China to expand semiconductor development

Since the global pandemic took place in March 2020, semiconductor shortage has increasingly become an issue that nations can’t ignore. Pressure is coming from both supply and demand.

Advancement of technology over the past two decades means an increasing demand for greater connectivity and computing power, all of which require advanced semiconductors for its “intelligence”. As an example, a new car currently has 40% of it build cost generated by semiconductors and this is expected to grow to 50% over the next 10 years.

In terms of supply, there are political blocks to various companies obtaining the necessary advanced machinery required to produce semiconductors. In addition, production of semiconductors uses considerable amounts of water, and the Taiwan region, one of the largest producers of semiconductors is currently in a drought.

China is on the move to address this issue – the Vice Premier Liu He, has recently been appointed to lead the third-generation semiconductor development and capabilities, which involves formulating financial and policy supports in the sector, as well as overseeing projects related to development of China’s own chip design software and extreme ultraviolet lithography machines.

In the latest Five-year plan (FYP 2021-2025) released in October 2020, the nation’s priority is to focus on independence of science and technology innovation, in light of the US ban on the Chinese 5G smartphone producer Huawei. China is now accelerating its effort to reduce reliance on foreign chips suppliers, while ramping up domestic R&D and capacity. According to a whitepaper by Analysys Mason¹, the revenue growth of the top 25 listed Chinese semiconductor companies reached 18% p.a. vs 4% for the industry worldwide from 2010 to 2020.

Semiconductor capacity expansion will be a growth theme in the Chinese IT sector. VanEck provides investors with a way to participate in what may be the next growth phase for Chinese semiconductors via our VanEck Vectors China New Economy ETF (CNEW).

Examples of semiconductor/wafer themed stocks currently in CNEW:

• Shenzhen Longood Intelligent Electric - It designs and manufactures electronic components, controls, switches, and other related products.

• China Wafer Level CSP - It provides Wafer level chip size package and testing services. The company's main products include image sensor chip, the ambient light sensor chip, medical and electronic devices, micro-electromechanical system (MEMS), radio frequency identification chip (RFID).

• Shenzhen Topband - It researches, manufactures and markets electronic intelligent controllers for electric household appliances.

• Sino Wealth Electronic - It designs and sells integrated circuits; main product is Micro Control Units which are used in products such as small household appliances and automotive electronics.

• Yangzhou Yangjie Eletronic Technology - It develops, manufactures and sells discrete device chips, power diodes, rectifier bridges and other semiconductor discrete products.

• Shanghai Belling - It designs, manufactures, and sells integrated circuits which are used in telecommunications and multi-media systems. It also processes silicon chips and produces other electronic components.

Read more about the technology development plan outlined in the FYP. 

1. https://www.analysysmason.com/research/content/white-papers/china-semiconductors-challenges-rdns0/