The semiconductor industry has recently witnessed an unexpected surge, triggering significant market reactions and raising a plethora of questions about the driving forces behind this phenomenonIn a landscape already fraught with tension due to geopolitical factors, regulatory changes from both the United States and China have sparked a wave of optimism among local investors.
On the mornings of market fluctuations, Semiconductor stocks, particularly those of SMIC (Semiconductor Manufacturing International Corporation), soared dramaticallyBy just after 11 AM, SMIC's H-shares rose by over 9%, while Huahong Semiconductor saw an increase exceeding 6%. Similarly, the A-share market displayed a robust rebound, with SMIC's A-shares climbing close to 6%, and other local firms like Kangqiang Electronics and Ruixinwei achieving a remarkable daily limit increaseThe Semiconductor ETF experienced a significant boost of nearly 3%, with broader indices like the CSI 500 Futures reflecting this momentum.
But what sparked this sudden rally? Analysts believe that two major developments contributed to this upward trendFirstly, during a press briefing on October 16th, a spokesperson from China’s Ministry of Commerce stated that domestic industries possess the right to initiate anti-dumping investigations against imports of chips from the U.SThis announcement suggested that relevant investigating bodies would begin inquiries in accordance with Chinese lawSecondly, the U.SDepartment of Commerce announced updates to export regulations concerning semiconductors, particularly reinforcing control measures from previous dates in October 2022, October 2023, and December 2024. Such moves reaffirmed the logic of domestic semiconductor substitution.
The unexpected explosion
The stock movement of SMIC on the Hong Kong stock exchange was nothing short of explosive, with prices at one point soaring more than 9%, while the A-share counterparts surged nearly 6%. The momentum generated by SMIC invigorated the entire sector, causing a sharp rise in Semiconductor ETFs and boosting indices such as the STAR Market Index
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Other listed semiconductor companies like Hongguang Semiconductor and Shanghai Fudan also enjoyed substantial gains.
The October 16 statement by the Chinese Ministry of Commerce underscored significant concerns echoed within the domestic semiconductor industryThe spokesperson noted that U.S. government subsidies to local chip manufacturers had created an uneven competitive environment, particularly as American firms exported certain mature process chips at lower prices, thereby undermining the interests of China’s domestic industry.
This dissatisfaction aligns with broader views within the industry that feel the United States monopolizes advanced technology, particularly in essential sectors like semiconductorsConversely, the regulations from the U.SCommerce Department emphasize tightened controls on the export of advanced computing semiconductors, aiming to restrict adversarial nations from accessing technologies vital for military advantagesThe tightening grip on companies like TSMC, Samsung, and Intel suggests a ratcheting up of scrutiny over these important players in the semiconductor supply chain, thereby intensifying domestic industry sentiments urging for increased self-sufficiency.
As the discussion continues, the level of governmental support for indigenous chip development has erupted in discourse among analystsMany are ponderous about the long-term ramifications of this newfound impetusFor instance, CITIC Securities forecasts that in the short term, these dynamics will positively impact the domestically sourced AI computing capacity needed for deploying large modelsOver a more extended horizon, they argue that such regulatory moves would expedite China's ability to replace imported AI computing chips.
Ping An Securities echoes similar sentiments, positing that policy frameworks and financial incentives from the state will further bolster indigenous innovation capabilities within the semiconductor sector
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The persistent demand for localized manufacturing of critical technologies becomes glaringly evident, suggesting a concerted effort among domestic players to enhance their production capabilities in response to international pressures.
Moreover, Guotai Junan Securities highlights that domestic hardware has reached a technical foundation sufficient enough to enable necessary substitutions across specific application scenarios and sectorsThis development, combined with ongoing efforts toward building autonomous, controllable tech architectures, lays out a promising road for significant advancements in domestic chip production.
Research from Shanxi Securities projects that home-grown AI chips will gain traction as governmental and market forces propel them into the limelightInnovative AI applications, such as the Doubao AI model, continue to demonstrate promise, suggesting that the sector is on the brink of further advancementsBy 2025, if demands for computational power keep rising, there stands the potential for a monumental shift from cloud computing to on-device processing.
On top of this, global dynamics are shifting, presided over by the U.S. announcing new comprehensive regulations concerning AI chip exportsThe U.S. government has categorized nations into three tiers based on their access to these technologies, implementing differentiated restrictions in each tierAs the U.S. continues to guard its technological edge, it inadvertently pushes China towards enhancing its domestic capabilities through replacement and innovation within its semiconductor sector.
The market projections estimate that the domestic AI semiconductor market could balloon to around $30 billion, leading to a sustainable impetus for corresponding chip manufacturing, design, and equipment sectorsThe optimism surrounding the semiconductor industry reflects not only an economic opportunity but also a strategic imperative for nations to bolster their technological sovereignty.
In conclusion, the narrative of semiconductor independence is becoming increasingly pivotal as it catches the attention of investors and policymakers alike
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