Semiconductor Trends in China
Monday June 3, 2019
Semicon sales by Chinese manufacturers are said to have reached RMB 653.2bn in 2018, about $97.3bn, or around ~20% of global semiconductor revenue for 2018 (The Register). China’s regime has been making aggressive moves to increase the amount of semiconductors produced locally, as they currently only produce 16% of its semiconductor needs, relying on imports. However, there is some concern that this aggressive investment in the industry will impact global industries negatively (The Epoch Times). Japan, Korea, and Taiwan have all also offered competitiveness to the US, but have not raised concerns in strategic or military fields, unlike China. If China succeeds in gaining more dominance over the world markets, the US worries that it may use it for “intelligence, military, commercial, and political advantage by manipulating the semiconductor supply chains that Western economies and militaries depend upon” (The Epoch Times).
The mounting US-China trade and technology tensions are heavily impacting the global semiconductor market. Every argument between the US and China creates more tension in the market, and destabilises the financial markets, pushing both countries further away from a deal which would benefit both economies. Both sides are being urged by the SIA to avoid further escalations and to compromise and cooperate with each other (Semiconductors).
The tradewar will impact not only the Chinese and American market but the wider global market too. In the past, China has been mostly positive for the semiconductor industry, but new policies are resulting in the government increasing investments in the industry in an attempt to gain share. This could potentially lead to dual technology standards, which will likely lead to a rise in prices for components, according to Rebecca Fannin, author of “Tech Titans of China” (NY Times).
As predicted, China is continuing to invest in the IC industry, following its Made in China 2025 plan, which sets a goal for China to fulfill 40% of its domestic semicon needs. Currently, the plan is supported by >$58 billion in different funds and supported by promises of a further $60 billion (The Epoch Times). According to the Chinese government, China also needs to focus inwardly and face its weaknesses in the semiconductor industry directly. The country needs to continue to invest heavily to develop its own advanced chips to close the gap with the US and other countries. According to Xi Jinping, the country aims to speed up the development of its digital industry and the digitalisation of industries (SCMP).
The trade war between the US and China is certain to cause problems in the global semiconductor market, and is adding to uncertainty in forecasts made by industry experts. A key example of how this war is impacting the market globally is the requirement the Trump administration has put on Huawei that it get permission to buy technology from American companies. This has caused Google to pull its services from Huawei phones. Lumentum, a US company which makes optical networking gear, is also being impacted by this decision, as Huawei has, in the past, generated ~15% of its revenue. This is just the tip of the impact of this global dispute (NY Times)
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