China's Semiconductor Production Capacity to Grow by 40% in Five Years

China's semiconductor industry is set for significant growth, with production capacity expected to increase by 40% over the next five years. This surge is driven by rapid equipment purchases and strategic investments in semiconductor fabrication facilities (fabs).

According to TechInsights, China's total silicon capacity has risen from 310 million square inches (msi) in 2018 to an anticipated 631msi in 2024. It is projected to reach 875msi by 2029. This growth is supported by increased spending on wafer fabrication equipment, which has jumped from USD 11 billion in 2018 to nearly USD 30 billion in 2023.

The expansion is primarily concentrated in 12-inch wafer fabs, although there is some growth in 8-inch and 6-inch fabs. Data from TechInsights’ Semiconductor Manufacturing Economics fab databases shows that 12-inch fabs are crucial for producing advanced semiconductors needed for modern electronics.

Historically, a large portion of China's semiconductors were exported. Now, most are consumed domestically. The key question is whether the new capacity will be used internally or if Chinese fabs will re-enter the global market, potentially undercutting prices. This concern has led the Biden administration to increase tariffs on Chinese semiconductors from 25% to 50% to protect Western chipmakers like Texas Instruments and GlobalFoundries.

Higher tariffs could increase costs for electronic and automotive OEMs relying on Chinese suppliers, potentially affecting consumer prices.

China's semiconductor production capacity is set to grow significantly, driven by heavy investment in fabrication equipment and an emphasis on 12-inch wafer fabs. This growth will have a major impact on the global semiconductor market, with important implications for pricing and trade policies.