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 the contractor on March 8, 2018. The agreement covers the design, procurement, and construction of a new facility in Wuxi, Jiangsu Province, China, aimed at producing 12-inch (300mm) integrated circuit chips. The project involves building several new structures and supporting infrastructure to accommodate advanced manufacturing processes. The main contractor is the Information Industry Electronics Eleventh Design and Research Institute Technology Engineering Co., Ltd., along with Shanghai Construction Engineering Group Co., Ltd. The total contract value is RMB 3.472 billion, including all taxes, and the construction was expected to be completed by September 2019, ready for the installation of production equipment.
This project marks a significant technological advancement in cleanroom technology within China’s panel industry. The Eleventh Design Institute, part of Taiji Industry Co., Ltd. (listed on the Shanghai Stock Exchange under SH:600667), has played a key role in developing domestic alternatives to foreign technology. It has successfully managed major projects such as the 8.6th Generation Xianyang Rainbow Line and the Chengdu Panda 8.6th Generation Line. Over the past two years, the company has secured over 22 billion yuan in orders for panel and semiconductor cleaning projects.
Clean engineering, equipment, and materials are critical components in the optoelectronics supply chain, especially for high-end display and semiconductor manufacturing, which require ultra-clean environments. With increased investment in the mainland semiconductor sector and strong national policy support, global production is shifting toward China. This shift offers opportunities for companies like the Eleventh Design Institute to benefit from industrial migration and further boost the competitiveness of China’s panel and semiconductor industries.
Shanghai Construction Engineering Group Co., Ltd. (SH:600170), another key player in this project, is a well-established construction company listed on the Shanghai Stock Exchange. Founded in 1998, it specializes in large-scale construction projects, including commercial buildings, transportation infrastructure, and urban development. As a subsidiary of the Shanghai Construction Engineering (Group) Corporation, it brings extensive experience in managing complex engineering contracts.
Hua Hong Semiconductor, now entering the 12-inch wafer market, is owned by China Electronics Information Industry Group and Shanghai Lianhe, with the latter holding a controlling stake. The company currently focuses on manufacturing semiconductors for specialized applications, mainly using 8-inch wafers. However, through its joint venture with National IC and Wuxi entities, it plans to expand into 12-inch wafer production. The joint venture will invest a total of $1.8 billion, aiming to produce and sell 12-inch integrated circuits.
The 12-inch wafer line is the most advanced in the semiconductor industry, offering better yield rates and more mature technology. With China's growing demand for semiconductors, the country has prioritized increasing its domestic production capacity. While panel self-sufficiency has reached around 60%, the semiconductor industry still relies heavily on imports, with annual chip imports exceeding $200 billion.
To address this gap, the National Fund has invested over 138.7 billion yuan, and local and private capital have also poured into the sector. Despite this, even with full utilization of existing wafer lines, only about 60% of the domestic demand can be met. Additional investments of nearly 50 billion yuan will be needed in the coming years to meet rising demand and reduce reliance on foreign suppliers.
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