China’s chip index approaches 3-year high amid US ban on TSMC chips

China’s semiconductor index jumped to a nearly three-year high on Monday amid bets that a U.S. order to halt shipments of advanced chips to Chinese customers could accelerate Beijing’s efforts to become self-sufficient, Reuters reports, according to UNN.

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TSMC will reportedly suspend the supply of some complex chips to some Chinese customers from Monday after receiving a letter from the US Department of Commerce imposing export restrictions on these products.

Analysts said that while the move could lead to some short-term problems for Chinese firms developing chips for artificial intelligence accelerators and GPUs, it could benefit the domestic chip manufacturing sector, as companies will have few alternatives.

The CSI Semiconductor index jumped more than 6% during Monday’s trading to its highest level since December 20, 2021, while the CSI Integrated Circuits index rose 5%. Shares of SMIC, China’s largest foundry and the main alternative to TSMC in the country, rose by more than 4%.

“In the medium to long term, this will force a reorganization of the supply chain, increase demand for domestic advanced manufacturing capacity, and promote technological breakthroughs in semiconductor equipment and materials,” Chinese brokerage Cinda Securities said in a note published on Sunday.

Several Chinese tech firms and chipmakers have been scrambling to develop their own advanced processors in recent years after the U.S. imposed sanctions on Huawei Technologies and banned companies like Nvidia and AMD from selling their most sophisticated chips to China.

Many rely on Taiwan’s TSMC, the world’s leading contract chipmaker, for manufacturing. In the third quarter, 11% of TSMC’s revenue came from China, the company reported.

The United States has imposed restrictions on the export of TSMC chips with 7-nanometer or more advanced design, Reuters reports.

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The only foundry in China capable of producing chips with a 7-nanometer process is SMIC, which is known for helping Huawei produce chips used in its latest smartphones, including the Mate 60 and Pura 70.

Analysts say that SMIC produces such advanced chips using equipment supplied by companies such as the Netherlands-based ASML and the US-based Applied Materials, which it managed to accumulate before the US sanctions came into effect.

However, SMIC has faced difficulties in ramping up production due to US export controls that prohibit it from purchasing equipment needed for advanced chip production, while domestic alternatives are still ready to go, the publication writes.

In February, Reuters reported that due to production constraints, SMIC had to prioritize the production of AI chips for Huawei over smartphone chips, as the former is considered more strategically important.

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