China‘s semiconductor index hit a near three-year high on Monday, as a U.S. order to halt shipments of advanced chips from Taiwan Semiconductor Manufacturing Co to Chinese customers could accelerate Beijing’s drive for self-sufficiency.
TSMC will suspend shipments of certain advanced chips to some Chinese customers starting Monday after receiving a letter from the U.S. Commerce Department imposing export restrictions on those products, Reuters reported on Sunday.
Analysts said that while the move could be painful in the short term for Chinese companies developing chips for artificial intelligence accelerators and graphics processors, it could benefit the domestic chip sector as the companies have few alternatives.
The CSI Semiconductor Index rose more than 6% during trading on Monday to its highest level since December 20, 2021, while the CSI Integrated Circuits Index gained 5%. Shares of SMIC, China’s largest foundry and the main alternative to TSMC, rose more than 4%.
“In the medium and long term, this will force supply chain reorganization, increase demand for domestic production capacity for advanced processes and promote technological breakthroughs in upstream semiconductor equipment and materials,” Chinese brokerage Cinda Securities said in a note published on Sunday.
Several Chinese technology companies and chip designers have sought to develop their own advanced processors in recent years after the U.S. imposed sanctions on Huawei Technologies and banned Nvidia and AMD from selling their most sophisticated chips to China.
Many rely on Taiwanese company TSMC, the world’s leading contract chip manufacturer, for production. In the third quarter, 11% of TSMC’s revenue came from China, the company said.
The US has imposed export restrictions on TSMC chips measuring 7 nanometers or larger, Reuters reports.
The only foundry in China capable of producing chips in the 7nm process node is SMIC. SMIC is known for helping Huawei produce chips used in the company’s latest smartphones, including the Mate 60 and Pura 70.
Analysts said SMIC makes such advanced chips using equipment supplied by companies such as ASML of the Netherlands and Applied Materials of the United States, which the company had in stock before U.S. sanctions took effect.
However, SMIC has struggled to ramp up production as U.S. export controls prevented the company from purchasing the equipment needed to make advanced chips, while domestic alternatives are not yet ready for the effort.
Reuters reported in February that production constraints forced SMIC to prioritize making AI chips for Huawei over making smartphone chips, as the former are seen as more strategically important.
