China is significantly increasing its spending on chipmaking machines, surpassing all other nations, as it invests heavily to bolster its local manufacturing industry amidst US-backed sanctions. A recent report by Nikkei Asia reveals that China allocated $25 billion to chip manufacturing tools in the first half of 2024 and intends to match that amount by the year’s end. This spending outstrips that of South Korea, Taiwan, and the United States combined, highlighting China’s determination to enhance its chip production capabilities.
This surge in spending comes as China faces challenges acquiring the latest chipmaking technology due to sanctions, prompting a focus on older, mature processor nodes. The global chip industry association Semi, through its senior director of market intelligence, Clark Tseng, emphasized China’s strategy of purchasing available manufacturing equipment to expand its chipmaking capacity. This move aims to counteract restrictions on acquiring cutting-edge equipment, such as the extreme ultraviolet (EUV) lithography machines supplied by Dutch company ASML, which primarily serves customers like Intel and TSMC outside China.
Beijing’s concern about potential further US export controls has spurred an aggressive acquisition drive. Both major players like Semiconductor Manufacturing International Corp. and smaller ventures are part of this buying spree. Semi estimates that at least 10 tier-two chipmakers are actively purchasing new tools, contributing to China’s dominant role in the global chipmaking equipment market. This spending also reflects in the revenue distribution for equipment suppliers; ASML, Applied Materials, Lam Research, and KLA all report significant portions of their earnings coming from Chinese customers.
Furthermore, China has become the largest revenue source for Tokyo Electron, with 49.9 percent of its recent quarterly earnings derived from the Chinese market. Semi’s analysis highlights that China’s substantial investment has driven the capital intensity of the chip industry above 15 percent for the fourth consecutive year. This metric serves as an indicator of the balance between supply and demand within the industry. Looking ahead, Semi predicts that China may gradually moderate its expansion of chipmaking plants over the next two years.
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