China’s Chip Spending Slows as Focus Shifts to Domestic Tech, Report Finds

Investment in China’s semiconductor industry continued to decline during the first half of the year due to cyclical adjustments within the sector. However, the decrease was notably smaller compared to the previous year, according to a recent report. Additionally, the investment focus is shifting more toward chip manufacturing equipment as the country accelerates its efforts to strengthen supply chain independence.

Total investments in China’s semiconductor industry dropped 10 percent in the six months ending June 30th year-over-year, reaching CNY455 billion (approximately USD63.3 billion). This decline is a considerable improvement from last year when investments plummeted by 42 percent, totaling CNY683.1 billion (about USD95 billion).

Among the various segments, semiconductor equipment was the only area to experience growth in the first half of the year, with investments increasing by 53 percent from the previous year to CNY34.7 billion (around USD4.8 billion). This uptick reflects China’s emphasis on localizing chip manufacturing tools to ensure supply chain security amid U.S. tech restrictions, according to Shanghai-based research firm CINNO.

Investment in semiconductor materials decreased by 8 percent to CNY59.3 billion (roughly USD8.3 billion). Nevertheless, the share of spending on high-end materials grew substantially. Third-generation semiconductor materials, like gallium nitride and silicon carbide, made up 27 percent of the segment’s investments, while specialty electronic gases accounted for 19 percent, the report states.

Despite challenges posed by the global semiconductor market slowdown and international technology restrictions, China’s chip industry is gaining momentum by restructuring its investment strategies. The focus is increasingly on localizing equipment manufacturing and innovating materials to establish a foundation for future industrial upgrades, CINNO noted.

Wafer production continues to dominate sector spending, with CNY234 billion (around USD32.6 billion) invested in the first half of the year—more than half of total industry investment. However, this represents a 5 percent decrease from the previous year, indicating that investments in mature process nodes may be reaching saturation.

Investments in chip design, as well as packaging and testing, saw sharper declines, falling by 24 percent and 28 percent respectively, to CNY85.3 billion (approximately USD11.9 billion) and CNY41.7 billion. These reductions highlight weak demand in the consumer electronics sector, according to CINNO.

Regionally, eastern Jiangsu province led the country with a 21 percent share of total industry investment. It was followed by Shanghai with 19 percent, southeastern Zhejiang province with 14 percent, and both Beijing and Hubei province, each with 13 percent. Together, these five regions accounted for around 80 percent of China’s semiconductor sector investments.

Looking forward, the future growth of China’s semiconductor industry will depend primarily on three key factors: breakthroughs in independent innovation, proactive use of industrial policies, and the ability to sustain international technological cooperation, CINNO explained.