In 2024, trade tensions between China and the EU have intensified. On April 10th, the European Commission updated its report on distortive economic practices in China, expanding to include new industries such as telecommunications equipment, semiconductors, railways, renewable energy, and electric vehicles.

According to a report from Commercial Times, despite strong protests from China, the updated report from the European Union indicates that EU manufacturers may have filed anti-dumping complaints against Chinese chip and clean technology producers.

The Hong Kong Economic Journal (HKEJ) reported on April 11 that the latest updated version of the EU report, namely ‘COMMISSION STAFF WORKING DOCUMENT ON SIGNIFICANT DISTORTIONS IN THE ECONOMY OF THE PEOPLE’S REPUBLIC OF CHINA FOR THE PURPOSES OF TRADE DEFENCE INVESTIGATIONS‘, spans 712 pages. In addition to retaining industries like steel, aluminum, chemicals, and ceramics from the initial 2017 report, it has expanded to cover various new areas.

These include the role of the Chinese government in planning economic objectives, the importance of state-owned enterprises, special treatment in land, labor, raw materials, and energy for specific industries, and state subsidies, alleging distortive practices.

Previously, the EU’s new regulation on “Foreign Subsidies” came into effect in July 2023, followed by an announcement in October of the same year to initiate an anti-dumping investigation into Chinese electric vehicles. In response, China launched an anti-dumping investigation in January this year on distilled brandy containers of 200 liters or less originating from the EU.

Subsequently, the EU took action against Chinese company CRRC, prompting its withdrawal from public procurement tenders in Bulgaria. Recently, the EU escalated by announcing an investigation into Chinese-made wind turbines.

Despite escalating tensions in China-EU trade relations, when Chinese Minister of Commerce Wang Wentao visited Europe on April 7th, one of his main tasks was said to stabilize China-EU relations, maintain dialogue on trade disputes, and pave the way for Chinese President Xi Jinping’s planned visit to France in early May.

During Wang Wentao’s visit, he denied that Chinese automakers gain a competitive advantage through massive subsidies and emphasized that the anti-dumping investigation into EU brandy launched in January is unrelated to the electric vehicle dispute.

However, on April 10th, officials from China’s Ministry of Commerce Trade Remedy Bureau expressed a firm stance during a meeting with Lucais, Director of Trade Defence at the European Commission in Brussels. China stated that the updated report distorts China’s policies, market environment, and economic system, providing grounds for discriminatory anti-dumping measures. China expressed strong concern and opposition to this.

On the other hand, German Chancellor Olaf Scholz is set to lead a delegation to China on April 13th, with top executives from German companies such as BMW and Mercedes-Benz accompanying him.

According to a recent Reuters report, despite a nearly one-fifth decline in imports from China between 2022 and 2023, Germany maintains a high dependency on China for categories like chemicals, computers and solar cells. The “clear structural de-risking” is reportedly yet evident.

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According to a report from Nikkei Asia, Chinese tech giant Huawei is building a semiconductor equipment research and development center in Shanghai to navigate U.S. export controls and strengthen its chip supply chain.

As per the same report from Nikkei Asia, Huawei is offering salaries double that of its competitors to recruit experienced talent. However, industry sources cited by the same report suggest that Huawei’s demanding work culture may make retaining talent challenging, despite the attractive pay.

The report further highlights the center’s crucial role in developing photolithography machines, essential for advanced chip production. U.S. export controls have made it difficult for Huawei to access such equipment, which is primarily manufactured by three global leaders: ASML from the Netherlands, Nikon, and Canon from Japan.

Sources cited in the report has revealed that Huawei’s new research center is located in the western Qingpu district of Shanghai, featuring spacious grounds housing the main chip development center and the new headquarters of HiSilicon, Huawei’s semiconductor design division.

The area also hosts wireless technology and smartphone development centers. As per the Qingpu District People’s Government in Shanghai, once completed, the park will accommodate over 35,000 high-tech workers.

To attract talent, Huawei reportedly offers salaries twice that of local chip manufacturers. Industry sources cited in the report further noted that Huawei has recruited engineers with experience collaborating with top global semiconductor equipment manufacturers like Applied Materials, Lam Research, KLA, and ASML. Engineers with over 15 years of experience at chip manufacturers such as TSMC, Intel, and Micron are also on Huawei’s potential recruitment list.

The export control measures implemented by the United States in recent years have made it more difficult for Chinese citizens to work for global chip companies in China. This has left Huawei and other Chinese semiconductor enterprises with a larger pool of top chip talent to choose from.

Regarding the matter, TrendForce has addressed the export restrictions on semiconductor equipment by the US and its allies present significant hurdles for Chinese foundries in obtaining essential tools. To counter these challenges, the Chinese government, alongside local suppliers, is intensifying R&D efforts to produce domestic semiconductor equipment, especially for 16/12nm processes and smaller.

This has led to increased collaboration between Chinese foundries and local suppliers in both R&D and qualification processes. Despite these efforts, China’s progress in lithography tools is limited to the 90nm node, which remains a significant obstacle in achieving complete self-sufficiency in semiconductor equipment.

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(Photo credit: Huawei)

Earlier, Reuters reported that contract manufacturer Pegatron was in talks to sell its sole iPhone assembly plant in India to Tata Group, and discussions were in advanced stages. Regarding this matter, Pegatron told CNA reporters that this report was speculative and lacked evidence, declining to comment further.

According to a Reuters report on April 8, Pegatron was said to be considering selling its iPhone assembly plant located in Chennai, a major city in southern India, to Tata Group, India’s largest private enterprise. The negotiations were rumored to conclude within six months. If an agreement is reached, the two parties will establish a joint venture, with Tata Group holding a 65% stake to operate the plant, while Pegatron will retain a 35% stake and provide technical support.

Sources cited by Reuters also mentioned that Pegatron is building another iPhone assembly plant in the Chennai area, and discussions with Tata include acquiring control of this new facility. The negotiations between Tata and Pegatron are expected to conclude within six months, after which all Pegatron India plant employees will transition to the joint venture.

Amid rising geopolitical risks, tech giants are diversifying production away from China. Pegatron reduced its stake in its Kunshan plant to 37.5% in December, with Chinese Luxshare now leading. However, Pegatron emphasizes it won’t withdraw from China and plans to establish new facilities this year.

In recent years, Pegatron has been consistently expanding its global footprint, with expansions ongoing in Taiwan, Mexico, Indonesia, India, Vietnam, and other locations.

Currently, approximately 10% of Apple’s iPhone production capacity in India comes from Pegatron, with the vast majority of capacity originating from Foxconn’s iPhone assembly plant located in Karnataka.

Furthermore, Foxconn has the highest share in Apple’s current new iPhone assembly. Among the four iPhone 15 series models, only certain models like iPhone15 and iPhone15 plus are produced by Tata Group in India.

In January, Pegatron announced a USD 12 million investment to form a Malaysian subsidiary for consumer electronics. It’s also expanding its Mexican plant capacity, investing USD 75 million to boost its electric vehicle business.

(Photo credit: Apple)

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The US government, according to a report from Reuters, is asking allies to stop domestic companies from servicing certain chip-making tools for Chinese customers, a U.S. Commerce department official said on March 27th.

“We’re pushing for not servicing of those key components and these are the discussions we are having with our allies,” stated export controls chief Alan Estevez, as reported by Reuters during an annual conference. “We are working with our allies to determine what is important to service and what is not important to service,” hinting that the US is not proposing restrictions on non-core components that Chinese firms can repair themselves.

The recent trigger for heightened vigilance in the US was Huawei’s launch of a new 5G smartphone in August last year, equipped with domestically manufactured advanced 7-nanometer chips from China. According to a recent Bloomberg report, the chips supplied to Huawei by its partner SMIC are manufactured using equipment from US suppliers such as Applied Materials and Dutch company ASML.

Since then, the US has reportedly been increasing pressure on allies such as the Netherlands, Germany, South Korea, and Japan, urging them to further tighten restrictions on China’s access to advanced chip technology.

Additionally, the US has restricted equipment suppliers like Applied Materials from providing maintenance services for entities in China subject to sanctions. However, neither the Netherlands nor Japan has implemented similar maintenance bans on their domestic companies, prompting the US to encourage allied firms to follow suit.

Gina Raimondo, the US Secretary of Commerce, previously responded by stating that the US will take “as strong and effective action as possible” to uphold national security interests.

Companies that have been listed on the Entity List by the US Department of Commerce include Huawei, SMIC (Semiconductor Manufacturing International Corporation), and Shanghai Micro Electronics. Additionally, China’s other major memory manufacturer, Yangtze Memory Technology Corp, was added to this restriction list in 2022.

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(Photo credit: iStock)

SMIC, the leading semiconductor foundry in China, announced its financial results on March 28th. The company’s revenue for 2023 was USD 6.32 billion, a decrease of 13.1% compared to the previous year. However, the net profit for the full year plummeted by a staggering 50.4%, dropping to USD 903 million.

According to SMIC’s financial report cited by Sina Finance, SMIC’s gross profit margin for 2023 was 19.3%, with an average annual utilization rate of 75%, essentially meeting the initial guidance for the year. As of the end of 2023, SMIC’s total assets amounted to USD 47.8 billion. The asset structure remained robust, with an equivalent monthly capacity of 806,000 wafers for 8-inch production lines

Last year, SMIC’s revenue share from the China region increased from 74.2% to 80.1%, while revenue from the US region decreased from 20.8% to 16.4%, and revenue from the Europe and Asia region fell to 3.5%.

In terms of application categories, revenue from smartphone chip manufacturing dropped from 27% to 26.7%, while revenue from computer and tablet segments increased from 17.5% to 26.7%, and revenue from IoT and wearable devices decreased from 18% to 12.1%.

SMIC produced 6.074 million wafers last year, a 19.1% decrease year-on-year, with inventory increasing by 40.1% to 724,000 wafers. 8-inch wafers accounted for 26.3% of revenue, while 12-inch wafers accounted for 73.7%.

SMIC also announced its guidance for 2024, aiming for sales revenue growth not lower than the industry average, with a single-digit increase expected mid-year.

Additionally, the company plans to continue advancing its announced 12-inch plant and capacity construction projects in 2024, with capital expenditure expected to remain roughly the same as the previous year.

SMIC pointed out that the decline in revenue in 2023 was primarily due to a decrease in wafer sales volume. Additionally, the decrease in gross profit was attributed to lower capacity utilization, reduced wafer sales, and changes in product mix. Moreover, the group is in a high investment phase, resulting in higher depreciation compared to 2022.

Regarding the development of China’s foundry industry, TrendForce previously reported that from 2023 to 2027, propelled by policies and incentives promoting local production and IC development, China’s mature process capacity is anticipated to grow from 29% this year to 33% by 2027. Leading the charge are giants like SMIC, HuaHong Group, and Nexchip. Globally, the ratio of mature (>28nm) to advanced (<16nm) processes is projected to hover around 7:3.

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(Photo credit: SMIC)