China's chip industry resilient amid US export controls
China's semiconductor industry has been demonstrating resilience in the face of the latest round of US export controls. Having anticipated these measures, companies have implemented supply chain localization strategies.
However, industry experts emphasize a continued need for domestic innovation to reduce reliance on US technologies. Additionally, supporting small and medium-sized enterprises (SMEs) is crucial as they play a vital role in the supply chain but often have limited resources to withstand external pressures.
New round of restrictions
The US government's new restrictions, announced on Monday, expand the Entity List to include 140 new entities, encompassing semiconductor fabrication plants, tool manufacturers, and investment firms in China. The restrictions also target high-bandwidth memory (HBM) used in AI chips.
China's Ministry of Commerce strongly condemned the US measures, characterizing them as economic coercion and non-market practices. The ministry vowed to take necessary actions to protect China's legitimate rights and interests.
The US is saying one thing and doing another, the ministry said in a statement, constantly overstretching the concept of "national security," abusing export control measures and engaging in unilateral bullying behaviors.
A listed chip firm facility in Shanghai.
Impact on Listed Firms
NAURA Technology, a leading semiconductor equipment maker listed in Shenzhen, is one of the Chinese companies added to the Entity List. However, as over 90 percent of its revenue comes from the domestic market, the impact will be limited, said the company. It has established a well-controlled supply chain domestically.
Similarly, Kingsemi, a Shanghai STAR Market-listed company, has developed domestic alternatives to mitigate risks associated with the Entity List. The company is accelerating the development of China-made electronic design automation (EDA) tools, a key tool for chip design.
Other listed chip firms have also reported minimal or limited impact from the new restrictions.
While the immediate impact of the restrictions is limited, as the industry had anticipated these measures, the long-term goal is to build a self-reliant and controlled supply chain, CITIC Securities said on Tuesday.
However, the broader scope of the latest restrictions, encompassing more companies and industries, may pose challenges for Chinese firms in accessing critical semiconductor materials and devices in the short term, analysts said.
Against the globalized rule
The US restrictions challenge the highly globalized nature of the semiconductor industry.
According to media reports, several US chip giants have expressed concerns about the potential negative impact of the tech export controls. They may hit their businesses in China, a significant income source.
US-based chip firms attended the recent China International Import Expo in Shanghai, showing their interest in the Chinese market.
A third-party company operating in China has successfully established an independent supply chain without relying on US suppliers or technologies, betting on huge market opportunities and potential in the domestic market, its staff told Shanghai Daily, on condition of not being identified.
Huawei, a leading Chinese tech company, has demonstrated resilience in the face of multiple rounds of US export controls. The company continues to innovate, launching new products like the Mate 60 and Mate 70 series, as well as the HarmonyOS Next operating system, which has cut reliance on Android.
Richard Yu, chairman of Huawei's Terminal Business Group, views the US restrictions as a catalyst for China to develop core technologies and strengthen its overall technological capabilities.
Yu was speaking during Huawei's release of a tri-fold smartphone in September, the world's first tri-fold model.
SMEs need support
SMEs in the semiconductor industry, with limited resources, are particularly vulnerable to the impact of these restrictions. Government support and industry initiatives are crucial to help these companies navigate the challenges and contribute to the overall strength of the domestic supply chain, said Gu Wenjun, IC Wise's chief analyst.
Shanghai unveiled 10 measures this week in support of SMEs focused on core technologies and innovation, targeting key sectors such as artificial intelligence and semiconductor. The measures include establishing industrial zones, building service centers, and financial support such as easy access to capital markets and special bank loans with quota up to 400 billion yuan (US$55.5 billion).
Shanghai, along with the Yangtze River Delta regions, is a national headquarters for semiconductor industry, with the most advanced wafer lines and related supply chains.
