Undaunted by deadlocked US-Sino relations, the great pandemic of 2020, and the US Department of Commerce’s ban on Huawei’s use of software and equipment produced by US manufacturers in the same year, China’s packaging and testing industry has, instead, used these factors as stimulus get back on track. Faced with these three major challenges, the Chinese government has responded with policies such as domestically producing both equipment and semiconductors, allowing China’s packaging and testing industry to buck the trends set in 2020. According to TrendForce statistics, industry revenue in 2020 reached US$7.02 billion and approximately US$9.53 billion in 2021.

A brief summary of China’s packaging and testing industry in recent years is as follows: the US-Sino trade war has been raging since 2018 and, due to tariff issues and the gradual rise in personnel salaries, terminal manufacturers whom had already established plants or subsidiaries in China were forced to gradually relocate relevant factories to SE Asia and India in order to avoid growing overhead costs, moreover impacting the revenue performance of China’s packaging and testing industry. As of June 2019, the tariff issue remained unresolved due to dubious US.-Sino relations but this issue could no longer impede the revenue recovery momentum of China’s packaging and testing industry.

Packaging and testing and localized equipment skirts bans and a moderate threshold for technology research and development attracts overseas manufacturers

After the U.S. Department of Commerce imposed export control bans on Huawei, HiSilicon, and SMIC, the market mostly predicted that China’s packaging and testing industry would be hit next but this did not happen. According to TrendForce, the primary reason for this is that the nature of current back-end packaging and testing technology is relatively crude compared to front-end wafer manufacturing and, considering Chinese government’s recent policy of localizing equipment and the degree of substitutability of non-US equipment manufacturers, even if the U.S. Department of Commerce proposes further bans against the industry, its effects will be limited.

In response to the US-Sino trade conflict, the Chinese government has proposed relevant measures such as semiconductor autonomy which has driven a gradual mainstreaming of domestic equipment production plans. In addition, national funds have been continuously injected into semiconductor equipment manufacturers, even though the level of technological development at this stage remains inferior to major manufacturers in Europe, the United States, and Japan. However, for those with modest requirements for back-end process conditions, testing, and testing equipment, China’s domestic packaging and testing equipment does have a certain proportion and scale.

For example, relevant companies such as Hangzhou Changchuan and Shanghai Raintree have invested in the automatic optical inspection instruments (AOI) and testing equipment that are required in the latter stage of packaging and testing. On the other hand, due to the relatively low threshold for research and development of back-end packaging and testing equipment, many international companies such as Japan’s Advantest and Singapore’s Besi have also set up shops in China. Chinese packaging and testing and their equipment manufacturers are essentially unaffected by relevant export bans, so the industry can still anticipate technological and revenue performance in the next few years.

（Image credit: Pixabay）

The Bureau of Industry and Security (BIS) of the U.S. Department of Commerce recently issued the latest Unverified List (UVL) which includes ChuZhou HKC Optoelectronics Technology Co., Ltd., according to TrendForce’s investigations. The announcement states that if U.S. suppliers wish to ship products to companies on the UVL, they can still submit documentation to obtain a shipping license. According to TrendForce’s understanding, the primary reason ChuZhou HKC is included on the UVL is that it plans to import panel-related analytical instruments from the United States in the near future, and actions taken by BIS are not indicative of the Chinese panel industry as a whole. Currently, ChuZhou HKC is in the process submitting proposals and negotiating with its U.S. material suppliers, thus TrendForce’s assessment is that there is no impact on the supply and shipment of ChuZhou HKC products for the time being.

It should be noted that according to TrendForce statistics, HKC’s Chuzhou plant will account for only 3.8% of global LCD panel capacity in 2022, which is a fairly insignificant share. However, this plant accounts for 30% of HKC’s own capacity, thereby playing a pivotal role in company production. The Chuzhou factory primarily produces TV panels and monitor panels, among which TV panels account for nearly 80% of the factory’s production. If the current ban cannot be resolved smoothly, it will impact shipments of HKC TV panels.

In addition, the glass substrates used in HKC’s Chuzhou factory are sourced from multiple glass substrate suppliers, with approximately 40% coming from Corning, a U.S. supplier. Since Corning localized it production according to the location of panel makers, it is not expected to be limited by the restrictions on the export of U.S. production to China enumerated on the UVL, but detailed regulations are still awaiting clarification. At present, the supply of materials has not been affected, HKC’s Chuzhou plant maintains normal operation, and its clients have yet to move panel procurement away from the Chuzhou production line.

For more information on reports and market data from TrendForce’s Department of Display Research, please click here, or email Ms. Vivie Liu from the Sales Department at vivieliu@trendforce.com