Emerging chip manufacturing centers in countries like Malaysia and India due to the escalating US-China chip dispute
In the rapidly evolving world of technology, the race to secure a strong foothold in the semiconductor industry is intense. This competition has led to significant investments by tech giants in Southeast Asia, particularly in Malaysia and India.
Malaysia, with its attractive incentives, has become a favoured destination for these investments. InvestPenang, a state government entity in Penang, offers complimentary consultancy services for business location, incentives, and extends its own network of business partners, suppliers, and vendors to companies. This supportive environment has attracted the likes of Intel, which has made a USD 7 billion investment to build a chip packaging and testing facility in Malaysia, with production expected to commence in 2024.
Meanwhile, Micron, one of the world's leading chip manufacturers, has already made its mark in Malaysia. The company has invested USD 825 million to construct a new semiconductor assembly and testing facility in Gujarat, India, with the project receiving fiscal support of 50% of its cost and another 20% covered by the state of Gujarat through incentives. The combined investment for Micron's facility in Gujarat is valued at around USD 2.75 billion and is predicted to be operational by the end of 2024.
India is also making strides in the semiconductor industry. In 2021, the Indian government approved the "Programme for Development of Semiconductors and Display Manufacturing Ecosystem in India," allocating USD 10 billion toward incentives for both local and foreign semiconductor firms. Eligible companies looking to set up semiconductor or display fabrication facilities in India can receive fiscal support of up to 50% of the project costs. Assembly, testing, and packaging facilities in India can also receive fiscal support of up to 30% of capital expenditure.
Notably, Powerchip Semiconductor Manufacturing Corporation (PSMC) has announced a joint collaboration with India's Tata Electronics to build India's first semiconductor fabrication facility in Gujarat, with an investment of USD 11 billion. This ambitious project will have 70% of its project cost subsidized by India's central and state governments.
However, the global semiconductor industry is not without its challenges. The global export of microchips has been affected by restrictions imposed by both the US and China in 2022 and 2023. Additionally, China has introduced export controls on germanium and gallium, essential raw materials used in chip manufacturing, in 2023. These restrictions have led to tensions and geopolitical implications in the industry.
In the face of these challenges, the investments in Southeast Asia's semiconductor industry are a testament to the region's potential and appeal. Malaysia, in particular, is responsible for 13% of the global market for backend semiconductor manufacturing, making it an attractive destination for tech giants.
One such company is the Chinese tech firm xFusion, which, in partnership with Malaysia's NationGate, has opened xFusion's first global supply facility in Penang, with an investment of MYR 1.7 billion (USD 356.3 million). Germany's largest chipmaker, Infineon, is also making its mark in Southeast Asia, with plans to invest up to EUR 5 billion (USD 5.3 billion) in Kulim, Kedah, to build the "world's biggest 200-millimeter silicon carbide fabrication facility."
The development of microchips is crucial for the computing power and memory needed for digital devices. As the world continues to advance technologically, it's clear that the race to secure a strong position in the semiconductor industry is far from over. Southeast Asia, with its supportive environments and incentives, is poised to play a significant role in this global competition.
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