China's chip makers will spend $9.8bn expanding production capacity between 2006 and 2008, according to research published yesterday.

The total capital expenditure on chip production in China over the next three years will be substantially greater than the $8.7bn spent over the past five years by US chip makers, reported the SEMI industry association. 

Spending on chip-making equipment in China will surge from $1bn last year to $2.55bn in 2008, the association predicts, based on interviews with industry executives and government officials.

While Chinese chip makers still lag some way behind the cutting edge, the country's technology is being steadily upgraded.

Chip manufacturing plants, which build chips on large 12" (300mm) wafers and use more advanced technologies, are becoming "major drivers for capital spending in the China market", SEMI reported.

Spending is driven by surging demand from China's huge electronics manufacturing industry. Chinese companies spent $40.5bn on chips last year, an increase of 32 per cent year-on-year, according to research firm IC Insights. 

Beijing-based research firm Analysys International puts the Chinese chip market's value even higher, at around $46bn in 2005. However, only about a quarter of this demand, around $9bn, was met by local manufacturers.