Foreign media: China starts accelerating its efforts to increase semiconductor self-sufficiency

According to foreign media reports on July 8, Chinese companies hoping to localize semiconductors are rapidly expanding their financing scale. China is doing its utmost to increase its semiconductor self-sufficiency rate.

According to a report by the Nikkei on July 7, China's semiconductor self-sufficiency rate is just over 10%, but its smartphones and equipment for the next-generation communication network 5G, which occupy a relatively high share of the global market, have given China great international influence. If the United States drives China out of the semiconductor market in order to curb China's rise in the high-tech field, China will not only encounter difficulties in the production of the above products, but will also likely be at a disadvantage in the Sino-US hegemony struggle.

The Nihon Keizai Shimbun has compiled statistics on the amount of stock financing for semiconductor-related companies based on data from Chinese private databases, corporate announcements, and media reports. The amount of financing as of July 5, 2020 reached 144 billion yuan, significantly exceeding the amount of financing for the whole of 2019 (about 64 billion yuan) in about half a year.

The report believes that the reason is that the "chip war" launched by the United States has caused the Chinese government to feel a sense of crisis. In 2018, Chinese communications equipment company ZTE was hit by the embargo sanctions imposed by the Trump administration of the United States. Huawei Technologies also encountered trouble in purchasing the most advanced semiconductors and had difficulty importing some semiconductor manufacturing equipment.

According to reports, China's central and local governments have successively established semiconductor funds aimed at achieving localization of semiconductors and began to invest in Chinese companies.

China established a government-run semiconductor fund, the National Integrated Circuit Industry Investment Fund, in 2014, and completed an investment of 140 billion yuan by 2019. The second phase of the National Integrated Circuit Industry Investment Fund was established in the fall of 2019 and will start investing in 2020. Shanghai and Beijing have also established funds, and the central and local governments are working together to support the localization of semiconductors.

According to the report, a representative example is China's large semiconductor foundry company Semiconductor Manufacturing International Corporation. SMIC was listed on the Science and Technology Innovation Board this month and may raise 50 billion yuan. The company also received 2.25 billion US dollars (1 US dollar is about 7.03 yuan - this website note) in financing.

The US Integrated Circuit Research Corporation predicts that China's semiconductor self-sufficiency rate will reach more than 20% by 2024. The company's data also shows that as of December 2019, Taiwan, South Korea, and Japan ranked among the top three in the world in terms of semiconductor production capacity, while mainland China ranked fourth, but has surpassed the United States. Mainland China is expected to rank third in 2020 and rise to second place in 2022.

According to a report on the U.S. Consumer News and Business Channel website on July 7, China's large chip manufacturer SMIC launched a stock issuance activity worth 46.28 billion yuan on the 7th.

This is more than double the company's initial fundraising target. As investor excitement grows ahead of SMIC's Shanghai listing, its Hong Kong-listed shares have surged. In fact, the company's Hong Kong shares have risen about 26% in the past five days and are up more than 200% so far this year.

China is ambitious to increase its chip self-sufficiency rate, and SMIC is considered a key player in this effort. This round of financing may help SMIC catch up with its competitors TSMC and South Korea's Samsung Electronics.

SMIC will initially issue 1,685.62 million shares at a price of RMB 27.46 per share. If demand is high, underwriters can increase the total number of shares issued to 1,938.463 million shares. If the over-allotment option is fully exercised, SMIC may raise RMB 53.23 billion.

According to the report, data from the US Dealogic Company showed that this stock issuance activity was the largest in mainland China in the past 10 years.