Urgent Notice from the China Semiconductor Industry Association! How Will the Tariff Storm Reshape the Industry Landscape?

This morning, the China Semiconductor Industry Association issued an urgent notice regarding the "origin" determination rules for semiconductor products. The notice pointed out that according to the relevant regulations of the General Administration of Customs, the origin of "integrated circuits" is determined based on the four-digit tariff code change principle, meaning the location of the wafer fab is recognized as the origin. Additionally, the China Semiconductor Industry Association suggested that for "integrated circuits," whether packaged or unpackaged, the origin declared during import customs clearance should be based on the location of the "wafer fab." The semiconductor sector in the A-share market generally rose today, with Shanghai Belling, Jinghua Micro, Fuman Micro, Minde Electronics, Infotmic, Shengjing Micro, Haoshanghao, and Dagang Co. hitting the limit up, while Naxin Micro, SG Micro, Beken Corp., Vanchip, and Huahong Co. surged over 10%. Recently, the Trump administration in the US wielded the tariff stick, provoking trade disputes. In response, China has taken corresponding countermeasures. What impact will US tariff policies have on China's semiconductor industry? How will tariff countermeasures affect the investment logic of the semiconductor industry? Zheshang Securities stated that this tariff countermeasure is significant, and some US-dominated semiconductor products are expected to see price increases due to tariffs, stimulating the acceleration of domestic substitution, such as analog chips, microprocessors, and semiconductor equipment. Cinda Securities is also optimistic about the tolling business, suggesting that mainland China's tolling factories are expected to gain structural order transfers, with both market share and pricing power increasing. The tariff friction between China and the US may prompt end-users to shift to mainland China's tolling capacity. Downstream producers, to avoid cost pressure, may gradually relocate products sold to the mainland for local production. On the other hand, tariffs affect the import of high-end chips (AI chips) in China, potentially further increasing the demand for mainland advanced process tolling. Minsheng Securities believes that this trade dispute is qualitatively different from previous ones, not merely a simple Sino-US trade friction but a unilateral act by the US to sever the world. It is now more necessary to strengthen confidence and increase the exposure of self-controllable configurations. Meanwhile, since the 2018 trade dispute, China's semiconductor industry has also made significant progress. This tariff policy is expected to further accelerate domestic substitution, suggesting attention to sectors with more US counterparts and low localization rates: analog chips, domestic computing power, and semiconductor equipment. Comprehensive research reports from multiple institutions indicate that analog chips and semiconductor equipment are more focused on in this tariff turmoil. Analog chips: According to Minsheng Securities' estimates, the market size of analog chips in China in 2023 is about 230.4 billion yuan, with an expected self-sufficiency rate of less than 15%, and the localization rate in markets such as automotive and high-end industries is even lower. Meanwhile, as an important demand country for analog chips, the competition faced by Chinese analog enterprises from major US manufacturers such as TI has further intensified in the past two years, significantly affecting the profit margins of related enterprises. On January 16, the Ministry of Commerce initiated anti-dumping and anti-subsidy investigations on US exports of mature process chips. Minsheng Securities suggests attention to: automotive, industrial, and other downstream sectors with high proportions and those under significant competitive pressure from TI in the past two years, such as 3Peak, Naxin Micro, and SG Micro. Kaiyuan Securities also stated that the analog chip industry is currently at the end of inventory adjustment, with the characteristics of the cycle bottom gradually becoming clear. ADI indicated that first-quarter bookings continue to improve gradually and guided for YoY and QoQ growth in Q2, expecting 2025 to be a year of growth, while channel inventory days continue to pull back, and distributor inventories are nearing normalization. Domestic demand shows bottom oscillation characteristics, with a clear path of structural recovery: consumer electronics are expected to recover first due to national subsidy policies, and inventory pressure in the automotive and industrial control markets has gradually eased. Semiconductor equipment: Zheshang Securities stated that China is highly dependent on US-imported equipment, and tariff countermeasures are expected to accelerate domestic substitution. According to the 2024 financial report data of three US equipment giants, Applied Materials, Lam Research, and KLA, it is estimated that mainland China purchased over 130 billion yuan of US semiconductor equipment in 2024. The origins of the three US giants are mainly distributed in the US, Singapore, South Korea, and Germany. According to China's customs data, in 2024, China directly imported over 40 billion yuan of semiconductor equipment from the US, mainly high-end etching, thin film, measurement, and detection equipment and related parts. This part of the goods is potentially affected by counter-tariffs against the US, and this trade disturbance is expected to promote the acceleration of the localization of semiconductor equipment/parts. Soochow Securities is optimistic about front-end and back-end semiconductor equipment + parts producers, including front-end platform equipment producers NAURA and AMEC, as well as equipment producers with low localization rates such as Kingsemi, Zhongke Feice, and Jingce Electronics.