TSMC Up 48% This Year, SMIC Down 7.5%
China's 7nm Production Up to 4 Generations Behind TSMC
Impact of Export Controls on Advanced Semiconductor Equipment Like EUV
The stock price gap between SMIC, China's largest chip foundry (semiconductor contract manufacturing) company, and Taiwan's TSMC has widened to a record level. Although China has entered the 10th year since establishing a national fund worth tens of trillions of won to foster the semiconductor industry, analysts say it is difficult to catch up with the technological gap due to U.S. export controls and other factors.
According to Bloomberg on the 11th (local time), TSMC's stock price on the Taiwan stock market has risen 48% this year, while SMIC's stock price on the Hong Kong stock market has fallen 7.5% during the same period. The annual stock price return gap between the two companies this year widened to about 55.5 percentage points, the largest since 2005 (about 65 percentage points).
Bloomberg noted that this gap occurred while China was aggressively investing in the revival of the semiconductor industry. In 2014, China established the first fund of the "National Integrated Circuit Industry Investment Fund," also known as the "Big Fund." At that time, it was raised with a scale of 98.7 billion yuan, and the second fund established in 2019 reached 204.1 billion yuan. Based on this fund, China has provided funding to SMIC, as well as Hua Hong Semiconductor, flash memory manufacturer Yangtze Memory Technologies (YMTC), and several small companies and funds.
However, despite this expanded investment, it was insufficient to surpass TSMC's dominance. Currently, the semiconductor chips that can be produced with China's technology are 7 nm (nanometers; 1 nm = one billionth of a meter). This is two generations behind the 5 nm chips, which are currently the most sophisticated commercially produced chips. In contrast, TSMC produces chips up to 3 nm using extreme ultraviolet (EUV) lithography equipment from the Dutch company ASML. Although China is recently exploring ways to move toward 5 nm chip production, it is evaluated that finding a breakthrough is difficult due to U.S. export controls on advanced semiconductor equipment.
Sean Meng, director at Beijing-based investment bank Xiang Song & Co., pointed out, "Enhancing SMIC's technological capabilities is not something that can be achieved overnight just because there is abundant funding." Charles Shum, a Bloomberg Intelligence analyst, explained, "Even if SMIC can produce chips using 5 nm technology, without EUV equipment, the cost will be at least 10 times higher than what TSMC produces. The technological gap is not just about reaching a certain level but also about how effectively it can be achieved."
As China's semiconductor ambitions lose momentum, attention is focused on whether the newly established "Big Fund 3" can build an independent semiconductor supply chain in response to U.S. regulations against China, including tariff increases. The third fund, registered with Chinese financial authorities last month, has operating capital of 344 billion yuan (approximately 64.7 trillion won), the largest scale ever, equivalent to the combined size of the first and second funds. Although specific investment areas have not been disclosed, the market expects it to focus on developing manufacturing equipment subject to export restrictions, as well as nurturing Chinese manufacturers related to silicon wafers, chemicals, and industrial gases. Xiang Xiaotian, director at Shanghai Chengzhou Investment Management (SCIM), assessed, "The new fund is expected to focus on advanced technologies including wafer manufacturing, packaging, process control, and equipment materials."
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