As many as 5,746 Chinese chip companies were deregistered in 2022, much higher than the previous year. Experts believe U.S. sanctions and China’s economic downturn have caused mass bankruptcies and that it would be difficult for China’s chip industry to recover.

Chinese media Titanium Media App reported on Feb. 16 that according to Chinese data analytics firm Qichacha, a total of 5,746 chip-related companies in China closed down last year, a sharp increase of 68 percent from 3,420 in 2021. On average, about 15 chip companies closed every day.

Epoch Times Photo
Workers producing LED chips at a factory in Huaian city, in China’s eastern Jiangsu Province, on June 16, 2020. (STR/AFP via Getty Images)

According to an analysis published on Feb. 17 by Chip Language, a website that focuses on the semiconductor industry in China, the reasons for the closures include inexperienced operators who joined the semiconductor business in a rush and, once finding it unprofitable, closing their companies. The U.S. export controls on Chinese semiconductors also had a significant impact on the performance and confidence of Chinese chip companies.

Yangtze Memory, the leader of China’s flash memory manufacturer, has reduced production volume and planned to lay off 10 percent of employees two months after being included in Washington’s “entity list” of export control last December. Its plan for a new factory in Wuhan has also been suspended.

US Tightens Export Control

Liu Pei-chen, director of the Industrial Economics Database of the Taiwan Institute of Economic Research, told The Epoch Times on Feb. 18 that the first reason for the large-scale bankruptcy of Chinese chip companies is the U.S.-China technology war. The United States’ various export controls on China’s semiconductors continued to tighten last year. Even if Chinese companies have subsidies from the government, their overall operations will be shut down.

The Chinese Communist Party (CCP) has engaged in technology theft for many years. On Aug. 9, 2022, U.S. President Joe Biden officially signed the CHIPS and Science Act 2022. In addition to promoting the development of the domestic semiconductor industry, it stipulates that chip companies that have received subsidies from the U.S. government are not be allowed to invest in the semiconductor industry in China.

China chip factory
A Chinese employee wearing a mask and protective suit works on a smart chip production line in Sihong county in China’s eastern Jiangsu Province on Feb. 16, 2020. (STR/AFP)

On Oct. 7, 2022, the U.S. Department of Commerce announced a series of chip export control measures, including that U.S. companies are not allowed to export advanced chips and related manufacturing equipment to China unless they obtain government permission; chips manufactured in other countries using U.S. technology are also subject to this regulation. In addition, American technical personnel are prohibited from developing and producing advanced chips in China.

Liu told The Epoch Times that the relationship between the United States and China is still relatively tense, and the United States’ control over China’s semiconductors will continue to increase in the future. Other countries are also facing a problem of choosing sides between the U.S. and China. If Chinese chip companies want to find some resources overseas, whether it is cooperation in talent or technology, they will face difficulties.

Henry Wu, an economist in Taiwan, told The Epoch Times on Feb. 18 that because all the key technologies of chips are outside mainland China, China has not yet established its own industrial system to produce it.

Wu said that the production process of the entire semiconductor industry is divided into many stages, each stage has a different country that has a leading advantage, but no one can lead the entire process except U.S. companies. There is no way for China to break through this situation.

“Under this competitive situation, China must cooperate with the United States to improve Sino-U.S. relations before it is possible to develop its semiconductor industry. But Xi Jinping is now fighting against the United States and wants to compete for world domination, so, of course, the United States is blocking Chinese companies on semiconductor development,” he said.

Economic Downturn

Liu said that the second reason for the mass bankruptcies in China’s chip industry is the downturn of China’s economy.

“Last year, China continued to implement “Zero-COVID” controls, including lockdowns. In addition to affecting the production side, more importantly, it had a major negative effect on the demand side, including PC consumer electronics and smartphones. The overall economic performance last year was relatively poor, so we saw that last year China’s economic growth rate is only around 3 percent.”

Ning Haiphong and Luo Ya contributed to this report.

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