(Yicai Global) Dec. 1 -- China’s semiconductor sector has expanded rapidly this year, thanks partly to government support policies, but there are concerns that the growth may be excessive and that investors could face disappointment.

The number of new semiconductor companies that have opened this year increased 32 percent to 71,000 as of yesterday, according to data from corporate information platform Tianyancha.

In particular, the eastern coastal provinces of Guangdong, Fujian and Jiangsu along with the city of Shanghai are home to many of the new companies in the business of integrated circuits, chips and semiconductors.

CNY108.4 billion (USD16.5 billion) of investment poured into China’s semiconductor and electronic devices sector in the first three quarters of the year, up 280 percent from a year ago, according to a report by Zero2IPO Research. The jump in investment was faster than for any other sector, it added.

Investor eagerness is partly down to government support but also the growing demand created by other thriving fields in China such as the Internet of Things and artificial intelligence, Li Ke, vice president of CCID Consulting, told Yicai Global.

The integrated circuit industry needs a lot of investment, said Yang Jungang, a senior analyst at CCID Consulting, adding that the central and local governments have placed a lot of emphasis on the sector amid a US crackdown on Chinese tech companies, which has spurred a national desire for self-sufficiency in the field.

The backers are mainly national industrial investment funds and institutional financial investors, Yang said.

‘Popular Investment Trend’

“The national funds focus on the industry’s leading projects and also eye the medium- and long-term returns,” he said. “But problems could emerge if the local governments or financial investors inject capital into chip projects without knowing enough about them.”

But an insider with 20 years of experience in the semiconductor industry said, “Paused projects and the general risks in the sector are controllable if there is verification from different angles at the inception of the projects, instead of just following the popular investment trend.”

The sector now boasts sufficient funding but lacks a corresponding amount of talent and that is why many projects get started without being fully prepared, the insider said. “This also leads to a high risk of failure,” she said. “Most of the projects that have been paused are those that started without thorough discussion and review.”

Over 90 percent of the projects that have hit problems do not have authentic technologies and capable personnel, she explained, adding that sufficient technical expertise is required for success, “even if you have the funds to buy machinery and build plants.”

Some areas do not have a suitable environment for fostering the integrated circuit industry, such as Shandong and Northeast China, which do not boast clusters of companies focusing on electronics or supporting supply chains. So it is hard for them to compete with Shanghai, Beijing and Shenzhen in terms of developing semiconductor projects, another insider told Yicai Global.

Editors: Tang Shihua, Tom Litting