Behind the continued decline in chip imports

According to official customs data, China's chip imports fell by nearly 20 percent in the first five months of 2023. Data released by the General Administration of Customs show that from January to May, China imported 186.5 billion pieces of integrated circuits (ics), down 19.6% year-on-year, slightly narrowing the 21.1% decline in the first four months. During the five-month period, the total value of chip imports fell 24.2 percent to $131.9 billion.

Foreign media is also hot satire for this phenomenon, bluntly speaking, China's "FIG leaf has been pulled off", "chips rely on imports", however, the decline in chip imports or the deficit is not a simple "decline figure".

How many 01 chips were imported?

Not only in the first two months of 2023, but also in the whole year of 2022, the number of integrated circuit imports is also on a downward trend.

From the perspective of the number of integrated circuit imports and exports, in 2022, the total number of integrated circuit imports in China will be 538.4 billion pieces, down 15.3% year-on-year; Exports totaled 273.4 billion yuan, down 12% year-on-year; The trade deficit was 265 billion yuan, down 18.4% year on year. In the past five years, the total volume of imports was 2,580.1 billion, the export volume was 12,796, and the trade deficit was 130.4 billion.

02 Reasons for less chip imports

According to the World Semiconductor Trade Statistics Organization (WSTS), from 2000 to 2022, the global semiconductor industry grew from 204.4 billion US dollars to 606.5 billion US dollars. China is the world's largest chip importer and the largest chip consumer market, and Chinese customs statistics show that in 2021, China's chip imports exceeded 635.48 billion pieces, with a value of more than 432.55 billion US dollars. China's chip market import potential is huge, but the chip technology is severely blocked, objectively need to break through the international chip technology blockade, improve import substitution to improve the chip self-sufficiency rate.

Overall market malaise

The consumer electronics market is weak. Affected by the COVID-19 pandemic, chip shortage and rising prices, the global consumer electronics market demand has slowed down, especially the sales of smartphones, computers, tablets and other products. According to statistics, the global smartphone shipments in 2022 were 1.21 billion units, down 11% year-on-year; Worldwide PC shipments were 280 million units, down 3.6% from a year earlier. Global tablet shipments were 140 million units, down 6.7 percent from a year earlier. These products are one of the main uses of China's chip imports, so the reduction in market demand has directly led to a decline in chip imports and the amount of money.

This situation enters 2023, and it is not getting better quickly. Magirror Research, an internationally renowned research institution, reported that in the first quarter of 2023, the global inflation problem has not improved significantly, the cost of living has soared, and the consumer electronics market is still weak, resulting in the inventory of display driver chip designers continuing to rise, generally more than 10 weeks. Some manufacturers inventory water level even more than 20 weeks. It is expected that at present, panel manufacturers display driver chip inventory level is at a normal level, with the gradual warming of the consumer electronics market, panel manufacturers will continue to increase display driver chip procurement from the second quarter of 2023, but some display driver chip design manufacturers inventory level will still reach more than 20 weeks. It will take until the third quarter for it to be possible to keep inventory levels below 20 weeks.

Imports of high-end chips are high, but are restricted

The US government believes that high-end Gpus are mainly used in high-performance computing and are typical dual-use goods. Previously, based on the same excuse, the United States has included a number of Chinese supercomputing centers and related research institutions in the "entity list", and then further specific restrictions to a number of products of the two chip companies.

Previously, the core of EDA (Electronic Design Automation) tool software supply is to restrict China's design of advanced process chips based on GAAFET (full gate field effect transistor) technology, and the focus of the US Chip and Science Act 2022 is to prevent advanced process production capacity from landing in China. Today, the United States has implemented new licensing requirements to restrict China's use of high-end GPU to obtain advanced computing power, because the most advanced GPU products in the commercial field have been restricted in the past two years, there is no comprehensive alternative for the time being, and the restrictive measures will directly affect the application side ecology.

It is reported that in order to meet the surging demand of mainland customers, Nvidia placed a "super urgent" order on TSMC, and planned to complete more deliveries within the buffer period of the United States' control of its A100 GPU products. High-performance GPU is the "accelerator" of general computing, which is mainly used in the three fields of supercomputing, training and reasoning. For a long time, companies like Nvidia dominated the high-end GPU market.

On the other hand, the restriction measures will provide a market test opportunity for domestic GPU and AI special chip manufacturers, and China has the opportunity to find a breakthrough in the high-end GPU.

The enhancement of domestic substitution

In the case of frequent sanctions policies, the most important thing for China's downstream application enterprises is: without Nvidia's GPU, there is no "PlanB"?

First of all, due to the inequality of chip investment of domestic and foreign enterprises, chip blockade will weaken the domestic and international competitiveness of our products, and with the continuous superposition of competitiveness losses, China's industrial losses and macroeconomic losses will gradually increase. The chip blockade will raise the production costs of Chinese enterprises, resulting in a decline in output in most industries, including the electronic equipment industry output decline. Strengthening the substitution ability of domestic chips for imported chips and strengthening the substitution behavior of chips from different import sources can reduce the negative impact of the United States chip embargo alliance on our economy.

In the field of central processing unit (CPU), Loongson, Feiteng and other enterprises have launched a number of products based on independent architecture or open source architecture, and have been applied in educational institutions, Internet companies and other fields.

In the memory field, Changjiang Storage successfully mass-produced 64-layer 3D NAND flash memory and began to supply it. In the field of analog/mixed signal, companies such as Unigroup Zhanrui have also achieved self-sufficiency in some product lines.

In addition, in the automotive field, the products of Chinese chip design companies have quickly entered the automotive electronics market, and a number of car-scale MCU enterprises such as Zhaoyi Innovation, Guoxin Technology, BYD semi-guide, Siwei New (Jiefa Technology), Xinhai Technology, Zhongying Electronics, Uniguguang Guowei, Fudan Micro have been launched in the past year. Covering IGBT, MOSFET, Power IC, MCU to ADAS SoC and other chip fields.

From the perspective of domestic chip types, discrete devices, logic chips, Power ics and MCUS are at the forefront. In downstream applications, the communication market and automotive electronics market have a large demand for chips.

According to WSTS data, the global semiconductor market size in 2022 is $573.5 billion, an increase of 3.2% over 2021. China remains the largest semiconductor market, with the mainland semiconductor market declining slightly by 1.1% to about $185.7 billion in 2022. In terms of market share, mainland China will account for about 31.8% of global sales in 2022.

At the same time as domestic chip production, overseas manufacturers are also feeling the pressure. For example, in the field of storage, with the efforts of domestic enterprises, the monopoly situation of overseas enterprises such as Samsung and Micron has been broken.

03

The inspiration of chip import rise and fall

Although the decline in chip imports can reflect the difficulties encountered by China in the face of sanctions, it can also "force China to develop its own chips" as some people abroad worry. The trade deficit is not blindly good or bad, behind the rise and fall of imports, there is the revelation of China's development of chips.

The asymmetric relationship of trade dependence

Trade dependence refers to the degree of influence of a country on another country in international trade, which is an important factor affecting a country's external risk tolerance and industrial security development. When the influence degree of trade interdependence is in unbalanced distribution, the two sides of trade will form an asymmetric trade dependence relationship. As the United States is a semiconductor superpower, its restrictions on China obviously put us in an unfavorable relationship.

Singapore, the United States and the European Union have increased their trade dependence on China in chip export trade in recent years, while Japan and Malaysia have shown an inverted U-shaped trade dependence on China, and their dependence on the Chinese market has rebounded in recent years. The trade dependence of Philippine chip exports on the Chinese market is stable and remains low. It can be seen that China has gradually become an important market for chip exports from countries and regions with advanced chip manufacturing technology or chip production lines such as Japan, South Korea, Vietnam, Malaysia, the United States and the European Union.

The asymmetric relationship of trade dependence has a restraining effect on China's chip import trade, and a balanced trade dependence relationship is conducive to a "win-win" or "multi-win" chip trade between countries (regions). However, the relative power advantage determined by the asymmetric relationship of trade interdependence has a certain promoting effect on China's chip import trade, which is opposite to the effect of the asymmetric relationship of trade interdependence. In the asymmetric relationship of trade interdependence, China's dependence on chip import trade of other countries and regions can weaken the promotion effect of power advantage on chip import to a certain extent, and China's relative power advantage can effectively hedge the adverse impact brought by trade friction. When trade dependence, power advantage and trade friction are superimposed, China's chip import trade dependence on other countries and regions will weaken the hedging effect of power advantage on trade friction, that is, the greater China's dependence on chip import trade of other countries and regions, the weaker the hedging effect of power advantage on trade friction. Thus, the adverse impact of the asymmetric relationship of trade interdependence on China's chip imports has been further highlighted.

Supply chain risk

When the substitution elasticity of domestic chips and imported chips is improved, the negative impact of chip blockade on China's economy will be greatly reduced, which indicates that strengthening the substitution capability of domestic chips is an important way for China to deal with the chip blockade of the United States.

Professor Wei Shaojun once analyzed this matter: In 2017, after the Trump administration came to power in the United States, it began to suppress Chinese enterprises such as ZTE and Huawei. In May 2020, the United States tailored the export control "Foreign Direct Product Rule" (FDPR) for Huawei, and gave a grace period of 120 days. This has triggered overorders from Huawei and concentrated deliveries from suppliers such as TSMC. As a world-class enterprise, Huawei purchases more than $10 billion in chips annually. Under the pressure of FDPR, suppliers had to disrupt the original production arrangements in order to meet the deadline set by the US government to deliver to Huawei. Such a large number of orders and delivery time requirements have caused serious disruption to global semiconductor manufacturing. The real purpose of the US government is to use the lack of core incident to rebuild a global semiconductor supply chain without China's participation, while containing and suppressing other competitors. This purpose was evident in a series of subsequent actions by the US government.