As 2024 draws to a close, the development of the Chinese semiconductor industry under the backdrop of the China-US chip war has garnered significant attention. The latest data indicates that the wave of closures among Chinese chip companies in 2024 is still ongoing, with over 14,000 companies shutting down, highlighting the industry’s challenges.
According to a report by Tech media TrendForce on December 24, since 2022, the number of bankrupt or deregistered chip companies in China has been steadily increasing. In 2023, the number stood at 10,900; by December 5, 2024, it surged to 14,648.
This phenomenon is attributed to underwhelming growth in the automotive and industrial sectors and restrictions on China’s semiconductor exports. In recent years, the global chip industry has faced escalating tensions primarily due to trade restrictions and geopolitical competition. The US and its allies have imposed stricter export controls, particularly targeting advanced chip manufacturing equipment and technology. These restrictions have impacted the supply chain of Chinese chip companies, further undermining their competitiveness in the global market.
The wave of chip company closures is seen as the beginning of industry restructuring and internal optimization. Some analysts believe that it may take around two years for the entire industry to complete its reshuffle. Apart from intensified industry competition, support from investors and local Chinese Communist Party (CCP) governments for chip design companies is gradually waning, making it more challenging for startups to obtain funds, attract top talent, and enhance their research and development capabilities.
Su Zi Yun, Director of Military Strategy and Industry at Taiwan’s Institute for National Defense and Security Research, expressed surprise at the closure of over 14,000 chip companies in China within a year. He noted that this reflects policy mistakes on Beijing’s part and unrealistic, unscientific expectations.
Su further stated that chip manufacturing, unlike traditional industries or heavy machinery, involves complex physical theories and high-end equipment. He believes that the wave of closures among Chinese chip companies indicates a situation where the central and local CCP governments are in disarray, revealing that the CCP still struggles to overcome development challenges reminiscent of the past.
Su mentioned that just as during Mao Zedong’s era when China attempted backyard steel smelting, the current state of the chip industry can be likened to “backyard chip production.” Although the actual scale of investment cannot be confirmed by outsiders, the CCP claims to have allocated over trillions of yuan to support the chip industry. This massive funding may have flowed into companies that are now closing, including shell companies.
Moreover, Su emphasized that the demise of the Chinese semiconductor industry will have far-reaching structural implications on China’s future in technology, military competition, and the digital economy. He pointed out that technological development directly reflects overall economic and competitive strength, indicating that both industrial and military competitiveness might be constrained and gradually decline from the current state.
Data from a Chinese industry research firm shows that due to US restrictions on advanced chips and concerns about excess traditional chip production capacity, the inflow of funds into China’s semiconductor industry has significantly decreased by a third this year.
A report released by JW Insights revealed that in the first 11 months of 2024, the Chinese chip industry completed a total of 677 investment transactions, representing a 35.9% year-on-year decrease, with the total financing amount dropping by 32.4% over the same period.
The report highlighted that Chinese semiconductor investments are now predominantly driven by government-subsidized funds. As the US-China tech war escalates, Washington has further tightened the channels through which the CCP can access advanced US technology, citing concerns that such technology may be used to advance the modernization of the CCP’s military.
Simultaneously, China’s state-owned funds have increased their investments in the semiconductor industry. The largest fund is the China Integrated Circuit Industry Investment Fund known as the “Big Fund.”
Established in 2014, the initial fund size was 138.7 billion yuan (about $22.5 billion). The second fund was set up in 2019 with a registered capital of 204 billion yuan (about $29.5 billion). In May of this year, the third fund was established with a whopping registered capital of 344 billion yuan (about $48.3 billion).
The Ministry of Finance of the CCP is the largest shareholder in the fund, holding a 17% stake, followed by the China Development Bank as the second-largest shareholder with a 10.5% stake, while the five major state-owned banks each hold around 6%.
On December 23, the Biden administration announced initiating a trade investigation into the production of “legacy” chips in China. These chips are widely used in everyday products like cars, washing machines, and telecommunications equipment. This investigation, termed as the “301 Action,” aims to pave the way for imposing higher tariffs on chips manufactured in China as soon as Trump takes office again on January 20. Trump had previously stated during his campaign that he would impose a 60% tariff on all goods imported from China.
Outgoing President Biden has decided to impose a 50% tariff on semiconductor products manufactured in China starting from January 1, 2025. Additionally, the Biden administration has tightened restrictions on exports to China, including in key areas like advanced artificial intelligence chips, memory chips, and chip manufacturing equipment.
Furthermore, the Biden administration plans to increase tariffs on the silicon wafers and polysilicon needed for solar panels exported from China from the current 25% to 50%, and impose a 25% import tax on tungsten products originating from China, which currently have a zero tax rate.
The US Trade Representative’s Office will lead this latest investigation. Trade Representative Katherine Tai stated that the CCP is attempting to gain global dominance through the semiconductor industry, mirroring its practices in steel, aluminum, solar panels, electric vehicles, and critical minerals.
Over the past two years, the Biden administration has imposed export restrictions on advanced semiconductors produced using US and allied technologies, further strengthening control over this strategic industry.
Li Zhengxiu, a military expert from Taiwan and Deputy Researcher at the National Policy Foundation, told Epoch Times reporters on December 25 that the US-China chip war may escalate further after Trump returns to office, particularly targeting advanced technology, advanced chips, and critical manufacturing processes in mainland China. This could not only impact China’s overall industrial development but also potentially undermine its competitiveness in the semiconductor industry, creating significant anxiety within the CCP. Moreover, the CCP’s goal of promoting chip autonomy and independent supply may become increasingly out of reach.
Su Zi Yun noted that the mature chip production process in China may also face control from the US, especially if Trump returns to the White House. He mentioned that the trade and tech wars initiated by the Trump administration have now started showing results, and with the arrival of Trump 2.0, there could be further tightening of tech control over the CCP. The Biden administration has begun enhancing control over the CCP in the tech sector, and with Trump’s return, the CCP will face a more stringent situation, making it difficult to breathe.