By Sophie Lindqvist

VisionPower Semiconductor Manufacturing Company opened a $7.8 billion wafer fab in Singapore on Monday. The plant is the city-state's largest single semiconductor investment of the year.

The joint venture combines Taiwan's Vanguard International Semiconductor and Dutch chipmaker NXP. VSMC chair Leuh Fang said the company was already weighing a second Singapore fab to meet demand.

How large is Singapore's chip industry?

The sector now accounts for nearly 7 percent of Singapore's gross domestic product, according to the country's Economic Development Board. The nation produces one in ten of the world's semiconductors and one fifth of the equipment that makes them.

Between 2022 and 2025, semiconductor companies committed more than $23.5 billion in fixed-asset investments to Singapore, a sum covering both greenfield fabs and equipment expansions across multiple process nodes. Micron, Infineon, Siltronic and UMC have all built or expanded local fabs. Applied Materials opened a $500 million campus in June.

GlobalFoundries operates Singapore's largest foundry. The site produces 1.25 million silicon wafers annually, according to Tan Yew Kong, general manager of Asia-Pacific manufacturing at GlobalFoundries. Tan said the Singapore workforce of 4,300 people supports mass-market electronics, data centre processors and automotive chips.

Up to 40 percent of chips fabricated in Singapore end up in cars, according to EDB figures. Singapore's broader electronics exports rose 132 percent year-on-year in August. Shipments of personal computers and data centre server racks climbed 238 percent over the same period.

What is driving the boom?

AI infrastructure demand has lifted orders across the cluster. "AI is booming and Singapore has an advantage," Tan said. He added that post-pandemic supply diversification has routed new fab investment toward the city-state.

Prime Minister Lawrence Wong has tied the chip sector to a long-term land strategy. Last month he announced a plan to merge several small islands into one larger reclaimed tract. Wong said the project could "help shape Singapore for the next 50 years" by enabling advanced manufacturing.

Moody's reported Singapore logged its strongest first-half trade performance since 2010. Electronics shipments led the gain, with August electronics exports up 132 percent year-on-year, a figure that tracks the AI capex cycle rather than consumer recovery.

What geopolitical risks does the growth create?

The expansion has drawn US trade scrutiny. In March, US trade representative Jamieson Greer opened an investigation into alleged structural overcapacity in several Asian manufacturing hubs, Singapore included. The probe has not concluded.

"The chip industry is becoming a security problem," Tan said.

Angela Tritto, honorary fellow at University College London, said Singapore is squeezed between Washington and Beijing. "Singapore has to demonstrate very clearly that it complies with US export controls while maintaining China as an extremely important economic partner," she said.

The risk is concrete. Any ruling of excess capacity could trigger additional US tariffs on Singapore-made chips and equipment. The government counters that bilateral goods trade with the United States runs a deficit, not a surplus.

What limits remain?

Land is the binding constraint. Singapore covers roughly half the area of Greater London and houses 6 million residents. The country imported its first chip factory from National Semiconductor in the 1960s. It founded Chartered Semiconductor Manufacturing in 1987, a national champion later sold to GlobalFoundries in 2009 after failing to scale against Taiwan's TSMC.

"Chartered focused on technology that was harder to manufacture and tougher to scale," said Daniel Chow, principal at management consultant Arthur D Little.

Cost pressures persist, and Tritto noted that Singapore pays premium wages to attract regional engineering talent, but that same wage gap pushes price-sensitive work toward neighbours with adjacent supply chains. Malaysia's Johor state sits less than a mile across the causeway and offers cheaper land, a fact that prompted Singapore and Kuala Lumpur to launch a joint special economic zone last year.

What happens next?

VSMC's first Singapore fab will ramp through 2027, according to the company's public roadmap. Leuh Fang's comments on a possible second plant have not yet converted into a firm site announcement.

Whether Singapore can absorb the next wave of capacity hinges on three variables the government cannot fully control: US tariff outcomes, Chinese demand for trailing-edge chips, and Malaysia's ability to absorb overflow investment from Johor.