China’s semiconductor index surged close to a three-year high on Monday, spurred by speculation that a U.S. order halting Taiwan Semiconductor Manufacturing Co. (TSMC) from shipping advanced chips to Chinese customers could accelerate Beijing’s push for self-sufficiency.
Starting Monday, TSMC will suspend shipments of certain advanced chips to select Chinese clients, following a letter from the U.S. Department of Commerce imposing export restrictions on these products, according to a Reuters report from Sunday.
While analysts predict that this move could cause short-term challenges for Chinese firms involved in designing chips for artificial intelligence (AI) accelerators and graphics processing units (GPUs), it may also benefit the domestic semiconductor industry as companies have limited alternatives.
On Monday, the CSI Semiconductor Index surged over 6%, reaching its highest point since December 2021, while the CSI Integrated Circuits Index gained 5%. Shares of SMIC, China’s largest foundry and primary alternative to TSMC, rose more than 4%.
Cinda Securities, a Chinese brokerage, stated in a note on Sunday that in the medium and long term, this situation would force a reorganization of the supply chain, boosting demand for domestic advanced chip production capacity and driving technological advancements in semiconductor equipment and materials.
In recent years, several Chinese tech companies and chip designers have sought to create their own advanced processors after the U.S. imposed sanctions on Huawei Technologies and restricted companies like Nvidia and AMD from selling their most sophisticated chips to China.
These companies often rely on TSMC, the world’s leading contract chipmaker, for production. TSMC reported that 11% of its revenue came from China in the third quarter. The U.S. restrictions cover chips with designs of 7 nanometers or more advanced, as reported by Reuters.
SMIC, the only Chinese foundry capable of producing chips at the 7 nm process node, has been producing advanced chips, including those for Huawei’s latest smartphones, such as the Mate 60 and Pura 70.
However, analysts note that SMIC has faced production challenges due to U.S. export controls that prevent it from acquiring the necessary equipment for advanced chip manufacturing, and domestic alternatives are not yet ready to meet these needs.
Due to manufacturing constraints, SMIC has reportedly prioritized producing AI chips for Huawei over smartphone chips, as the former is considered more strategically important.
