China's Chip-Making Equipment Imports Reach Lowest Level Since Mid-2020

China's purchases of machines used to manufacture computer chips fell to their lowest level in more than two years in November, as demand for electronics collapsed and new US export restrictions limited the ability of Chinese firms to buy the most advanced equipment.

In November, Chinese firms imported $2.3 billion worth of machines used in semiconductor manufacturing, down by more than 40% from a year earlier. This is the lowest level since May 2020, according to customs data released Wednesday. Imports from the six major supplying nations, including the US, Japan and the Netherlands, all fell at a double digit pace in the month. This was even before some of those nations agreed to join the US in further limiting shipments of the most advanced gear to China.

Imports of computer chips have also declined as semiconductor manufacturers for smartphones and PCs have struggled with plummeting demand for their products. This is less than a year after they were unable to produce enough to meet orders.

According to data from the General Administration of Customs, Chinese imports of chip-making machines fell to their lowest level since May 2020 in November. This is likely due to the ongoing trade tensions between China and the United States, as well as the coronavirus pandemic.

The US sanctions announced in October have caused major foreign firms to limit or cease the supply of equipment to Chinese companies that make the most advanced chips. However, machines used to make older and slower chips can still be shipped. The US is negotiating with the Dutch and Japanese governments to convince them to join its unilateral sanctions. People with knowledge of those talks told Bloomberg that the Dutch and Japanese governments are likely to adopt at least some of the US measures.

The three-country alliance would represent a near-total blockade of China’s ability to buy the equipment necessary to make leading-edge chips. The US rules restricted the supply from American suppliers Applied Materials Inc., Lam Research Corp. and KLA Corp. Japan’s Tokyo Electron Ltd. and Dutch lithography specialist ASML Holding NV are the two other critical suppliers that the US needs to make the sanctions effective. If their governments adopt the curbs too, it would be a significant victory in the US attempt to cripple the development of China’s semiconductor industry.

China has filed a complaint with the World Trade Organization (WTO) over the export controls that have been imposed on it by the United States. China is seeking to have the WTO overturn the export controls, but any decision on the matter is likely to take years.

China's chip import decline accelerated in November, falling by 26%. This marks a significant acceleration from the previous month, when imports were down by just 10%.

The trade data showed that China’s purchases of computer chips were down by around 26% in November, for a 2% decline in the first 11 months of the year. Chinese demand for chips has been weak this year due to supply chain disruptions, a slowing domestic economy, and falling demand globally for products such as smartphones. Micron Technology Inc., the largest US maker of memory chips, warned that the worst industry glut in more than a decade will make it difficult to return to profitability in 2023.