Chinese companies break into the semiconductor industry and harvest two trillion localized markets

On March 12, 2018, Hua Hong Semiconductor announced that its joint venture, Hua Hong Semiconductor (Wuxi) Co., Ltd., had signed an engineering general contract with two contractors on March 8, 2018. The agreement covered the design, procurement, and construction of a new facility in Wuxi City, Jiangsu Province, China. This project aimed to establish a production line for manufacturing 12-inch (300mm) integrated circuit chips. The main contractor was Information Industry Electronics Eleventh Design and Research Institute Technology Engineering Co., Ltd., while Shanghai Construction Engineering Group Co., Ltd. also played a key role. The total value of the contract was RMB 3.472 billion, including all taxes, with a planned completion date by September 2019. This project marked a significant technological breakthrough for cleanroom technology in China’s panel industry. The Eleventh Design and Research Institute, a subsidiary of Taiji Industry Co., Ltd. (listed on the Shanghai Stock Exchange as SH:600667), has been at the forefront of domestic efforts to break foreign technological monopolies. It has completed major projects such as the 8.6th Generation Xianyang Rainbow Line, the Chengdu Panda 8.6th Generation Line, and the Hefei Photovoltaic 6th Generation AMOLED Panel Line National Memory Base Project. Over the past two years, the institute has secured over 22 billion yuan in orders related to panel and semiconductor clean projects. Clean engineering, equipment, and materials are critical components of the optoelectronics supply chain. High-end display and semiconductor devices require extremely clean factory environments. With increased investment in the mainland semiconductor industry and strong national policy support, global manufacturing is shifting to China. The Eleventh Design Institute is well-positioned to benefit from this industrial transition, accelerating growth in both the panel and semiconductor sectors. Shanghai Construction Engineering Group Co., Ltd. (SH:600170), another key player in the project, is a leading construction company established in 1998. It operates domestically and internationally, specializing in infrastructure, industrial plants, and urban development. As a subsidiary of Shanghai Construction Engineering (Group) Corporation, it plays a vital role in large-scale construction projects across China. Hua Hong Semiconductor, majority-owned by China Electronics Information Industry Group and Shanghai Lianhe, has long focused on 8-inch wafer manufacturing. However, the new joint venture with National IC and Wuxi entities marks a strategic shift toward 12-inch (300mm) wafer production. The joint venture will invest a total of US$1.8 billion, aiming to design, manufacture, test, package, and sell 12-inch integrated circuits. This move is expected to capture growing domestic demand, enhance core competencies, and deliver long-term financial returns. The 12-inch wafer is currently the industry standard, offering superior yield rates and advanced production capabilities. Both foreign giants and domestic investors have prioritized expanding 12-inch wafer capacity in China, recognizing its importance in meeting market needs. Despite progress, China still relies heavily on imports for semiconductors. Annual chip imports exceed $200 billion, making them the country’s largest import category. While panel self-sufficiency has risen to nearly 60%, semiconductor self-sufficiency remains below 30%. To address this, the National Fund has invested over 138.7 billion yuan, with more than 30 new wafer fabrication lines under construction. However, even full capacity utilization would meet only 60% of domestic demand, highlighting the need for continued investment of nearly 50 billion yuan in the coming years.

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