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Heavyweight investing: US-backed sanctions against China are upending the technology industry. While the most advanced Western nations are investing billions in the latest chipmaking equipment, China is being forced to settle for older technology – often at a high cost.
China spent $25 billion on chip manufacturing tools in the first six months of 2024 and plans to spend an additional $25 billion by the end of the year. According to a new report by Nikkei Asia, China is now outspending South Korea, Taiwan, and the US combined on chipmaking machines in a clear effort to bolster its local manufacturing industry.
Estimates of China's "frantic" push toward chipmaking localization were provided by the global chip industry association Semi. Clark Tseng, Semi's senior director of market intelligence, highlighted how China continues to buy all the manufacturing equipment it can to improve its chipmaking capabilities, particularly for mature processor nodes.
Due to sanctions, Beijing has little chance of acquiring the most advanced chipmaking devices currently on the market. Dutch company ASML, the world's leading supplier of extreme ultraviolet (EUV) lithography equipment, is selling most of its newer technology to Intel, TSMC, and other foundry customers outside China.
China's communist government is concerned about further US efforts to control the export of chipmaking machines, Tseng said. As a result, Beijing authorities have pushed companies to acquire more specialized equipment in advance. The purchasing spree involves both large chipmakers like Semiconductor Manufacturing International Corp. and smaller ventures seeking growth opportunities in the chip industry.
According to Semi, at least 10 "tier-two" chipmakers are aggressively buying new manufacturing tools, further driving China's spending. The country continues to account for a significant portion of revenue for equipment manufacturers, with ASML deriving 49 percent of its earnings from Chinese customers. Similarly, China provides 32 percent, 39 percent, and 44 percent of revenues for Applied Materials, Lam Research, and KLA, respectively.
China is now the largest revenue source for Tokyo Electron, with 49.9 percent of the company's earnings in the last quarter coming from the Chinese market. Semi noted that China's substantial spending has pushed the capital intensity of the chip industry above 15 percent for four consecutive years. Capital intensity is a key indicator of how supply and demand are balanced in the industry, the organization explained. Semi also suggested that China will likely "normalize" its efforts to build new chipmaking plants over the next two years.