China's chips grow for first time in 16 months

China's integrated circuit (IC) output rose in April for the first time in 16 months, as Beijing continued to push local industry to boost domestic chip production in the face of lower imports due to U.S. restrictions.

IC production data, which covers companies with annual turnover of more than 20 million yuan ($2.9 million), rose 3.8% year-on-year to 28.1 billion units in April, the first monthly increase since January 2022, according to national statistics The bureau released it Tuesday.

Production in March had previously fallen just 3% from a year earlier, and fell 17% year-on-year in the first two months, suggesting that chip production in the world's largest semiconductor market is recovering.

The rise in production comes as China's imports of chips from South Korea and Taiwan have fallen sharply, which is reflected in overall IC import data. According to data released by the General Administration of Customs last week, China's total integrated circuit imports fell 21% year-on-year to 146.8 billion pieces in the first four months of this year.

As the United States tightens restrictions on China's access to advanced semiconductor technology and equipment, China has turned to producing more traditional chips to meet domestic demand from automakers and home appliance makers.

In April, "output growth" - a rough measure of China's industrial activity - for industries with an annual turnover of more than 20 million yuan rose 5.6% year-on-year, the largest monthly increase since October last year.

China's chip production fell sharply in 2022 due to economic headwinds, strict Covid-19 restrictions and an escalating technology war with the United States. In 2022, China produced 324.2 billion ICs, a 9.8% decrease from 2021. The largest monthly decline occurred in October last year, when IC production fell 26.7% to 22.5 billion units.

In October last year, the Bureau of Industry and Security, an agency under the U.S. Department of Commerce, announced strengthening export controls to curb China's access to advanced chips, chip manufacturing equipment, and American talent. In response, China has stepped up efforts to become self-sufficient in semiconductors to boost domestic microchip production and reduce reliance on overseas products.

China's local governments - including the cities of Nanjing and Suzhou in eastern Jiangsu province - have responded to Beijing's call by providing massive subsidies to semiconductor-related companies. Industry data shows that the government distributed more than 12.1 billion yuan in subsidies to 190 domestic listed semiconductor companies in 2022.

In addition, according to the National Bureau of Statistics, China's microcomputer shipments fell 19.9% ​​year-on-year to 25.4 million units in April, slightly higher than the 21.6% decline in March. In the same month, the country's smartphone production fell by 5.9% to 86.5 million units, narrowing from the 6.7% decline in the previous month.

In the first four months of 2023, China's chip imports continued to be sluggish due to the downturn in the global semiconductor industry. In the face of the United States' continued restrictions on the export of advanced chips and semiconductor equipment to China, the value chain continued to adjust.

Data released by the General Administration of Customs on Tuesday showed that from January to April, China imported 146.8 billion integrated circuits (ICs), a year-on-year decrease of 21.1%. Customs data showed that the total value of chip imports fell 25.6% to US$105.6 billion from US$141.9 billion last year.

In contrast, in the first four months of 2022, amid a global chip shortage, China's total chip imports fell 11.4% year-on-year to 186.1 billion pieces, with a total value increase of 12.2%.

The global chip market has turned from a shortage to oversupply since the end of last year, while China continues to be under pressure from U.S. sanctions on exports of advanced chips and chip manufacturing equipment to China, as the U.S.-initiated Chip 4 Alliance - which includes South Korea, Japan and Taiwan - —Beginning to take shape.

Chinese customs data show that in the first four months of this year, China's total imports from South Korea fell by 27.7%, the largest decline among China's major trading partners. According to customs data on Tuesday, imports from Japan and Taiwan fell by 18.5% and 27.5% respectively. In comparison, China's overall imports fell by 7.3%.

At the same time, data released by relevant Taiwan authorities on Wednesday showed that Taiwan exported US$151 million worth of chip manufacturing machines to the mainland and Hong Kong in April, a year-on-year decrease of 26%.

According to first-quarter Chinese customs data, chip-related imports by major semiconductor manufacturers fell sharply compared with the same period last year. In the first three months, the total value of China's integrated circuit imports from South Korea and Taiwan was US$14.6 billion and US$30.6 billion respectively, down 35.1% and 23.6% year-on-year.

For machines used to make wafers, semiconductor equipment, integrated circuits or tablet computer displays (a separate category), the value of imports from South Korea, Japan and Taiwan fell between 16% and 50% in the quarter.

At the same time, the global semiconductor market remains sluggish.

According to the U.S.-based Semiconductor Industry Association, global semiconductor sales totaled $119.5 billion in the first quarter, down 21.3% from the same period last year. According to a survey by technology research firm Gartner, due to "overcapacity of chips and excess inventory," the memory market is one of the hardest-hit industries, with revenue expected to drop 35.5% year-on-year to $92.3 billion this year.

Taiwan pledged in October last year to comply with export controls issued by the United States, and Japan reportedly reached a joint agreement with the United States and the Netherlands in January to coordinate export restrictions to China, covering certain chip manufacturing equipment. China has complained to the World Trade Organization over these moves, saying they violate international economic and trade rules.

South Korea has not officially announced any restrictions on the export of chips and chip manufacturing equipment to China. However, according to the Financial Times, after Chinese authorities launched a national security investigation into Micron Technology, Washington has asked Seoul to pressure South Korean memory chip manufacturers not to fill the Chinese market if Beijing ultimately bans the sale of Micron Technology products on the mainland. any market gaps. Corporate America in March.

In October last year, the United States granted Samsung Electronics and SK Hynix a one-year exemption from sweeping export controls that restrict chipmakers from supplying advanced technology to their Chinese factories. South Korean Trade Minister Lee Chang-yang said on Tuesday that the exemption will expire in October this year and is expected to be extended for "a considerable period of time," Bloomberg News reported.