Greater China ecosystem in-depth. In a follow-on to our China semiconductor reports, including China’s ascent and supply chain localisation, this report updates on the US-China policy implications, China’s manufacturing, design and tech supply chain, and the fabless industry map. Leveraging our full global semis team, we also take an in-depth look at equipment, materials, RF, Power, CPU, national IC fund investments, China fab projects, and profile 21 covered and Not Covered China IC companies’ business overview, drivers, near-term outlook, and valuation.

Semiconductors strategic importance rises. The semiconductor industry at US$450 bn and growing at a 6% CAGR since 2001 and rising as % of GDP is critical to the US$2 tn electronic market and strategic areas of cloud computing, 5G, network infrastructure, AI, and IoT. COVID-19 has only accelerated the digitisation trends and the importance of domestic self-sufficient supply chains, in contrast to the industry’s traditional global chain.

The US is looking to protect its leading 48% share consisting of its leading IDMs, fabless, equipment and EDA/IP, while China is looking to gain self-sufficiency and increase its 5% share, which lags its 20-25% share of tech demand and 30-40% hardware share.

China gains to continue at an uneven pace. After two decades of focus, China’s traction in semiconductors has been mixed, with fabless leading at 22% share (15% ex-Huawei), back-end now at 17%, and foundry remaining at 9% due to TSMC’s advanced technology lead and low-single digits in equipment, materials, EDA/IP, IDM, and memory. China’s ramp of incentives, capital markets at high valuations, and localisation should continue growth, though limited by high barriers (advanced foundry, EDA/IP, and equipment), M&A, tool/IP restrictions, and partial decoupling of supply chains and end markets.

Stocks to benefit from China’s IC localisation. We view the best-placed stocks for China’s ecosystem rise in foundry (TSMC, SMIC, Win and Hua Hong), back-end (ASMP, Disco, Advantest, Huatian, and Tongfu), Fabless (Mediatek, Will, Maxscend and Alchip), EDA (CDN, SNPS), high performance analog/power (TXN, ADI, IFX) and equipment leaders AMAT, ASML, ASMI, KLAC, LRCX, TEL and Screen.