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China Chip Buying Plummets 15% – Deepest Slide Since Records Began

The worldwide semiconductor industry faces its steepest challenge yet, with China experiencing a record 15.4% decline in chip imports in 2022

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The global semiconductor industry has faced significant headwinds in recent years, with demand weakening amid economic uncertainty. This has been reflected in China’s chip imports, which suffered their largest annual decline on record in 2022. According to Chinese customs data, the value of integrated circuits imported by China dropped 15.4% last year to $349.4 billion. This marks the steepest fall since these records began in 2004, and the second consecutive year of decline.

The reasons for this sharp downturn are multifaceted. Broadly speaking, the worldwide chip industry has struggled to gain momentum as it emerges from a protracted slump. Demand has been tepid across major markets like the US, Europe and China. In China specifically, draconian COVID-19 restrictions and a sluggish economic recovery post-pandemic have dampened appetite for semiconductors. With consumers and businesses remaining cautious, chip orders from Chinese electronics manufacturers have fallen.

Major players like Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, have felt the impact. TSMC’s sales declined 4.5% last year, though the company expects a return to healthy growth in 2023. Beyond softer demand, geopolitics have also cast a shadow. The Biden administration has tightened export controls on advanced semiconductors that can train AI models. This has restricted access for Chinese firms to cutting-edge chips from American suppliers like Nvidia. With AI emerging as a strategic technology, the US aims to limit China’s capabilities.

The upshot is that souring relations between the two superpowers have further dampened sentiment across the global semiconductor industry. Chinese firms now face greater barriers in sourcing the most sophisticated chips from abroad. For American and other foreign suppliers, China’s importance as an export market has diminished.

There are, however, early signs that the downturn may be bottoming out. Worldwide semiconductor sales finally ticked up in November 2022, the first increase in over a year. Cutting-edge technologies like AI and 5G communications are expected to drive longer-term demand. As the global economy gradually recovers, pent-up demand for electronics and computers containing chips could also unlock additional growth.

Much remains uncertain, especially given ongoing geopolitical tensions. But the chip industry is cyclical, and history suggests the current slump will eventually give way to renewed expansion. Though China’s imports may take time to rebound to previous highs, the country will remain a crucial market due to its vast electronics manufacturing capacity and appetite for digital technologies. For now, suppliers must stay nimble amid shifting conditions, while seeking new opportunities in technologies like AI, cloud computing and electric vehicles that promise to reshape the semiconductor landscape over the coming decade.

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