China chip sector eyes return to growth

After a torrid 2023 in which both imports and domestic output shrunk, China's chip sector looks set to return to growth this year.

Chinese firms imported $349.4 billion in semiconductors last year – a record 15% decline – while imports of semiconductor components fell by 23.8%, according to China's customs figures.

Analysts attributed the downturn to the tepid global chip market, which is working its way through excess inventory, as well as China's weak economic recovery and the impact of US sanctions on China.

It's notable that despite the sanctions and the decline in imports, domestic chip output also contracted. Total sales dropped an estimated 19% to 81.3 billion Chinese yuan (US$11.4 billion), with market leader SMIC reporting a 9% dip in revenue to RMB45.1 billion ($6.3 billion).

However, Chinese analyst firm IC Wise predicts the domestic chip market will grow 12% in 2024 and the foundry market will rebound to 9% growth. It says much of the fresh demand will come from the auto sector and new energy, along with mobile phones and consumer electronics.

Foundry sales will reach $12 billion thanks to demand from key segments, with the market share of domestic chips also expected to grow. In addition, IC Wise forecasts greater capacity utilization rate of China's chip fabs.

Chipmaking imports up 14%

The other part of the story is the semiconductor equipment sector. To beat the arrival of tough new sanctions, China's imports of chipmaking gear last year rose 14% to almost $40 billion – the second largest amount on record in data going back nearly a decade, Bloomberg reports.

Imports from the Netherlands, home of lithographic leader ASML, were especially strong. China sales in December spiked almost 1,000% from a year earlier as buyers hastened to beat the onset of strict new Dutch rules.

There's a huge amount of capacity expansion underway as well. Taiwanese analyst firm TrendForce says China has 44 semiconductor fabs in operation and another 22 under construction. Additionally, it expects 32 Chinese fabs to expand their 28-nanometer and older mature chip production capacity this year.

TrendForce predicts China's share of mature semiconductor capacity – 28nm and over – will grow from 31% to 39% over the next four years, while its share of advanced manufacturing capacity will rise from 6% to 8%.