In the rapidly evolving world of technology, integrated circuits (ICs) play a pivotal role as the heartbeat of numerous devices. These tiny chips, which can be found in smartphones, computers, and countless other electronics, have been at the forefront of the escalating tech contest between the U.S. and China. This has been made evident in the production trends over the past few months.
Recent Trends in IC Production
China reported that in July, the production of ICs reached a significant 29.2 billion units, marking its fourth straight month of growth. Data from the National Bureau of Statistics (NBS) confirmed this positive trajectory. However, this momentum was tempered by a slower growth rate when compared to previous months. Specifically, May and June exhibited growth rates of 7% and 5.7% respectively.
For clarity, it’s essential to note that the figures mentioned are specific to companies with an annual turnover exceeding 20 million yuan, approximately US$2.9 million. Despite these positive monthly numbers, a broader look paints a different picture. In a year-to-year comparison for the first seven months, there was a decline of 3.9% from the previous year, translating to a production of 191.2 billion units.
Understanding the Context: China’s Recovery and Challenges
Earlier this year, in April, the country celebrated a milestone. For the first time in 16 long months, there was a monthly increase in IC production, registering a 3.8% year-on-year growth, culminating in 28.1 billion units. Such figures come on the back of China’s efforts to rise from the economic downturn caused by stringent Covid-19 measures, all the while navigating a turbulent technological skirmish with the U.S.
However, while there were reasons to be optimistic, the chip industry has been grappling with challenges. The slower IC production rate in July can be attributed to weak consumer demand in the domestic chip market and the looming shadow of high inventories. For instance, smartphone sales, a leading consumer of ICs, fell by 4% year-on-year in the second quarter – the lowest since 2014, as per data from Counterpoint, a renowned research firm.
External Pressures: Export Controls
Externally, the geopolitical landscape has been no less challenging. In a significant move last month, Japan, a key player in the global semiconductor supply chain, imposed export controls on 23 crucial items. Among these, lithography equipment, indispensable for manufacturing advanced semiconductors, has been affected, adding another layer of complexity to China’s semiconductor ambitions.
This move by Japan is not an isolated incident but follows a trend of export controls initiated by the U.S. and its allies to ostensibly stymie China’s technological advance. In October of the previous year, the Biden administration amplified export controls, limiting China’s accessibility to state-of-the-art chips, related manufacturing equipment, and skilled personnel from the U.S.
Further cementing this collaborative stance against China’s semiconductor prowess, the U.S. entered into a joint agreement with Japan and the Netherlands in January. This partnership sought to synchronize export controls, particularly concerning advanced chip-making apparatus.
China’s Response: Push for Self-sufficiency
In the midst of these global challenges, China’s strategy has been clear – to reinforce its self-sufficiency in semiconductor production. A testament to this resolve is the data revealing a decrease in chip imports. In the first seven months of this year, imports stood at 270.2 billion IC units, marking a 16.8% dip compared to the same timeframe in the previous year, as revealed by the General Administration of Customs.
However, when we look at the production data from the past year, challenges are evident. In 2022, the total ICs produced stood at 324.2 billion, which was a notable decline of 9.8% from 2021. A grim reminder of the industry’s fragility came in October, witnessing a staggering 26.7% slump in production, which amounted to just 22.5 billion units.
Conclusion
China’s semiconductor journey, laden with its successes and challenges, mirrors the broader global tech landscape’s intricacies. Amidst external pressures, internal economic dynamics, and the aftermath of a global pandemic, the country’s semiconductor industry remains at a pivotal juncture. As China continues its pursuit of technological self-reliance and the world watches, the implications for the global tech industry remain to be seen.
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