Top China chip-maker gets state funds for US$2.4b plant

Shanghai

SEMICONDUCTOR Manufacturing International Corp (SMIC) will build a US$2.35 billion plant with funding from the government of Shenzhen, the first major project to emerge from China's masterplan to match the US and become more self-reliant as global chip supply dwindles.

SMIC on Thursday warned that shortages could worsen this year and the 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, under which it will develop and operate a chip-making plant that can produce silicon of 28 nanometers (nm) 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 per cent 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 the specifics of that endeavour 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 US.

SMIC senior vice-president Zhang Xin told the SEMICON China conference in Shanghai: "The shortage in chip manufacturing capacity is very real and the situation could deteriorate this year and the next if Chinese companies don't speed up expansion."

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 chip-making gear it needs.

It remains unclear whether the Biden administration might allow US 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.

Tie-ups with the government may prove essential in achieving the country's ambitions. Chinese chip-makers aim to progress past the more mature 28 nm nodes - now used in industries from car-making to televisions - 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 artificial intelligence (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 chip-makers 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.

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

SMIC's Shenzhen project will become one of the few plants in the country focused on 12-inch wafers rather than eight-inch ones; the larger ones save on cost because more chips can be spliced from it, but they are far more difficult to fabricate.

SMIC already operates fabrication plants (also called fabs) in four cities, including Beijing and Shanghai. It will own 55 per cent of the proposed new plant, with a government-owned entity owning up to a 23-per-cent stake.

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