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Top China Chipmaker Gets State Funds for $2.4 Billion Plant

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·4 min read
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(Bloomberg) --

Semiconductor Manufacturing International Corp. will build a $2.35 billion plant with funding from the government of Shenzhen, the first major project to emerge from China’s masterplan to match the U.S. and become more self-reliant as global chip supply dwindles.

SMIC on Thursday warned that shortages could worsen this year and next and wallop Chinese businesses if the country doesn’t ramp up domestic capacity now. The company has agreed to a joint venture with the southern municipality in which it will develop and operate a chipmaking plant that can produce silicon of 28 nanometers or above, it said in a stock exchange filing. The partners aim to draw third-party investment, begin production by 2022 and eventually produce 40,000 12-inch wafers a month. Its shares rose as much as 3% in Hong Kong.

China wants to build a coterie of technology giants that can stand shoulder-to-shoulder with Intel Corp. and Taiwan Semiconductor Manufacturing Co. While specifics of that endeavor won’t emerge for months, Premier Li Keqiang has pledged to boost spending and drive research into cutting-edge chips in the country’s latest five-year targets, laying out a technological blueprint to vie for global influence with the U.S.

“The shortage in chip manufacturing capacity is very real and the situation could deteriorate in 2021 and 2022 if Chinese companies don’t speed up expansion,” SMIC Senior Vice President Zhang Xin told the SEMICON China conference in Shanghai.

Beijing is moving swiftly to cut a dependence on the West for crucial components like chips, an issue that became more urgent after a global shortage of semiconductors worsened during the pandemic. Washington has also blacklisted major Chinese tech firms including SMIC, cutting it off from American technology while severely impairing its ability to procure the chipmaking gear it needs. It remains unclear whether the Biden administration might allow U.S. firms to resume selling to SMIC on a large scale, or ease up on pressuring allies in Europe and elsewhere to ringfence the Chinese company.

Read more: How China’s Top Chipmaker Can Evade Trump’s Newest Crackdown

Tie-ups with the government may prove essential in achieving the country’s ambitions. Chinese chipmakers aim to progress past the more mature 28 nm nodes -- now used in industries from automaking to TVs -- but need billions of dollars and years of trial-and-error to get into more sophisticated semiconductors for gadgets like smartphones.

Much of China’s hopes rest on making headway in burgeoning fields such as AI and third-generation chips: mainly made of materials such as silicon carbide and gallium nitride, they can operate at high frequency and in higher power and temperature environments, with broad applications in 5G, military-grade radar and electric vehicles.

On Thursday, a key semiconductor industry official called on domestic chip giants to merge with their peers, creating national champions with the wherewithal to compete globally. Apart from SMIC, China’s other prominent chipmakers include state-backed memory giant Tsinghua Group, which is spending billions to expand capacity, and players such as Huawei Technologies Co.’s HiSilicon division and AI specialist Cambricon Technologies Corp.

ByteDance Can Engrave Its Patriotism in Silicon: Tim Culpan

“More industry integration is needed to improve our resistance to risk. M&A should be encouraged,” Ye Tianchun, vice director of the China Semiconductor Industry Association, told the conference.

SMIC’s Shenzhen project would mark one of the few plants in the country focused on larger 12-inch rather than 8-inch wafers, which save on cost because more chips can be spliced from it, but are far more difficult to fabricate. SMIC already operates fabs or fabrication plants in four cities, including Beijing and Shanghai. It will own 55% of the proposed new plant, with a government-owned entity owning up to a 23% stake.

“Silicon wafer is a fundamental raw material in semiconductor manufacturing, yet it is also one of the areas in China’s semiconductor supply chain that has the lowest level of local production, especially 12-inch silicon wafers,” Li Wei, executive vice president of the National Silicon Industry Group, a state-backed wafer manufacturer, said at the conference Wednesday.

(Updates with SMIC executive’s comments from the second paragraph)

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