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China's chip-making tool industry unites behind self-sufficiency drive but huge challenges remain

China's chip-making capabilities remain highly reliant on imported parts for key semiconductor equipment, with even mature processes not completely free of US sanctions, according to industry experts attending a chip-manufacturing tool event in the country.

Representatives from more than 600 Chinese semiconductor equipment companies including Naura Technology Group, Advanced Micro-Fabrication Equipment, and US sanctions-hit Shanghai Micro Electronics Equipment (SMEE) were in attendance at the three-day China Semiconductor Equipment Annual Conference 2023, which kicked off on Wednesday in Wuxi, eastern Jiangsu province.

Despite wide support for China's semiconductor self-sufficiency drive, industry professionals said bottlenecks in the country's chip equipment sector extend far beyond closely-watched lithography systems and include etching, robotic arms, valves, high-end tubes, materials, and certain equipment for making third-generation semiconductors, such as silicon carbide.

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"We have huge gaps with foreign companies in the semiconductor industry and we are facing enormous challenges in technology, key parts and talent," said Jacky Lin, founder and CEO of Honghu Suzhou Semiconductor Technology, a supplier of wafer transport equipment, during a panel discussion at the event on Wednesday.

Lin, a former Semiconductor Manufacturing International Corp veteran who left to start Honghu Semiconductor in 2011, said that more than 80 per cent of wafer transport systems used in domestic fabs have been supplied by American and Japanese companies such as Brooks Automation and Rorze Corporation.

Suzhou-based Honghu Semiconductor, which started as a maintenance company, became a supplier to the world's leading foundry Taiwan Semiconductor Manufacturing Company in 2021 but has faced difficulties in localising its own parts procurement due to weakness in the supply chain, according to Lin.

Despite the challenges, Chinese chip-making tools and components makers have stepped up to try and fill the gap posed by tough US trade sanctions, with many domestic foundries keen to try out China suppliers to bolster supply chain security despite cost and quality concerns.

"Without US sanctions, China's semiconductor industry would probably have continued on its old path as a pure chip equipment buyer, manufacturing for others," Lin said.

Other speakers backed Lin's remarks, saying that despite the tough environment, US sanctions had handed domestic equipment suppliers an opportunity, even in areas that have not had to face restrictions.

"We had a prolonged [period] whereby Chinese chip design firms wouldn't opt to tape-out in domestic fabs, with fabs not willing to use domestic equipment, and domestic equipment firms not buying parts from domestic parts suppliers," said Zheng Guangwen, chairman of Shenyang Fortune Precision Equipment.

"However, facing an existential threat from foreign sanctions, the whole industry has come together to work more closely."

Tape-out is the final result of the design process for integrated circuits or printed circuit boards before they are sent for manufacturing.

China's domestic semiconductor equipment market is expected to double to 60 billion yuan (US$8.3 billion) in 2025, up from 30 billion yuan last year, according to data provided by Zheng.

However, the jury is still out on whether China can make sufficient breakthroughs in the key chip equipment sector, especially in lithography systems, an area where China currently relies on exports from Japan and the Netherlands.

SMEE has reportedly made a breakthrough with a lithography system capable of making chips on the 28-nm mature node. The company has a low-key booth at the event, with few materials on display.

A SMEE engineer, who asked for anonymity due to the sensitivity of the matter, told the Post that he was aware of the media reports about this technology breakthrough but could neither confirm or deny the information. He added that the 28-nm mature node process could still be targeted by US sanctions.

Jeff Zhao, a marketing and strategy manager at CanSemi Technology, a major state-backed foundry based in the Greater Bay Area, said China's current localisation rate in lithography systems is less than 5 per cent, compared with an average equipment localisation rate of 36 per cent, far behind China's tacit goal of using 70 per cent locally-procured equipment.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2023. South China Morning Post Publishers Ltd. All rights reserved.