China has surpassed all countries this year, spending $25 billion on chip manufacturing equipment.

Image source: SMIC/Tomshardware.com

The surge in investment comes as China seeks to localize its chip production and reduce dependence on foreign suppliers amid growing concerns about potential trade restrictions from the West. Experts predict that China’s total spending on chip manufacturing equipment will reach $50 billion by the end of 2024. Such significant investments obviously indicate the confidence of Chinese chip manufacturers regarding future market demand and the overall health of the semiconductor industry.

In view of the need for a stable supply of chips critical to various industries, more than a dozen new Chinese factories are planned to launch in 2024-2025. At the same time, the investment boom affects not only leading manufacturers such as SMIC and Hua Hong, but also smaller companies. As a result, China could retain its position as the world’s largest chip manufacturing equipment market. However, it is worth noting that the bulk of new factories are focused on producing chips using outdated technological processes, since Chinese companies still find it difficult to gain access to advanced equipment.

Despite the global economic slowdown, China remains the only economy in which investment in chip production rose in the first half compared with last year. While countries such as Taiwan, South Korea and North America have reduced investment in wafer manufacturing equipment, Chinese companies, on the contrary, continue to actively order equipment. This buying wave has already had a significant impact on manufacturers such as Applied Materials, Lam Research and ASML, which have reported rising share of revenue from Chinese customers, ranging from 32% for Applied to 49% for ASML.

It should be noted that the outlook for the semiconductor industry remains positive. In 2024, most of the growth will come from increased demand for memory chips and artificial intelligence-related chips. However, other sectors such as automotive and industrial electronics are showing only moderate growth as they adjust to current market conditions.

Nikkei analysts expect China’s investment in new manufacturing capacity to increase over the next two years. However, global spending on chip manufacturing equipment is also forecast to rise, especially in Southeast Asia, the Americas, Europe and Japan as these regions look to bolster their own manufacturing capabilities.