Chinese chip companies go bankrupt in 2022 due to US sanctions.

As many as 5,746 Chinese chip companies were deregistered in 2022, a sharp 68 percent increase from the 3,420 companies in 2021. On average, around 15 chip companies closed their doors each day. Experts believe the mass bankruptcies were caused by U.S. sanctions and China’s economic downturn, making it difficult for the country’s chip industry to recover.

According to Chip Language, a website that focuses on the semiconductor industry in China, the closures were due to inexperienced operators who rushed into the business and found it unprofitable, as well as the U.S. export controls on Chinese semiconductors. Yangtze Memory, the leader of China’s flash memory manufacturer, was included in Washington’s “entity list” of export control last December and has since reduced production volume and planned to lay off 10 percent of its employees. Its plan for a new factory in Wuhan has also been suspended.

Liu Pei-chen, director of the Industrial Economics Database of the Taiwan Institute of Economic Research, told The Epoch Times that the U.S.-China technology war was the main reason for the large-scale bankruptcy of Chinese chip companies. On Aug. 9, 2022, U.S. President Joe Biden officially signed the CHIPS and Science Act 2022, which stipulates that chip companies that have received subsidies from the U.S. government are not allowed to invest in the semiconductor industry in China. On Oct. 7, 2022, the U.S. Department of Commerce announced a series of chip export control measures, including that U.S. companies are not allowed to export advanced chips and related manufacturing equipment to China unless they obtain government permission.

The downturn of China’s economy was also a factor in the mass bankruptcies. Last year, China continued to implement “Zero-COVID” controls, including lockdowns, which had a major negative effect on the demand side, including PC consumer electronics and smartphones. The overall economic performance last year was relatively poor, with a growth rate of only around 3 percent.

Henry Wu, an economist in Taiwan, told The Epoch Times that all the key technologies of chips are outside mainland China, and China has not yet established its own industrial system to produce it. He said that the production process of the entire semiconductor industry is divided into many stages, each stage has a different country that has a leading advantage, but no one can lead the entire process except U.S. companies.

“Under this competitive situation, China must cooperate with the United States to improve Sino-U.S. relations before it is possible to develop its semiconductor industry. But Xi Jinping is now fighting against the United States and wants to compete for world domination, so, of course, the United States is blocking Chinese companies on semiconductor development,” Wu said.

Ning Haiphong and Luo Ya contributed to this report.