Asia’s Semiconductor Landscape Shifts: Investment Trends Diverge, But Production Stays Put

Asia’s momentum in semiconductor investments is experiencing a notable shift, according to a report by Moody’s Analytics. While new investments seem to be moving away from China, the region remains a powerhouse in electronics production, with Taiwan and South Korea emerging as leaders in advanced chip manufacturing.

Moody’s Analytics notes that the world’s advanced chip production predominantly occurs in Taiwan and South Korea, with the US and Europe contributing less than 10 percent to the global chip supply. The concentration of chip production among a few large companies in Asia has resulted in significant economies of scale and the creation of a robust regional supply chain catering to diverse industry needs.

While Taiwanese and South Korean giants focus on high-end semiconductors, manufacturers in Southeast Asia specialize in legacy chips, which are less advanced but highly efficient, serving applications in cars, consumer appliances, and defense equipment.

The report also highlights the downsides of Asia’s tech dominance, particularly in economies like Taiwan, where the performance is closely tied to global semiconductor demand. The pandemic-era chip shortages revealed the vulnerability of Taiwan’s economy to fluctuations in the electronics market.

Concerns about industry concentration and geopolitical risks have prompted governments worldwide to reevaluate chip production strategies. The US, Japan, and European nations plan to increase their share of global chip production, offering subsidies to attract chip-makers. Efforts to restrict exports to China of critical chip-making tools, such as lithography machines, also reflect global concerns about dependence on a single region.

Despite these initiatives, manufacturers show no urgency to relocate to Western shores, as evidenced by a decline in completed electronics-related investment projects over the last three years. However, capital expenditure involved in these projects has surged, showcasing a nuanced trend in the semiconductor industry.

While China sees a decline in both project count and capex amounts, ASEAN economies, including Vietnam, Malaysia, and Singapore, experience an increase. Data for the US and Western Europe present mixed results, with project count decreasing but capex amounts increasing.

Several factors contribute to Asia’s continued dominance in chip and electronics production. The region’s supply chain offers a significant geographical advantage, coupled with easy access to massive chip production capacity, materials, and chip-making equipment. Proximity to end consumers further enhances the attractiveness of Asian economies, along with favorable exchange rates, making countries like Japan an affordable production base.

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