China
China’s semiconductor expansion raises risks of overcapacity, inefficient investment, alerts Moody's report
Beijing: A major report has shown that China’s semiconductor industry expansion efforts may raise the risks of overcapacity and investment inefficiency.
“The government’s semiconductor industry investment plans could lead to fierce competition, resulting in overcapacity of certain types [of chips], starting with less sophisticated products,” the Moody’s report said as quoted by The South China Morning Post.
“Overcapacity is a particular risk at the fabrication stage as a result of the large amount of capital spending needed to set up fabrication plants.”
It said small domestic semiconductor companies, with less government support than larger firms, are likely to face high credit risk resulting from potential overcapacity in less sophisticated chips. The number of newly registered semiconductor companies in China more than tripled in the first five months of this year from the same period in 2020.
Potential overcapacity is likely to expose these small firms to refinancing risks from large debts because of “high price volatility, low profit margin and operational inefficiencies”, the report warned as quoted by the newspaper.
Moody’s assessment even showed how state-led investment efforts have led to overcapacity issues in other industries in the past.
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