1. Analysis
July 27, 2022updated 12 Aug 2022 10:18am

China to take lead in global semiconductor growth

By Lara Williams

China will become the world’s leading semiconductor superpower on the basis of its growing domestic demand for the chips, according to GlobalData thematic research. The semiconductor industry will double in size to more than $1trn by 2030, and China will account for approximately 60% of that growth, according to the Semiconductor Industry Association and Boston Consulting Group.

However, China’s long-standing ambition to become the leader of the Fourth Industrial Revolution may depend upon how self-sufficient in chip production the country will become by 2030. At present, China consumes around 40% of all chips made globally, while being only 12% self-sufficient, according to GlobalData. The country’s requirement for semiconductors reflects its leading position in the development of smart, connected environments commonly known as the internet of things (IoT).

According to IHS Markit, there will be up to 125 billion connected devices globally by 2030. China’s IoT private equity and venture financing deal volumes reflect this growth, showing an increase from 14 deals in 2017 to 27 in 2021, with total deal values also rising from $586m in 2017 to $1.59bn in 2021, according to GlobalData figures.

Global semiconductor industry revolves around China

More than 30% of the US semiconductor industry’s revenues are derived from sales in China, according to GlobalData. In addition, China is by far the biggest market for the South Korean chip suppliers Samsung Electronics and SK Hynix. In Europe, more than 20% of Netherlands-based ASML’s revenues come from China. Fellow European companies STMicroelectronics, Infineon and NXP are also heavily reliant on China’s buying power.

GlobalData predicts that the Chinese market will play a much smaller role for foreign suppliers by 2030. More than 90% of the chips sold and used worldwide involve low-process production technology. Led by partially state-owned Chinese semiconductor company Semiconductor Manufacturing International Corporation (SMIC), China has a growing, largely state-funded semiconductor foundry sector that is steadily building capability to supply domestic demand for low-process technology production. In addition, Taiwanese semiconductor giant TSMC, the world leader in semiconductor manufacturing, has focused its business on newer-generation chips rather than its low-process legacy chip business. This will further increase opportunities for Chinese foundries to serve this legacy chip market.

Alongside this growing domestic capacity for semiconductor manufacturing, China also attracted the highest volume of foreign direct investment projects related to semiconductors during 2019–20, according to our FDI Project Database.

GlobalData research found Chinese patents declined significantly in January and April 2022. This is likely because of China's economic and public health situation, specifically the Covid-19 lockdowns and the associated costs for businesses, especially those making hardware. However, patents for semiconductors have also reduced in the US, Japan, South Korea, Taiwan and Germany in 2022, perhaps demonstrating an inflection point at which semiconductor technology is reaching its maturity.

Having said that, China has particular expertise in developing new super conductive materials. Chinese telecommunications giant Huawei is leading in photonic computing as well as the development of transistors made of graphene. In addition, China leads in outsourced semiconductor assembly, testing and packaging. The development of advanced chip packaging, new transistor architectures and new carbon-based materials could be game changers that would make China the global leader in semiconductors by 2025, according to GlobalData research.

The majority of global demand for semiconductor chips will continue to be for 28-nanometre chips and above, rather than the more advanced five or ten-nanometre chips. China is becoming more self-sufficient as domestic companies including SMIC, Hua Hong and ASMC increase foundry capacity, with at least seven major new foundries coming on stream by 2024. While no country can feasibly create a self-sufficient domestic semiconductor supply chain within 15 years, GlobalData predicts nevertheless that China will become the world superpower in chips through a combination of its growing market size and domestic production capacity.