The semiconductor industry is experiencing a remarkable surge, which has captured the attention of economists, investors, and tech enthusiasts around the globeThis sudden rise in activity could indicate a pivotal moment for the semiconductor sector, with specific implications for China's position in the global tech landscape.

Shortly after 11 a.m., stocks in the semiconductor sector saw a notable upswingNotably, Semiconductor Manufacturing International Corporation (SMIC) saw its H-share price soar over 9%, while Hua Hong Semiconductor also progressed with an increase exceeding 6%. In the A-share market, semiconductor chip stocks showed a volatile rebound with SMIC rising nearly 6%, and several other companies hitting their upper trading limits, including Kinetic Technology and Rockchip, with Saintbond and Chipone Tech rising by more than 10%. The semiconductor ETF jumped nearly 3%, paralleling the spirited performance of the CSI 500 futures index.

But what triggered this unexpected momentum? Analysts are attributing this uptick primarily to two influencing factors: On one hand, a spokesperson for China’s Ministry of Commerce announced the nation's right to request a trade remedy investigation regarding imports of chips from the United States, with the investigation authorities prepared to initiate inquiries in accordance with the law

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On the other hand, the U.SDepartment of Commerce unveiled updated regulations concerning chip exports, further tightening controls based on previous measures set for dates in October 2022, October 2023, and December 2024. This has fortuitously reinforced the logic of domestic alternatives in the semiconductor landscape.

A Rapid Surge

In Hong Kong, SMIC’s explosive growth saw its stock price climb by more than 9%, while the A-share market experienced substantial gains approaching 6%.

The rise of SMIC has had a domino effect on the entire sector

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Approaching the closing period of the morning trading session, the A-share semiconductor stocks soared sharply, with the semiconductor ETF witnessing nearly a 3% increase, which in turn bolstered the STAR Market indexThe semiconductor sector on the Hong Kong stock exchange surged close to 5%, with Hongguang Semiconductor seeing its shares jump nearly 12%, alongside significant gains for Brainhole Technology, Hua Hong Semiconductor, and Fudan Shanghai, among others.

On June 16, a spokesperson for the Ministry of Commerce articulated that Chinese industries possess the right to file applications for trade remedy investigations against U.Simports of chipsThe spokesperson highlighted the long-standing concerns within the domestic chip industry, indicating that the government’s extensive subsidies to foreign chip manufacturers have resulted in an uneven playing field benefitting U.S

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companies while undermining local interests with the low-cost export of mature-process chipsIt is not unusual for domestic industries to raise their concerns and seek redress through investigations.

Conversely, the U.SDepartment of Commerce’s Bureau of Industry and Security (BIS) has updated regulations that tighten export controls on advanced computing semiconductorsThe newly instituted restrictions aim to limit the capability of certain nations in acquiring critical high-end chips vital for military advantagesEnhanced investigations into wafer foundries such as TSMC, Samsung, and Intel will also take place.

These regulations reinforce the necessity for domestic alternatives.

What is the Impact?

So, what is the extent of the impact of these two favorable factors?

CITIC Securities predicts that in the short term, this development will have a moderate influence on domestic AI computing power construction and the progress of large-scale models

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However, in the medium to long term, it should accelerate the domestication of AI computing power chipsThe core competition in AI computing power lies in advanced processes, and the status of advanced manufacturing as a core strategic asset is expected to be significantly strengthened, accelerating the entire industry chain's movement towards domestic productionFor China’s tech industry to thrive, there needs to be comprehensive cooperation across the entire industry chain, particularly in the upstream equipment, components, and materials segmentsCompanies like SMIC and Yangtze Memory Technologies are pivotal in this transformative phase.

Ping An Securities has expressed that, with national policies and financial support guiding the way, domestic companies' ability to innovate independently will advance significantly

In the long run, the pressing need to localize core technologies like semiconductors will unfold, with a strong desire for domestic firms to increase their localization rates, offering domestic semiconductor players ample opportunities.

Guangfa Securities noted that the current domestic chip hardware performance has already laid a technological foundation for domestic substitution, which can be executed in specific scenarios and industriesConsidering the construction status of autonomy and future trends, the long-term trajectory for chip localization is evident, with the potential for acceleration.

Shanxi Securities reported that domestic AI chips are expected to accelerate the path of localization under government support and through strong demand in the computing power market

Meanwhile, several AI applications based on the Doubao AI large model will continue to be introduced and realized, which brings optimism regarding growth in AI’s endpoint toward 2025. The sustained robust demand for computing power both domestically and internationally is set to see AI transition from cloud computing to edge computing, while the semiconductor industry accelerates its localization.

Additionally, the government has officially announced a new global control measure on the export of AI chips, categorizing global regions and countries into three classifications, each with specific restrictionsThe ongoing U.Srestrictions continue to pressure localization in AI computing power and advanced processesCITIC estimates that the domestic market for AI computing power chips is approximately $30 billion, continuously benefiting relevant domestic wafer foundries, computing chip designers, semiconductor equipment, and advanced packaging supply chains.