According to the global chip industry association SEMI, China, which has made an intensive effort to localize chip supply and reduce the risk of further export restrictions by the West, spent more on chip production equipment in the first half of the year than South Korea, Taiwan and the US combined.
According to SEMI data, China, the world's largest semiconductor equipment market, spent a record $25 billion on chip vehicles in the first six months of 2024. China maintained its strong spending until July and is said to have another full-year record on track.
Investment in semiconductor equipment is an important indicator of future market demand and a barometer of industry expectations.
China is expected to be the largest investor in the construction of new chip factories, which also includes the purchase of equipment, and total expenditures are expected to reach $50 billion for the entire year.
SEMI expects a significant annual spending increase in Southeast Asia, America, Europe and Japan until 2027 due to the onshoring trend of semiconductor production.
Clark Tseng, SEMI's senior director of market intelligence, said, “We see China continues to take all the equipment they can get for new mature knotted chip manufacturing facilities. “Concerns about further [export control] restrictions also pushed them to buy and secure more equipment they could have bought in advance,” he added.
Tseng spoke at a press conference before the opening of the SEMICON Taiwan industrial fair, which will last from Wednesday to Friday.
The analyst said that China's record investment in chip production equipment came with increasing acceleration not only from top chip manufacturers such as Semiconductor Manufacturing International Corp., but also from medium and small-scale chip manufacturers.
“At least more than 10 second-tier chip manufacturers are also aggressively buying new vehicles, driving China's overall spending,” he said.
China became the only country to continue to increase its spending on chip manufacturing equipment on an annual basis in the first half of this year amid the global economic slowdown. South Korea spent less on chip production equipment compared to the same period as North America a year ago. The island of Taiwan also spent less than the mainland.
It was noted that the revival of the demand for memory chips and the increase in demand for artificial intelligence-related chips were effective in the growth of the semiconductor industry of approximately 20% this year. Other sectors experienced modest growth of only between 3% and 5% as the automotive and industrial chip markets went through the correction process.
"We expect to see another 20% growth in 2025, which will be an important year for equipment expenditures," Tseng said.
China is the largest source of revenue for the largest chip manufacturing equipment providers. According to the last quarterly results of Lam Research and the US KLA, Applied Materials accounts for 32%, 39% and 44% of their revenues, respectively.
According to the statements of the companies, the Chinese market is very critical for Tokyo Electron, Japan's number 1 chip instrument manufacturer, which obtained 49.9% of its revenue from this country in the June quarter, and for the Dutch ASML, which obtained 49% of its revenue from it.
China's intensive buying orientation has helped the chip industry's capital density exceed 15% for four consecutive years since 2021. Capital density, like global semiconductor sales, is known as an important indicator of the chip industry's supply-demand balance.
“In the last 30 years, the capital density has been below 15%, and now it looks like more than 15% will become a new normal,” Tseng said, adding that an extremely high rate would trigger oversupply concerns.
However, Tseng said SEMI expects total spending to build new factories in China to “normalize” in the next two years.