China’s zombie factories: billions for chips — and emptiness

In recent years, China has been aggressively developing its own semiconductor industry in an effort to reduce its dependence on Western technologies. The country now has fairly advanced fabs that can produce chips based on the 7nm process, as well as world-class 3D NAND and DRAM memory. However, not all projects have been successful, which, according to DigiTimeshas led to the emergence of numerous empty factories — zombie factories — across the country.

According to TrendForce, as of the beginning of 2024, there were 44 semiconductor wafer production fabs in China. There were 25 fabs producing 300 mm wafers, 5 — 200 mm wafers, 4 — 150 mm wafers, and 7 inactive fabs. At that time, 32 more semiconductor fabs were under construction in the country as part of the Made in China 2025 initiative, including 24 300-mm wafer fabs and 9 200-mm wafer fabs. Companies such as SMIC, HuaHong, Nexchip, CXMT, and Silan planned to start production at 10 new fabs by the end of 2024, including 9 300mm wafer fabs and 1 200mm wafer fab. Subsequently, it turned out that too much is not healthy.

However, while China continues to lead in terms of the number of new fabs being put into operation, the country also leads in terms of the number of fab buildings that were never equipped and put into operation. Thus, they became zombie factories. Over the past few years, about a dozen high-profile factory projects that cost investors between $50 billion and $100 billion have gone bankrupt.

Unrealistic goals and lack of experience

Most of the failures were caused by overambitious ambitions without the proper technical base. Some startups, lacking experience, personnel, or access to advanced equipment, immediately embarked on 14nm or even 7nm processes. Often, they were fully funded by local governments that had no expertise in this area, and control over the use of funds was weak. In many cases, this resulted in corruption scandals, arrests of managers, or a complete halt to construction.

Since 2019, the situation has been complicated by US sanctions. Chinese companies have lost access to critical equipment for the production of chips using technologies below 10 nm. This halted progress in advanced areas, and many projects simply lost their meaning.

One of the largest failures was Wuhan Hongxin Semiconductor Manufacturing Co. (HSMC). Founded in 2017, the company planned to produce 14nm and 7nm chips. The project was allocated $19 billion. But in 2019, construction stopped due to a land conflict, and in 2021, the authorities seized the facility and dismissed the staff. Production has not started.

The story was similar with Quanxin Integrated Circuit Manufacturing (QXIC), a subsidiary of HSMC. It also received state support, but did not order equipment or start construction. Everything came to a standstill by 2021.

Another example is the GlobalFoundries project in Chengdu. In 2017, the company announced an investment of $10 billion in a two-pronged fab: one for old processes (130/180 nm) and the other for 22FDX. However, in 2018, GlobalFoundries stopped working on advanced processes and left the project. The facility was empty until 2023, when it was taken over by HLMC.

But Dehuai Semiconductor — is one of the most high-profile cases of fraud. Founded in 2019, the company promised to produce chips. But it turned out that the project had neither equipment nor a real plan. In 2021, key executives of the company were arrested following an anti-corruption investigation.

Another case of fraud is Fujian Jinhua Integrated Circuit (JHICC). The company started DRAM production in record time. But later it turned out that the technology was stolen from Micron. The United States blacklisted the company «», blocked access to equipment, and since then, JHICC has actually existed only on paper.

There are many similar examples in China.

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Source: tomshardware