China’s Chip Production Surges by 40% in Q1

As per a report from the South China Morning Post dated April 18th, China’s chip production experienced a significant surge in the first quarter of 2024, rising by 40% to reach 98.1 billion units.

This growth is attributed to both official support and sustained industry investment in expansion efforts. It underscores China’s strategic move towards scaling up mature processes in semiconductor development, particularly amidst export restrictions. Furthermore, there is rapid expansion underway in chip production capacity.

Recent statistics released by China’s National Bureau of Statistics reveal that chip production soared by 28.4% in March alone, achieving a record high of 36.2 billion units.

The substantial increase in chip production in China is reportedly driven in part by robust demand from downstream industries such as new energy vehicles. Data indicates that in 2023, China produced 9.587 million units of new energy vehicles, marking a 35.8% year-on-year increase. In the first quarter of 2024, new energy vehicle production grew by 29.2% to reach 2.08 million units. Additionally, China’s smartphone production rose by 16.7% in the same period.

Over the past few years, the expansion of semiconductor plants across various regions has led to a continuous increase in China’s chip production capacity. The chip production volume in the first three months of 2024 nearly doubled compared to the same period in 2019.

According to a global fab forecast report released by the International Semiconductor Industry Association (SEMI) at the end of last year, China’s share of global semiconductor capacity is expected to continue expanding due to local government funding injections and other incentive measures. Chinese chip manufacturers are projected to establish 18 new fabs in 2024, with wafer annual capacity increasing from 7.6 million units in 2023 to 8.6 million units this year.

A report from the American think tank, the Center for Strategic and International Studies (CSIS), highlighted that due to U.S. restrictions on advanced chip technology and equipment exports to China, new investment projects in China’s semiconductor production are prioritizing mature process chips.

Data from TrendForce indicates that China’s fabs have reached 77, primarily focusing on mature processes.
The report cites researchers who suggest that U.S. export controls on advanced chip technology to China could lead to unintended consequences, such as a surge in state-backed investments. This could result in overproduction and potentially enable China to dominate traditional chip production globally.

Despite China’s efforts towards chip self-sufficiency, the country still heavily depends on chip imports, as indicated by the same reports. Data from the General Administration of Customs of China reveals that in the first quarter of this year, chip imports increased by 12.7% year-on-year, reaching 121.5 billion units. Meanwhile, chip exports experienced modest growth of 3% to 62.4 billion units. Chips remained China’s top imported commodity in 2023, surpassing crude oil.

However, it’s worth noting that a considerable portion of the chips imported into China are designed by Chinese chip design firms but manufactured by overseas foundries.