Analyst forecasts chip slump in China

Analyst firm iSuppli has predicted that China’s semiconductor industry will shrink in 2009, the first time a significant decline has occurred since the company began gathering statistics on the market—and perhaps for the first time in the history of the nation’s chip business.

China’s semiconductor market is expected to decline by 5.8 per cent to $72bn in 2009, down from $76.5bn in 2008, according to iSuppli. The only previous decline iSuppli recorded was in 2008, when revenue decreased by a scant 0.1 per cent—essentially a flat year for the market.

“Such a downturn is remarkable for an region long regarded as a vigourous and reliable growth driver for global semiconductor market,” said Kevin Wang, senior manager of China research at iSuppli. “Even during the disastrous year of 2001, when global semiconductor revenue plunged by 28.6 per cent, China’s industry managed to surge by 24.4 per cent. With global semiconductor revenue expected to decline by 9.4 per cent in 2009, and with consumer confidence at risk of falling further, China’s semiconductor outlook could dim even more than iSuppli presently forecasts.”

Despite the current slump, iSuppli predicts growth will return in 2010, with a rebound of 9 per cent in revenue, followed by an 11 per cent increase in 2011.

“China’s economy has been increasingly affected by the financial crisis in developed countries since the third quarter of 2008,” Wang said. “Many small consumer electronics factories in Guangdong province closed because of lower sales orders and cash flow problems. Market conditions became even more negative in the fourth quarter of 2008. Most small firms saw their business decline by more than 40 percent, especially at low-tech, labour-intensive and export-oriented companies.”

To stimulate the economy, the Chinese government cut interest rates four times within two months starting in October 2008. Moreover, a stimulus package estimated at around $570bn will be implemented during the next two years. The government’s Home Appliances for Rural Areas project is an example of just one measure intended to stimulate domestic demand.

Meanwhile, the central government is in the process of making major structural changes in its industrial and commercial sectors through new corporate income tax and labour laws, plus the updated No. 18 Document of the State Council. The No. 18 Document has focused on building up China’s high-tech electronics industries since the year 2000, especially semiconductors and information technology. The government plans to further expand support for domestic high-tech and high value-added industries. These new policies will greatly affect future foreign direct investment in China.

In addition, the Chinese government plans to continue implementing an increasing number of national technical standards. Domestic standards also are intended to help shield Chinese companies from their more established international competitors.

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