The Chinese Semiconductor Industry is currently the world’s largest market in terms of consumption. China represents 53.7% of worldwide chip sales. However, a large percentage are imported from multinational suppliers.
The Chinese semiconductor industry is experiencing a wave of financial instability, marked by the recent bankruptcy of a major player, Shanghai Wusheng Semiconductor, and a growing number of companies withdrawing their IPO applications.
This unsettling trend has drawn attention to the challenges and vulnerabilities within China’s ambitious drive to become a global leader in semiconductor manufacturing.
Chinese Semiconductor Industry and Bankruptcy
Shanghai Wusheng Semiconductor, founded in 2021 with an investment of approximately $2.48 billion, recently declared bankruptcy due to severe financial difficulties. The company, which specialized in OLED display drivers, microcontrollers, and CMOS image sensors, was once a promising entrant in China’s semiconductor landscape.
Its downfall is linked to the earlier financial troubles of its parent companies, Wu Sheng Electronics Technology Group and Nanjing Wusheng Semiconductor Technology, later rebranded as Nanjingxin Charming Extreme Semiconductor Technology.
Impact of US Restrictions on Chinese Semiconductor Industry
The U.S. restrictions on AI chip exports to China have significantly hampered the growth of Chinese Semiconductor Industry by limiting their access to advanced computational resources. This has slowed down research and development, leading to delays in innovation and technological advancements. Additionally, these restrictions have prompted Chinese firms to seek self-sufficiency, potentially reshaping the global AI landscape in the long term.
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In July 2020, an Integrated Device Manufacturer (IDM) project worth $3 billion was launched in Nanjing, aiming to produce 40,000 300-mm wafers monthly, with an anticipated annual value exceeding ¥6 billion ($827 million).
However, this ambitious project made no substantial progress. By the end of 2020, Nanjing Wusheng Semiconductor underwent a shareholder restructuring, rebranding itself and significantly reducing its registered capital. Despite announcing an ¥18 billion yuan ($2.48 billion) investment plan in April 2021, Wu Sheng Electronics filed for bankruptcy in 2023, followed by Shanghai Wusheng Semiconductor.
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Surge in IPO Withdrawals
The financial struggles of Shanghai Wusheng Semiconductor are not isolated incidents. The China Times reports that 23 semiconductor companies have withdrawn their IPO applications since last year, indicating growing investor caution and a lack of confidence in the sector. Shanghai-based semiconductor company S2C Ltd is one such company that has withdrawn from IPO.
This trend underscores the broader issues facing the industry, where financial instability and unfinished projects are becoming increasingly common.
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The wave of unfinished semiconductor projects began in 2020, with over 10,000 chip-related companies shutting down between 2021 and 2022. In 2023, a record-breaking 10,900 semiconductor-related companies deregistered, a sharp increase from the 5,746 companies that closed in 2022. These closures reflect the broader economic challenges and competitive pressures within the industry.
High-Profile Project Failures
Several high-profile semiconductor projects in China have ended in failure, further eroding confidence in the sector. Notable examples include the failed collaboration between GlobalFoundries and Chengdu and the Wuhan Hongxin project, which was exposed as a scam. These failures highlight the difficulties faced by the industry, despite significant government support and investment.
Government’s push to develop Chinese semiconductor industry began in 2014, driven by substantial government subsidies. This initiative led to a rapid increase in the number of semiconductor companies and parks, with 50,000 semiconductor-related companies registered in 2020 alone.
Investments poured in from various provinces, including Jiangsu, Anhui, Zhejiang, Shandong, and Shanghai, as well as from government-controlled organizations.
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Investor Caution and Tightening Policies
Investor caution has become increasingly evident, with 23 companies retracting their plans to go public since early 2023. This cautious stance reflects concerns about the viability and financial health of many semiconductor firms in China. Looking ahead, the tightening of IPO policies in 2024 is expected to make it more challenging for underqualified semiconductor companies to raise capital. Higher listing standards are likely to lead to more companies exiting the market due to financial difficulties and increased investment hurdles.
Despite these setbacks, government continues to support Chinese semiconductor industry. Recently, it injected $47.5 billion into its Big Fund III, demonstrating a commitment to sustaining the sector. However, the failures and financial instability have significantly undermined confidence in the industry’s prospects.
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Chinese semiconductor industry is at a critical juncture, facing significant financial challenges and a wave of project failures. The bankruptcy of major firms like Shanghai Wusheng Semiconductor and the surge in IPO withdrawals reflect deeper issues within the sector
As investor caution grows and IPO policies tighten, the industry must navigate these challenges to realize its ambitions of becoming a global semiconductor powerhouse. The government’s continued financial support will be crucial in this endeavor, but the road ahead remains fraught with difficulties.
