TSMC's Valuation Surpasses SMIC, Highlighting Hurdles for China's Chip Fund
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China Faces Uphill Battle in Closing Chipmaking Gap with Taiwan
The disparity in share prices between Taiwan Semiconductor Manufacturing Co. (TSMC) and China’s largest chipmaker, Semiconductor Manufacturing International Corp. (SMIC), is at its widest in nearly two decades, underscoring the hurdles Beijing faces in bolstering its domestic semiconductor industry.
This year, TSMC's stock has surged 48% in Taipei, buoyed by its state-of-the-art chipmaking capabilities. In contrast, SMIC's shares have dropped by 7.5%, positioning the annual performance gap between the two companies to be the largest since 2005. This divergence continues in the midst of efforts by China’s biggest semiconductor investment fund, Big Fund III, to enhance the local sector amidst US measures aimed at curbing its growth.
Shen Meng, a director at Beijing-based investment bank Chanson & Co., notes that advancing SMIC's technology cannot be achieved swiftly, even with substantial investments. Presently, China can manufacture 7-nanometer chips, lagging two generations behind the most advanced chips in commercial production. The country aims to advance to 5nm amidst restrictive US policies.
TSMC leverages extreme ultraviolet (EUV) lithography equipment to produce cutting-edge 3nm chips. However, such advanced tools cannot be sold to China due to export controls. Bloomberg Intelligence analyst Charles Shum highlights that even if SMIC could produce 5nm technology chips, the costs would be at least ten times higher than those manufactured at TSMC without EUV machines. He emphasizes that the technological gap is not just about achieving a certain level but how effectively it can be done.
The government has so far disclosed limited information regarding the third iteration of the National Integrated Circuit Industry Investment Fund, commonly known as Big Fund III. Nevertheless, investors are hopeful that it will address some of the sector's problems. Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management Co., anticipates that the new fund will concentrate on advanced technologies, including wafer manufacturing, packaging, process control, and equipment materials. Additionally, the fund may also target investments in AI chips, according to Li Xun, an investment adviser at Guotai Junan Securities Co.
