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China will spend $300 billion on semiconductor imports as U.S. squeezes chip supply

China will spend over $300 billion on importing semiconductors this year, an industry expert told the World Semiconductor Conference in Nanjing on Wednesday, as the U.S. continues to put pressure on the country’s access to the most advanced chips.

“China is the world’s largest importer of chips,” Wei Shaojun, vice-chairman of the China Semiconductor Industry Association, said on Wednesday. China imported $301 billion worth of semiconductors last year—more than the $238 billion it spent on crude oil. Wei said that China will still spend $300 billion or more on semiconductors this year so long as “nothing out of the norm happens.”

The “norm” is fast changing as U.S.-China relations deteriorate. The Trump administration has increasingly used its dominance in the semiconductor industry to cut off Chinese companies—particularly Huawei Technologies—from international supplies.

In May, the Department of Commerce regulated that custom-made semiconductors can’t be sold to Huawei if U.S. technology is used at any point in manufacturing. That rule severed the business ties between Huawei and the world’s largest chip manufacturer, TSMC. Huawei uses American software to design chips; TSMC uses American tools to manufacture them.

Last week, the U.S. went a step further and prohibited manufacturers from selling any semiconductor to Huawei—including generic, off-the-shelf models—if U.S. technology was used at any stage of production. The new rule has dramatically limited Huawei’s sourcing options, making it unlikely the company can acquire top-tier chipsets.

As U.S. action has mounted, Chinese President Xi Jinping has re-emphasized a policy initiative announced in May dubbed “dual circulation” to insulate its domestic industries from external disruption.

Although vague in details, the basic premise is to bolster China’s internal supply chain while maintaining a key role in global exports. China’s reliance on foreign semiconductors is both a major incentive for and hinderance to achieving that goal.

China has spent tens of billions of dollars trying to create its own world-class chip manufacturers. China’s leading chip maker SMIC raised $7.6 billion in a secondary listing in Shanghai last month, but its capabilities remain generations behind others.

Meanwhile Wuhan Hongxin Semiconductor Manufacturer (HSMC), another domestic manufacturer valued at over $18 billion, is reportedly on the verge of bankruptcy after construction stalled due to a dispute over land.

Source: Fortune

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