," Tian said.

Tian noted that in the next one to two years, the company will further explore designs for medium and high-end chips, core manufacturing equipment, materials and some core parts along the industrial chain, in addition to AI chips, Internet of things chips, and third-generation semiconductor chips.

In addition to policy encouragement and venture capital there were also other reasons pushing the wave of investment. 

In the era of artificial intelligence, there is a deeper coupling trend between computing power and algorithms, a trend which has been accelerated by the demand for chips, the AI company insider said.

Demand for chips is dozens of times what it was a few years ago. For example, even car head lights require chips. The servers used in the booming cloud computing sector also bring huge demand for chips, the person said.

Rising market share

Businesskorea reported citing the report of the US Semiconductor Industry Association, that by 2024, the sales share of Chinese semiconductor companies in the global market will rise from 9 percent in 2020 to 17 percent, achieving a market scale of $116 billion dollars.

Compared with the continuous rapid growth of China's semiconductor industry, sales of the US semiconductor industry which accounted for 50 percent of the market in 2015, will fall below 40 percent in 2024, although Intel Corp said on Friday it would invest up to $100 billion to build potentially the world's largest chip-making complex in Ohio.

Catching up with the US in chips will be a long-term process, the person with the AI enterprise said.

"I don't think it will be possible in 20 years as the competition ranges from basic science and materials research to chip designs and foundry," the person said.

For institutional investors like Tian, the difficulties lie in discovering which hidden champion enterprise to invest in, which compared with the capital available on the market is not enough.

She said that when selecting the investment targets they will look at certain standards, including the market space, technical barriers, the professional background of the founding team and whether the products have been proven by the market. 

"According to these standards, there are not many projects that meet the standards. In terms of capital, the supply is still greater than the demand," Tian said. "In fact, it remains a challenge for investors to select the appropriate targets and obtain good returns," she said.

Although there is also over investment, or you may call it "a bubble," this has come about as a result of pressure tactics regardless of cost, the person with AI enterprise said. 

"Chipmaking is not a cheap business. The public should also have some tolerance for money burning. For example, foreign tech giants are known to burn through massive budgets without having produced a single practical product at present," the person added.

During the 14th Five-Year Plan (2021-25) period, the central and local governments have announced various support for qualified enterprises to strengthen the domestic industry.

For example, Shanghai, a major innovation base for the semiconductor industry has plans to encourage more leading firms to design chips with 3 nanometers or less technology to build a national-level electronic design automation (EDA) platform to advance the semiconductor industry and enhance market competitiveness in the next five years.