China’s integrated circuit (IC) output dropped 17 per cent in the first two months of 2023, as the country’s semiconductor industry grappled with economic headwinds and escalating US trade sanctions. Production of ICs in January and February totalled 44.3 billion units, marking a stark contrast with the same period last year when chip output fell just 1.2 per cent to 57.3 billion units, according to data released by the National Bureau of Statistics (NBS) on Wednesday. The percentage drop also exceeded the 11.6 per cent decline recorded for the whole year of 2022. Chinese statistics agencies typically combine output data for January and February, when manufacturing activity often slows due to the Lunar New Year holiday. The decline in the first two months reflects how economic headwinds and US trade sanctions continue to cast a shadow on production capacity in the world’s largest chip market. Shipments of microcomputers dropped 21.9 per cent year on year to 46 million units in the first two months amid weak consumer demand, while in the same period smartphone output in China fell 14.1 per cent year on year, according to the NBS data. Last October, tighter export controls announced by the Bureau of Industry and Security, an agency under the US Department of Commerce, significantly curbed China’s ability to manufacture advanced semiconductors, giving the country fewer options for imports. Tech war: Alibaba’s hometown vows to boost integrated circuit industry That move was followed by a joint agreement with Japan and the Netherlands in January to coordinate on export controls to China covering certain chip-making equipment. In January and February, the volume of China’s chip imports slumped 26.5 per cent to 67.6 billion units, a drop steeper than the 15.3 per cent decline recorded for all of 2022, according to China’s customs data published earlier this month. IC exports fell 20.9 per cent year on year, compared with a 0.5 per cent increase a year ago. However, the new two-month data still reflects an uplift from last October, when China was yet to end its stringent zero-Covid-19 policies, which led to a huge hit on the country’s manufacturing sector. In that month, the country saw its chip output contract by 26.7 per cent year on year, marking the biggest monthly decline on record as China recorded its first export growth decrease in more than two years. China’s manufacturing sector also rebounded in January and February, after Beijing relaxed the strict zero-Covid controls in December. The official manufacturing purchasing managers’ index (PMI) beat expectations last month by rising to 52.6, up from 50.1 in January and the highest reading since April 2012. The Caixin/S&P Global manufacturing PMI, a private-sector survey, rose to 51.6 last month, up from 49.2 in January.