More Than 3,000 Firms in China Go Belly Up as Country's Chip-Making Prowess Wanes

Chip manufacturing in China is slumping even as the US and India are boosting the key industry. The production of integrated circuits (ICs) fell more than 24 percent in August, compared with the same month a year ago, the South China Morning Post reported. The August output was 24.7 billion units.

The decline was the largest to happen in a single month since 1997. It was also the second consecutive monthly decline. In July, the output was 27.2 billion units, which was a drop of nosedived 16.6 percent. The weakening of China's chip making prowess is largely attributed to continuing Covid restrictions in that country as well as weakening demand.

Semiconductor Wikimedia Commons

Domestic Manufacturing Shrinks

As China's domestic manufacturing shrank, as many as 3,470 chip-making companies went belly up so far this year, data from the business database platform Qichacha showed. According to IANS, in China, local output of microcomputers plunged 18.6 percent to 317.5 billion units last month.

The Chinese dominance in the industry is being challenged as India and the US are increasingly focusing on the all-too important segment.

In July, the US Senate voted to move forward with the CHIPS Act that will provide a $54 billion boost to the country's semiconductor industry. The long-delayed Senate vote fulfills the chip industry's demand for subsidies that will enable it to compete with China.

Chief among the provisions in the bill are $54 billion in subsidies for America semiconductor companies and a four-year 25 percent tax credit, which is worth about $24 billion.

India, US Push Ahead

Last month, Indian conglomerate Vedanta Ltd said it was setting up a massive semiconductor project in Prime Minister Narendra Modi's home state of Gujarat with the collaboration of Taiwan's Foxconn.

The $20 billion joint venture will include display and semiconductor facilities near the largest city of Ahmedabad in the western state, the source added, declining to be named ahead of an official announcement.

Neon and other Noble gases
Neon and other Noble gases Wikimedia Commons

India's semiconductor market is estimated to reach $63 billion by 2026 from $15 billion in 2020, the government says.

Also earlier this month, US giant Intel announced the start of work on a massive $20 billion semiconductor plant. The plant comes up in Ohio, where US President Joe Biden and Ohio Governor Mike DeWine joined the breaking ground ceremony.

China's semiconductor industry suffered a setback in September when the US Commerce Department slapped new restrictions on chip sales to Chinese companies.

SMIC opened at 95 yuan on its Shanghai debut, selling 1,685,620,000 shares at 27.46 yuan per piece YouTube Grab

As per the department's new guidance, US chipmakers must immediately procure a license to supply artificial intelligence chips to Chinese companies. The US says stringent measures are needed to ensure that AI chips are not used by the Chinese for 'military end use'.

Analysts said the new US restrictions will also result in significant business loss for US chipmakers. "Both companies have a large exposure to China and could see more impact going forward, especially if China chooses to retaliate," said Mario Morales, a California-based IDC analyst.