China's largest foundry, Semiconductor Manufacturing International Corporation (SMIC), is proceeding with its plans to build South China’s first 12-inch fab at an existing facility in the city of Shenzhen, near Hong Kong.

The company said in a press release that the new fab is aimed at meeting demand for Internet of Things (IoT) chips using mature technology and some second-hand equipment for production. Construction is scheduled to start by the end of 2016, and production will ramp up by the end of 2017.

"Shenzhen has the largest electronic information industrial base in China,” SMIC Chairman Zixue Zhou, said in the statement. “By launching the new 12-inch production line, SMIC will further improve our capacity, better serve our customers, and facilitate the development of Shenzhen's IC ecosystem."

SMIC is chasing demand in a quickly expanding market. Revenue growth in China’s semiconductor industry has exceeded its chip consumption and worldwide market growth in recent years. China’s chip industry grew by 17.5% in 2014 to a record $77.3 billion, according to a report by management consultancy PwC. From 2004 through 2014, China’s semiconductor industry grew at a 10-year compound annual growth rate (CAGR) of 20.5% while its chip consumption grew at a 16.7% and the worldwide semiconductor market at a 4.7% CAGR, according to PwC.

PwC China growth (cr) Figure 1: China's IC consumption and production from 1997 to 2017 (Source: PwC)

China’s government has provided subsidies and other assistance to chipmakers to help build a domestic chip industry and lessen reliance on imports of semiconductors.

China has five 12-inch fabs in operation in the cities of Beijing, Shanghai, Dalian and Wuhan, two of which belong to SMIC. Two more 12-inch fabs are currently under construction or in the process of ramping up in the cities of Shanghai and Xiamen.

The total designed capacity for SMIC’s new fab is 40,000 12-inch wafers per month.

SMIC opened South China’s first 8-inch fab in December 2014 at the same facility in Shenzhen. Its capacity is currently 30,000 wafers per month.