Declining Chinese IC Imports Foreshadow Supply Chain Diversification Efforts

China’s chip imports are plunging much more quickly than domestic semiconductor production is increasing, illustrating the challenges that worldwide buyers will face in the coming years as regional electronics markets shift focus away from globalization, and embrace localized supply chains.

From January through May, China’s integrated circuit (IC) imports totaled $131.9 billion, down 24% compared to the same time in 2022, according to the country’s General Administration of Customs. IC unit shipments fell by 19.6% during the same period.

Signs of Slowed Demand

In contrast, according to the Chinese National Bureau of Statistics, China’s domestic chip manufacturing grew for the first time in 16 months in April. However, the magnitude of the increase was relatively small, with integrated circuit unit production rising by just 3.8% year-on-year. The combination of plunging imports and a domestic production increase that was insufficient to offset the decline in imports, resulted in a major deceleration in demand action in China.

The growth in China’s electronics sourcing activity has fallen sharply year-over-year over the last three months. The Supplyframe Commodity IQ Demand Index, tracking all types of components sold in China, shows this decline is gaining momentum, with demand activity growth declining by 20% in March, 22% in April, and 25% in May. 

However, despite the slowdown, the index has remained above baseline levels, indicating that demand is still rising – although at a much slower rate.

The Growing Supply Chain Shift

The primary cause of the decline in imports are the U.S. controls on exports to China of advanced semiconductors, such as high-performance AI graphics processing units (GPUs). Chinese buyers have encountered increasingly short supplies and lengthening lead times for these chips, contributing to the deceleration in demand growth.

As companies worldwide move to localize production and reduce dependency on imports of electronic components, they could encounter similar supply constraints. Although the U.S., Europe, South Korea, and Japan are taking steps to beef up their local electronics manufacturing capacity, building domestic supply chains is a long-term effort that will take years to complete.

Before countries can put all the required pieces in place, their companies could face challenges importing certain semiconductors from other nations as chip-producing countries move to reserve more of their production of critical devices for domestic use.

Buyers need to evaluate their companies’ chip requirements for the coming years and determine how quickly localized supply chains can develop to support demand for specific types of components, geometries, and semiconductor materials.

For parts that are projected to have insufficient availability from domestic sources, buyers should ensure supply by establishing long-term sourcing agreements with overseas suppliers before the localization trend spurs constraints in availability.

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