China’s memory chip makers gain clout as AI demand rises and US scrutiny deepens

BEIJING: Chinese memory chip producers ChangXin Memory Technologies (CXMT) and Yangtze Memory Technologies Corp (YMTC) are gaining market influence as surging demand tied to artificial intelligence boosts prices and tightens supply.

CXMT had for months been raising prices for Huawei, one of China’s biggest technology groups, and did not back down when Huawei sought relief from the higher costs. Two people familiar with the matter said tensions escalated in June at CXMT’s factory in Hefei, Anhui province, where engineers from SiCarrier — a chip equipment vendor with close strategic links to Huawei — had been working in cleanrooms inside CXMT’s core research and development area. The sources said CXMT suddenly told the engineers, who had been assisting with equipment maintenance, to leave the factory floor at once. Executives at SiCarrier concluded the dispute stemmed from a broader struggle for leverage between CXMT and Huawei, the people said. The companies continue to do business, but the engineers have not been permitted back into the R&D zone.

The episode reflects a broader shift in China’s semiconductor sector. CXMT has grown into the world’s fourth-largest memory producer, including DRAM chips used in smartphones, laptops and servers. Memory chips, once seen as a lower-margin segment, have become highly sought after because of the global expansion of AI data centres. CXMT and YMTC, which had spent years relying on state funding while posting losses, are now selecting customers and setting terms, according to four people familiar with the matter. In some cases, they are charging more than South Korean rivals Samsung and SK Hynix as Chinese buyers compete for limited supply.

Large deals and IPO ambitions

Three people familiar with the arrangement said CXMT this month signed a five-year supply agreement worth more than $7 billion with ByteDance, the Chinese owner of TikTok. The account of CXMT’s and YMTC’s growing pricing power, strategy and dealmaking was based on interviews with more than a dozen people, including executives, engineers, suppliers and US officials, as well as a review of 50 Chinese government policy documents and company disclosures.

Both companies — described in China as the twin stars of memory — are moving toward major public listings. CXMT is set to launch an $8.6 billion initial public offering in Shanghai on Monday. The company wiped out a decade of losses within six months and posted $7.5 billion in first-quarter revenue, up 719% from a year earlier. YMTC is also preparing for an IPO, and according to two people, some executives inside the company are pushing for a valuation target of 1 trillion yuan, or $148 billion.

Both firms are backed by the Big Fund, a Chinese state-supported semiconductor investment vehicle, and have also received support from provincial and local governments, including Anhui for CXMT and Hubei for YMTC. Corporate filings and policy papers indicate that Chinese officials see the two companies as strategic assets central to Beijing’s push for technological self-reliance.

US pressure and global expansion plans

The companies’ growing control over memory chip supply is increasing friction with Washington. The Pentagon has designated both firms as Chinese military companies, saying they support China’s military-civil fusion strategy, an allegation both companies deny. YMTC is already on the US Entity List, which has limited its access to US-origin suppliers, software and chipmaking tools. Congress is considering further restrictions that would tighten both companies’ access to chipmaking equipment.

At the same time, the administration of US President Donald Trump is divided over whether to impose tougher curbs. Four people familiar with those discussions said Apple has argued it needs Chinese memory and has sought assurances that CXMT will not be added to the Entity List. A US interagency committee approved CXMT last year for inclusion on the Commerce Department’s trade blacklist, but officials have not yet moved forward. Micron, the main Western rival to the Chinese firms, has pressed US lawmakers for further restrictions, including limits on access to manufacturing equipment.

YMTC entered the South Korean market in June with its consumer storage brand, taking advantage of a segment that Samsung, SK Hynix and US-based Micron have deemphasised in favour of more advanced chips. CXMT, according to three sources, hopes over the longer term to enter the US market as well, although domestic demand is currently straining its production capacity. Three other people said Chinese authorities have instructed CXMT and YMTC to prioritise supply to domestic companies.

Capacity constraints and technology gap

The two Chinese memory makers are planning manufacturing expansion that could allow them to serve both local and overseas markets from 2027, when new fabrication plants are expected to come online. CXMT is building two new plants in Shanghai and Hefei and is discussing a third project with local authorities elsewhere, three sources said. These projects would lift its capacity to more than 600,000 wafers per month, more than doubling output. One of the sources said that if those plans proceed as expected, CXMT’s capacity would surpass Micron’s by 2030. YMTC is planning two additional factories on top of one due for completion this year.

Despite their momentum, both companies still face important constraints. They depend on deep ultraviolet lithography machines from Dutch company ASML to produce memory chips. The Dutch government has faced pressure from the United States to restrict advanced lithography sales to Chinese firms because of the equipment’s role in producing cutting-edge semiconductors and because it contains US technology. CXMT’s South Korean and American rivals use ASML’s more advanced extreme ultraviolet lithography systems for DRAM production, while China has been blocked from obtaining those machines since the Dutch government stopped granting export licences in 2019.

Citing five sources, it was reported that although CXMT has developed its own high-bandwidth memory — a fast chip format considered important for AI — it remains two generations behind its competitors. One source said, "If more restrictions are imposed on lithography equipment, that would be the biggest challenge for Chinese memory make."