The latest semiconductor policy in China, “Place of Wafer Fabrication Equals Place of Origin,” directly changes the rules for determining the “nationality” of chips. Previously, the “nationality” of a chip could be influenced by its packaging location or the location of the design company; now it only considers the country where it is manufactured in a wafer fab.
For example, a chip designed in the United States that is produced in a U.S. factory will still be recognized as “American” when entering China, even if it is sent to Vietnam for packaging, and will incur high tariffs. Conversely, a chip designed in the same way but produced in a factory like SMIC will be considered “Chinese” and exempt from tariffs, even if it is sent to Southeast Asia for packaging.
Impacts on the domestic semiconductor industry:
1. Acceleration of domestic substitution, local factories become more attractive.
Costs for foreign chips (especially from U.S. companies) are skyrocketing; for instance, a power management chip made in the U.S. could be over 30% more expensive after tariffs are applied. This will force manufacturers in sectors like mobile phones and automobiles to switch to domestically produced chips, particularly in mature processes (such as those above 28nm) for automotive-grade chips and power chips, leading to a surge in orders for domestic manufacturers. At the same time, domestic wafer fabs (like SMIC and Hua Hong) may see a rapid increase in capacity utilization and even accelerate expansion plans.
2. A wave of industrial relocation is coming.
Previously, many companies moved wafer manufacturing to the U.S. or Taiwan to save costs, while packaging was done in Southeast Asia. The new regulations directly cut off this “two ends profit” model, forcing companies to relocate both manufacturing and packaging to the same region. New combinations may form between wafer fabs in mainland China and nearby packaging factories in Southeast Asia, such as the model of “Chinese-made wafers + Vietnamese packaging” becoming more common.
3. Equipment and material suppliers benefit, but high-end technology remains a pain point.
Domestic wafer fabs will require a large amount of equipment and materials for expansion, leading to a surge in orders for domestic supply chain companies for items like etching machines and silicon wafers. It is expected that by 2025, the self-sufficiency rate for semiconductor equipment may exceed 30%. However, high-end chips (such as those below 7nm) still rely on imported lithography machines and other “bottleneck” equipment, which will take time to overcome.
In the short term, attention should be paid to the expansion progress of domestic wafer fabs and the growth in demand for mature process chips; in the medium to long term, breakthroughs in domestic equipment technology and the strength of policy support (such as the focus of the third phase of the Big Fund on advanced processes) should be monitored. There is also a risk of potential restrictions from the U.S. on maintenance services for domestic wafer fab equipment. In simple terms, the policy has given the domestic semiconductor industry an “accelerator,” but while speeding up, it must also address the “shortcomings” in high-end technology.