China’s push for semiconductor self-reliance takes time

However, once it materialises, it will have a negative impact on the industry in the region 

by NUR HAZIQAH A MALEK / pic by BLOOMBERG

CHINA’S strategic move to invest funds to achieve a 70% self-sufficiency ratio in semiconductors by 2025 could boost its tech sector growth but could have a negative impact on semiconductor industry in the region including Malaysia. 

“If China is pushing for self-reliance, it will definitely take some time to achieve, however, as this materialises, it will have a negative impact on the semiconductor industry in our country,” Rakuten Trade Research VP Thong Pak Leng told The Malaysian Reserve. 

He added that due to the push and timeline for the goal to be achieved, it is a long way to go. 

Moody’s Investors Service in a report yesterday noted that according to the Observatory of Economic Complexity, Malaysia exported a total of US$9.5 billion (RM40.13 billion) in semiconductor devices in 2019 with China among its main destinations, importing a total of US$821 million worth of products from Malaysia. 

Moody’s VP and senior credit officer Lillian Li also supported the sentiment, noting that China’s goal for self-reliance is likely to be long and challenging. 

She stated the move could have far-reaching credit impacts on the sovereign, domestic companies and international manufacturers. 

“Global chip shortages and trade tensions reveal the large gap in China’s domestic supply and demand for these products. 

“China is the biggest consumer of semiconductors globally; yet its production is far below that of the US (Aaa stable), Korea (Aa2 stable) and Taiwan (Aa3 positive),” she said. 

Growth in the semiconductor industry would support Beijing’s progress in technology and the industry plan could benefit the sovereign’s credit quality if advanced technology development occurs and officer Lillian Li also supported the sentiment, noting that China’s goal for self-reliance is likely to be long and challenging. 

She stated the move could have far-reaching credit impacts on the sovereign, domestic companies and international manufacturers. 

“Global chip shortages and trade tensions reveal the large gap in China’s domestic supply and demand for these products. 

“China is the biggest consumer of semiconductors globally; yet its production is far below that of the US (Aaa stable), Korea (Aa2 stable) and Taiwan (Aa3 positive),” she said. 

Growth in the semiconductor industry would support Beijing’s progress in technology and the industry plan could benefit the sovereign’s credit quality if advanced technology development occurs and mitigate strategic vulnerabilities. “Likewise, the industry’s productivity and growth potential could increase over the longer term, strengthening the sovereign’s credit quality,” she said.

The Moody’s report also stated risks arising from potential overcapacity and investment inefficiency. “China’s plans could lead to rapid 

expansion and overinvestment in certain types of semiconductors. 

“At the macro level, overinvestment could lead to capital inefficiency and resource misallocation, as well as hurt long-term potential growth,” the international ratings firm stated. 

It added that at the company level, aggressive expansion could reduce financial viability and increase credit risks, while efficiency could decline and costs could rise. 

“Smaller Chinese producers would be most exposed to credit risks from overcapacity in the medium-term, given likely government support for large companies due to the sector’s strategic importance. 

“Competitive risks for certain non-Chinese manufacturers will intensify over time, potentially adding credit pressure to these global businesses,” Moody’s stated.