China Dominates Global Chipmaking Equipment Spending in 2023

China leads in chipmaking equipment spending

According to new Nikkei reporting, China has become the leading spender on chipmaking equipment, amassing $25 billion in investments during the first six months of 2024. Moreover, the spend is expected to continue at the same rate, with the country likely to hit $50 billion on semiconductor equipment by the end of this year. So far this year, China has spent more than South Korea, Taiwan and the US combined, highlighting the country's major buying power and its commitment to bolstering the sector amid US and EU-imposed export tariffs. Clark Tseng, SEMI's senior director of market intelligence, summarized: "Concerns over potential further [export control] restrictions also pushed them to pull in and secure more equipment they could buy in advance." Beyond the four walls of China, global chip industry association SEMI (cited in Nikkei's article) noted that the likes of Japan along with countries in Southeast Asia, America and Europe are all likely to increase spending in the sector by 2027, fuelled by the trend of localizing production in order to circumvent restrictions and tariffs as well as reduce reliance on other nations, which could pose a security issue. In comparison, South Korea, Taiwan and the US have all decreased spending in the sector year-over-year thanks to tough economic conditions. Looking ahead, this year's 20% market growth is expected to continue, with a further 20% growth predicted by 2025. While artificial intelligence has undoubtedly fuelled chip sales, future developments around software-defined vehicles and other smart technologies will continue to push the market in an upward trajectory.

China spent more on chipmaking equipment than South Korea, Taiwan, and the U.S. combined -- $25B in investments in the first half of the year

China remains the world's largest market for chipmaking equipment. China became the leading spender on chipmaking equipment this year, as Chinese semiconductor producers invested a remarkable $25 billion in the first half of 2024. This spending exceeds the combined investments of South Korea, Taiwan, and the U.S., reports Nikkei, indicating China's aggressive efforts to localize chip production and reduce reliance on foreign suppliers amid increasing concerns about potential Western trade restrictions. China is expected to spend a total of $50 billion on semiconductor equipment in 2024. This level of spending indicates Chinese chipmakers' expectations for future market demand and the overall health of the semiconductor industry. China's investment is driven by a need to secure a stable supply of chips critical to various industries, which is why over a dozen Chinese fabs are coming online in 2024 and 2025. Therefore, this surge in spending is not limited to the country's top-tier manufacturers, such as Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong, but also includes significant contributions from smaller and mid-sized chipmakers. These investments enabled China to maintain its position as the world's largest market for chipmaking equipment. Virtually all new Chinese fabs are focused on trailing nodes, as it is hard for Chinese companies to get the advanced tools required to make chips on leading-edge process technologies. China is the only major market to increase its spending on fab tools compared to the previous year despite a global economic slowdown. In contrast, Taiwan, South Korea, and North America all reduced their investments in wafer fab equipment during the same period. The spending surge in China has also significantly impacted chipmaking tool makers. Companies like Applied Materials, Lam Research, KLA from the U.S., Tokyo Electron from Japan, and ASML from the Netherlands have all reported increased revenue contributions from Chinese companies. Such contributions range from 32% at Applied to 49% at ASML. China's aggressive purchasing has driven the chip industry's capital intensity to exceed 15% annually for four consecutive years since 2021. Like global semiconductor sales, this metric is a crucial indicator of the industry's supply-demand equilibrium. The outlook for the semiconductor industry remains strong. The industry's growth in 2024 has been primarily driven by increasing demand for memory chips and chips related to AI. However, other sectors, such as automotive and industrial chips, have experienced only moderate growth as they adjust to market conditions. Nikkei reports that China's spending on new semiconductor facilities is expected to normalize over the next two years. However, global spending on semiconductor equipment is projected to rise, particularly in Southeast Asia, America, Europe, and Japan, as these regions move to bolster their chip production capabilities in the coming years.