Moody's Warns of Risks from China's Semiconductor Overproduction and Inefficient Investment

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Kim Suhwan] As the Chinese government goes "all-in" on fostering the semiconductor industry, the international credit rating agency Moody's has issued a report warning about the risks of overproduction and inefficient investment in China's semiconductor sector.

According to the South China Morning Post (SCMP) on the 3rd, Moody's warned in a report published the previous day that China's attempts to expand its semiconductor industry could lead to risks of overproduction and investment inefficiency, which may hinder the Chinese government's goal of achieving self-reliance in advanced industrial fields.

In the report, Moody's pointed out, "The Chinese government's semiconductor industry investment plans could lead to fierce competition and eventually result in overproduction in certain types of semiconductor sectors that start with less sophisticated products."

Previously, China set a goal to raise its semiconductor self-sufficiency rate, currently at around 10 to 30%, to about 70% by 2025.

The report warned that smaller Chinese semiconductor companies, which receive relatively less government support compared to large corporations, may face credit risks due to potential overproduction in less sophisticated semiconductor sectors.

The report also predicted that potential overproduction could put small semiconductor companies at risk of refinancing difficulties due to large-scale debt.

According to Qichacha, a Chinese corporate information company, about 15,700 new semiconductor-related companies were registered in China between January and May this year, more than triple the number during the same period last year.

Supported by the Chinese government's semiconductor promotion policies and investments, China's semiconductor chip production reached a record high last May.

According to data from the National Bureau of Statistics of China, semiconductor chip production in China in May increased by 37.6% year-on-year to 29.9 billion units.