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Der Blog für digitale Kompetenz

Thousands of Chip Factories in China are shutting down

According to a report by DigiTimes, about 10,000 Chinese companies specializing in chip development have shut down operations between 2021 and 2022.

As part of the “Made in China 2025” strategy, the Chinese government has made increased efforts to strengthen the domestic semiconductor industry. This has led to a wave of start-ups in recent years, creating thousands of new companies in the chip industry. However, this strategy didn’t really work for various reasons, which is why most of their plants have now closed again.

Tausende Chip-Fabriken in China schliessen

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Thousands of Chip Factories in China are shutting down

According to a report by DigiTimes, about 10,000 Chinese companies specializing in chip development have shut down operations between 2021 and 2022.

As part of the “Made in China 2025” strategy, the Chinese government has made increased efforts to strengthen the domestic semiconductor industry. This has led to a wave of start-ups in recent years, creating thousands of new companies in the chip industry. However, this strategy didn’t really work for various reasons, which is why most of their plants have now closed again.

Tausende Chip-Fabriken in China schliessen

Topic Overview

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China’s dependence on imported chips remains

China’s dependence on imported chips remains

In 2014, China launched the US$22 billion National Integrated Circuit Industry Investment Fund, also known as the “Big Fund“, as part of the “Made in China 2025” strategy to reduce its dependence on imported chips to reduce. So far, however, there has been no success. Currently, only 16 percent of semiconductors in China are locally produced, and these are among the least demanding in each category. Last year, China announced a second “big fund” to invest another $29 billion in semiconductor development. Despite these efforts, China still imports about 90 percent of the chips it needs.

The closure of the chip manufacturers has very different reasons. For example, there has been significant abuse of subsidies and corruption in the past. In addition, the “human factor” plays a crucial role: many new Chinese companies did not have the necessary management know-how to design or manufacture competitive chips. In addition, there is a lack of sufficiently qualified specialists in China who can work in this high-tech field. The largest chip manufacturer in the world remains the undisputed Samsung based in South Korea.

China’s zero-Covid policy has also contributed to the bankruptcy wave, as it led to a collapse in production and consumption in many developed countries around the world last year, severely affecting demand for domestic chips. In addition, US sanctions prevent the import of urgently needed technology and know-how to China.

The most advanced Chinese chip company is Semiconductor Manufacturing International Corporation (SMIC), based in Shanghai. Similar to Huawei, SMIC is on US Departments of Commerce and Defense watch lists, severely limiting its access to US technology and funding. Without foreign support, SMIC is still a long way from making a chip like the Kirin 9000 for smartphones, for example.

groesste chiphersteller weltweit

Source: Statista

Wie Albert Einstein schon sehr treffend sagte: “Die Definition von Wahnsinn ist, immer das Gleiche zu tun und andere Ergebnisse zu erwarten”

The Kirin 9000, like other leading CPUs, was designed for silicon wafers that are five nanometers in size. In the case of semiconductors, the smaller the better. Currently, SMIC can only produce 14 nanometer chips. Although plans have been announced for making seven nanometer chips, they lack the appropriate machinery and tooling to make those plans a reality.

In an interview with Discourse, George Calhoun, a professor at the Stevens Institute of Technology in New Jersey, describes the “Beijing art of failure“: It is a top-down, Soviet-style program in which a lot of money is invested and Subsidies are provided for all. This has already been tried several times. In the latest round, Beijing rolled out a new set of incentives for semiconductor companies.

As Albert Einstein once said, “The definition of insanity is doing the same thing over and over and expecting different results.”

In 2014, China launched the US$22 billion National Integrated Circuit Industry Investment Fund, also known as the “Big Fund“, as part of the “Made in China 2025” strategy to reduce its dependence on imported chips to reduce. So far, however, there has been no success. Currently, only 16 percent of semiconductors in China are locally produced, and these are among the least demanding in each category. Last year, China announced a second “big fund” to invest another $29 billion in semiconductor development. Despite these efforts, China still imports about 90 percent of the chips it needs.

The closure of the chip manufacturers has very different reasons. For example, there has been significant abuse of subsidies and corruption in the past. In addition, the “human factor” plays a crucial role: many new Chinese companies did not have the necessary management know-how to design or manufacture competitive chips. In addition, there is a lack of sufficiently qualified specialists in China who can work in this high-tech field. The largest chip manufacturer in the world remains the undisputed Samsung based in South Korea.

China’s zero-Covid policy has also contributed to the bankruptcy wave, as it led to a collapse in production and consumption in many developed countries around the world last year, severely affecting demand for domestic chips. In addition, US sanctions prevent the import of urgently needed technology and know-how to China.

The most advanced Chinese chip company is Semiconductor Manufacturing International Corporation (SMIC), based in Shanghai. Similar to Huawei, SMIC is on US Departments of Commerce and Defense watch lists, severely limiting its access to US technology and funding. Without foreign support, SMIC is still a long way from making a chip like the Kirin 9000 for smartphones, for example.

groesste chiphersteller weltweit

Source: Statista

Wie Albert Einstein schon sehr treffend sagte: “Die Definition von Wahnsinn ist, immer das Gleiche zu tun und andere Ergebnisse zu erwarten”

The Kirin 9000, like other leading CPUs, was designed for silicon wafers that are five nanometers in size. In the case of semiconductors, the smaller the better. Currently, SMIC can only produce 14 nanometer chips. Although plans have been announced for making seven nanometer chips, they lack the appropriate machinery and tooling to make those plans a reality.

In an interview with Discourse, George Calhoun, a professor at the Stevens Institute of Technology in New Jersey, describes the “Beijing art of failure“: It is a top-down, Soviet-style program in which a lot of money is invested and Subsidies are provided for all. This has already been tried several times. In the latest round, Beijing rolled out a new set of incentives for semiconductor companies.

As Albert Einstein once said, “The definition of insanity is doing the same thing over and over and expecting different results.”

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About the Author:

Michael W. SuhrDipl. Betriebswirt | Webdesign- und Beratung | Office Training
After 20 years in logistics, I turned my hobby, which has accompanied me since the mid-1980s, into a profession, and have been working as a freelancer in web design, web consulting and Microsoft Office since the beginning of 2015. On the side, I write articles for more digital competence in my blog as far as time allows.

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About the Author:

Michael W. SuhrDipl. Betriebswirt | Webdesign- und Beratung | Office Training
After 20 years in logistics, I turned my hobby, which has accompanied me since the mid-1980s, into a profession, and have been working as a freelancer in web design, web consulting and Microsoft Office since the beginning of 2015. On the side, I write articles for more digital competence in my blog as far as time allows.

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