BEIJING/SHANGHAI, Feb 12 (Reuters) - China's purchases

of chipmaking equipment are set to decline this year after three

years of growth, as the industry grapples with overcapacity and

faces greater constraints from U.S. sanctions, a consultancy

said on Wednesday.

China has been the biggest buyer of wafer fabrication

equipment for at least the past two years, purchasing $41

billion worth of tools and accounting for 40% of global sales in

2024, Canadian semiconductor research company TechInsights said.

But this year, China's spending is expected to drop to $38

billion, down 6% year-on-year, and its share of global purchases

will fall to 20% in the first decline since 2021, Boris

Metodiev, a senior semiconductor manufacturing analyst at

TechInsights, told an online seminar.

"We can see some slowdown in Chinese spending due to export

controls and overcapacity," he said.

China was the growth driver globally for the global wafer

fabrication equipment sector in 2023 and 2024, when the broader

market experienced a downturn due to slumping consumer

electronics demand.

Many of China's purchases were driven by stockpiling as the

U.S. levied a series of sanctions in a bid to stymie Beijing's

ability to access and produce chips that could help advance

artificial intelligence for military applications or otherwise

threaten U.S. national security.

Chinese chip firms have continued to make progress in spite

of Washington's efforts, with China's largest chipmaker SMIC

and U.S. sanctioned Huawei producing an advanced chip

last year by using more expensive and laborious efforts.

They have also expanded heavily into the mature-node chip

segment, dramatically increasing production capacity and taking

market share from Taiwanese rivals.

SMIC flagged on Wednesday that it saw oversupply risk in

mature node chips.

Chinese leading equipment makers including Naura Technology

Group and AMEC have been expanding their

footprint globally, with Naura now the world's seventh-largest

equipment maker in terms of sales, Metodiev said.

While China has been working to become more self-sufficient

in chipmaking equipment, its biggest weaknesses remain

lithography systems, as well as testing and assembly tools,

Metodiev said.

The Netherlands' ASML is the world's largest

manufacturer of lithography machines. Chinese companies provided

only 17% of testing tools and 10% of assembly equipment used in

the country in 2023, Metodiev added.