TSMC’s premium over SMIC shows challenges for China’s chip fund

THE share-price gap between Taiwan Semiconductor Manufacturing Company (TSMC) and China’s biggest chipmaker is near its widest in almost two decades, highlighting the difficulty Beijing faces in building up its domestic chip industry.

Bolstered in part by state-of-the-art chipmaking capabilities, TSMC has soared 48 per cent this year in Taipei while Semiconductor Manufacturing International Corporation (SMIC) lost 7.5 per cent, leaving the gap between the two stocks’ annual performance poised to be the biggest since 2005. The chasm comes even as China’s largest semiconductor investment fund, known as Big Fund III, aims to develop the local sector amid US efforts to limit growth.

Boosting SMIC’s technology “is not something that can be achieved overnight, even with abundant funding”, said Shen Meng, a director at Beijing-based investment bank Chanson & Co.

China is currently capable of making 7-nanometre (nm) chips, two generations behind the most sophisticated semiconductors now in commercial production, but seeks to progress to 5nm amid US curbs. TSMC uses extreme ultraviolet (EUV) lithography equipment to produce more advanced 3nm chips, but such tools cannot be sold in China due to export controls.

“Even if SMIC can produce chips using 5nm technology, the cost would be at least 10 times higher than those produced at TSMC without EUV machines,” Bloomberg Intelligence analyst Charles Shum said. “The technology gap isn’t just about reaching a certain level, it’s also about how effectively you can achieve it. “

Although the government has unveiled few details on the third vehicle of the National Integrated Circuit Industry Investment Fund, Big Fund III’s formal name, investors are betting it will help solve some sector issues.

“The new fund is expected to focus on advanced technology, including wafer manufacturing, packaging, process control and equipment materials,” said Xiang Xiaotian, a director at Shanghai Chengzhou Investment Management.

The fund may also target investments in artificial intelligence chips, according to Li Xun, an investment adviser at Guotai Junan Securities. BLOOMBERG