China says its semiconductor output picked up in June but still down in first half of year

Production of integrated circuits in June totalled 322 million units, up 5.7 per cent from last year, according to the National Bureau of Statistics
However, production of chips from January to June totalled 1,617 million units, down 3 per cent from last year

Semiconductors

Dylan Butts

Published: 6:00pm, 17 Jul 2023

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China’s reported integrated circuit (IC) output was up 5.7 per cent in June compared with last year but remained down in the first six months of 2023 as the country’s semiconductor industry continues to struggle with economic headwinds and escalating trade restrictions from the US and its trade allies.

Production of ICs in June totalled 32.2 billion units, marking a recovery from the same period last year, according to data released by the National Bureau of Statistics (NBS) on Monday.

In contrast, June 2022 had reportedly seen chip output fall by over 10 per cent to 28.8 billion units as China’s stringent zero-Covid-19 policies, as well as the war in Ukraine and high global inflation, plagued the industry.

Despite a strong month, the data showed that the output of ICs for the first half of the year was still down 3 per cent from the same period last year, totalling 161.7 billion units.

The June increase and half-year decrease of IC output appears to contradict a report from NBS in May that showed that IC output had increased 0.1 per cent in the first five months of 2023. NBS said in a footnote in its report that it adjusts headline growth data to reflect changes in the companies included in its samples, which can create inconsistencies and “differences in the published data standards”.

A half-year decrease in semiconductor output could reflect how economic headwinds and US trade sanctions have affected the production capacity in the world’s largest chip market.

Last October, tighter export controls announced by Washington significantly curbed China’s ability to manufacture and import advanced semiconductors. That move was followed by a joint agreement with Japan and the Netherlands in January to coordinate export controls to China covering certain advanced chip-making equipment.

China’s imports of integrated circuits (ICs) slumped by 18.5 per cent in the first six months of 2023 from a year earlier by volume, according to recently released customs data, though analysts say a fast-growing market for smuggled advanced devices has sprung up.

Japan’s semiconductor equipment controls are slated to come into effect next week. Meanwhile, Dutch company ASML, which has a monopoly on high-end lithography systems for chip making, will need a government export license to sell some of its most advanced systems to China starting on September 1.

Integrated circuits on display at the World Artificial Intelligence Conference (WAIC) in Shanghai, China, July 6, 2023. Photo: Bloomberg

With tighter US semiconductor restrictions looming, some Chinese chip-making experts have declared that “globalisation is dead” for the industry, while investment in domestic chip manufacturing has been picking up. The restrictions have also left room for China to continue focusing on more mature, legacy chip production, according to industry insiders.

China’s added value to the broader manufacturing industry was up 4.2 per cent in the first half of 2023 compared to last year, according to NBS. But, in addition to IC output drops, production of microcomputers dropped about 25 per cent, while smartphone output in China fell about 9 per cent.

China’s overall factory activity contracted for a third straight month in June amid an overall slowing economic recovery, according to China’s official manufacturing purchasing managers’ index.