Covid-19 lockdown slows down chip manufacturing in China

Xi Jinping

As countries and companies are trying to increase their semiconductor manufacturing capacities, China saw a decline due to Covid-19 lockdowns. According to a report from Bloomberg, China's semiconductor production shrunk for the first time since early 2019 due to lower consumer demand and lockdowns.

The output of Integrated Circuits (IC) dropped 4.2% in Q1 2022 according to data from the National Bureau of Statistics. This was the steepest drop in production since the Q1 2019 when production rate was slumped by 8.7%.

China's key chip making territories including Shanghai are facing month-long lockdown that started on April 5th following a spike in Covid-19 cases. The region is a bustling tech metropolis with contributions over 3% of China's GDP and 10% of the country's total trade since 2018. This has led to closure of factories including Semiconductor Manufacturing International Corp. (SMIC) and Hua Hong Semiconductor impacted the most.

Chinese hardware companies are anticipating even more supply chain disruptions as more regions announced stricter prevention measures following reports of local Covid cases. Not just consumer electronics, but auto sales also plunged last month in China. Toyota, Volkswagen and Tesla's factories were closed for weeks because of the lockdowns. Both Toyota and Volkswagen had suspended their production at their respective factories in Changchun in mid-March this year.

Low demand for automobile and consumer electronics in China has been hurt by the lockdown measures that has also resulted in poor output. While automakers and semiconductor companies are gradually preparing to resume operations, the timeline for full-scale operation cannot be determined.

Source: Bloomberg (paywall)

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