Introduction
CHINA GALAXY SECURITIES
On April 11, the China Semiconductor Industry Association issued an “Emergency Notice on the Rules for the Determination of the ‘Origin’ of Semiconductor Products,” stating that according to the relevant regulations of the General Administration of Customs, the origin of “integrated circuits” is determined based on the principle of changing the four-digit tariff number, meaning that the foundry location is recognized as the origin. Following this news, related sectors in the A-share and Hong Kong stock markets surged collectively on the same day.
Some investors may not fully understand what the foundry location is, its relationship with the semiconductor industry, and the significance of the announcement of the semiconductor product ‘origin’ determination rules. So, grab a seat and let me explain it to you~~
The following content is packed with valuable information, so don’t miss it~~
What is the ‘Foundry Location’?
To understand the ‘foundry location,’ we first need to clarify what ‘foundry’ means.
The semiconductor industry is typically divided into stages such as design, manufacturing, and packaging/testing.
‘Foundry’ refers to the process of manufacturing actual chips on a wafer (silicon wafer) using technologies such as photolithography, etching, and ion implantation, based on the circuit design (layout) completed by the chip design company. This stage is a critical transformation step from design to physical product, directly affecting the technical realization of the product, and requires high-precision manufacturing equipment and technology (such as 7nm, 5nm processes).
Therefore, the ‘foundry location’ refers to the actual location where the foundry process occurs, namely the wafer manufacturing factory (foundry)..
The current ‘origin’ determination rule recognizes the foundry location as the origin, meaning that the actual location of wafer processing in semiconductor manufacturing is recognized as the origin.
What is the significance of publishing the ‘Origin’ determination rules?
1. Clarifying the Standards for Tariff Policy Implementation
The main purpose of publishing the determination rules is to clarify the standards for implementing tariff policies, reducing trade disputes and tariff controversies caused by ambiguous origin determinations.
According to the General Administration of Customs of China, the origin determination of integrated circuits is based on the “four-digit tariff number change” standard. For example, if a chip is designed in the United States but the foundry is in China, the product’s tariff number will change in China, thus being recognized as “Made in China.”
2. Accelerating Domestic Substitution and Restructuring the Industrial Chain Ecosystem
Attracting Global Foundry Orders:
By clearly defining the foundry location as the origin, China may encourage international chip design companies (such as Qualcomm, NVIDIA) to shift chip production capacity for exports to China to countries or regions outside the United States..
For instance, SMIC’s 14nm process has already achieved large-scale production. If American companies choose to foundry at SMIC to avoid tariffs, it may drive technological upgrades and capacity expansion in China’s semiconductor manufacturing sector.
Promoting the Localization of Equipment and Materials:
China has imposed a 125% tariff on American semiconductor equipment, and combined with the adjustment of origin rules, this will accelerate the substitution process for domestic equipment and materials.
For example, according to customs data, in 2024, China directly imported over 40 billion RMB worth of semiconductor equipment from the United States. Under the backdrop of reciprocal tariffs and origin determination rules, American semiconductor products may see significant price increases, leading domestic companies to gradually turn to domestic suppliers, which is expected to accelerate the localization of semiconductor equipment/components.
3. The Struggle for Rule-Making Authority
China’s adjustment of origin rules aligns with the “substantial transformation” principle in the WTO’s “Agreement on Rules of Origin” (i.e., foundry is the core process of chip manufacturing). By recognizing the foundry location as the sole standard for origin determination, China legally provides a basis for tariff exemptions on semiconductor products, undermining the legitimacy of unilateral tariffs imposed by the United States..
It can be said that the adjustment of the ‘origin’ rules by the China Semiconductor Industry Association is not only a short-term strategy to respond to the reciprocal tariffs from the United States but also a long-term layout to promote the autonomy of the domestic industry.
Tips: The individual stocks mentioned in this article are for illustrative purposes only and are not recommendations. Investment involves risks; please proceed with caution.
What Impact Does This Have on the Semiconductor Industry?
For Domestic:
1. Accelerating the Process of Domestic Substitution
The new regulations precisely target the import of chips from American foundries through tariff leverage, causing downstream companies (such as mobile phone and computer manufacturers) that rely on American chips to gradually turn to domestic suppliers.
For example, leading companies in the analog chip sector, such as Texas Instruments (TI) and ADI, are primarily concentrated in the United States and will face a 125% tariff cost pressure. After the new regulations, domestic manufacturers are expected to gradually fill the market gap due to their local foundry advantages.
Tips: IDM manufacturers refer to vertically integrated manufacturers, which is a business model in the semiconductor industry where IDM manufacturers encompass multiple stages such as chip design, manufacturing, and packaging/testing, possessing a complete industrial chain layout.
2. Domestic Wafer Foundries Welcome Development Opportunities
The new regulations strengthen the strategic position of the foundry stage, and domestic wafer manufacturing companies, as the bearers of the foundry stage, may gain more business opportunities due to the advantages of the rules under policy support. Domestic IDM manufacturers may also expand capacity due to increased foundry demand. At the same time, the policy may compel overseas companies to shift their foundry processes to China.
3. Structural Adjustments in the Packaging and Testing Industry Chain
The previous path for American companies to evade tariffs by “washing the origin” through Southeast Asian packaging and testing bases has been blocked. Domestic packaging and testing companies may face order fluctuations in the short term, but in the long term, they need to achieve “secondary tariff number changes” through 3D packaging technology to break through origin restrictions, promoting the domestic packaging and testing industry to upgrade to advanced packaging technologies..
For Global:
1. Suppressing the Return of American Semiconductor Manufacturing
The new regulations significantly increase the cost of chips manufactured in the U.S. entering the Chinese market. For example, high-end chips produced at TSMC’s Arizona plant will incur tariffs if exported to China, weakening their economic viability. This may lead multinational companies to reassess their global capacity layout, shifting to strengthen investments in non-U.S. regions.
2. Differentiating Trade Patterns for Digital and Analog Chips
Digital chips (such as NVIDIA GPUs, AMD CPUs) are primarily produced at TSMC and Samsung foundries, allowing them to evade tariffs on U.S. imports, thus remaining unaffected in the short term. In contrast, analog chips, due to the high dependence of American IDM manufacturers on domestic capacity, become the main targets of the impact. This differentiated effect may prompt companies like Qualcomm and Intel to accelerate the transfer of analog chip production capacity to non-U.S. regions.
3. Strengthening the Trend of Localization in Global Supply Chains
The new regulations exacerbate the fragmentation of the industrial chain due to geopolitical factors, requiring companies to establish a “dual circulation” supply chain.
For instance, Texas Instruments may be forced to build wafer fabs in mainland China to maintain market presence, but its cost cycle (at least 3-5 years) may not match the speed of policy changes. Meanwhile, semiconductor equipment/material companies in Europe, Japan, and South Korea may benefit from China’s “de-Americanization” demand,
thus, domestic manufacturers may seek non-U.S. technology cooperation while accelerating local substitution, employing a dual-track strategy of time for space.
Tips: The individual stocks mentioned in this article are for illustrative purposes only and are not recommendations. Investment involves risks; please proceed with caution.
How to Seize Related Investment Opportunities?
Investors can focus on the policy line of “foundry location equals origin” and invest in related beneficiary sectors. For investors unfamiliar with individual stocks, they can also track related industry index ETFs to seize investment opportunities. Here are three methods to consider:
First: Fuzzy Search:
If you do not have a clear investment target, you can search for terms like “semiconductor” or “chip” in the search bar of the China Galaxy Securities APP homepage and filter the results to find ETFs with a high weight of beneficiary stocks.
Second: Precise Search:
If you have a clear investment target, directly search for the name or code of the ETF in the search bar or market page of the China Galaxy Securities APP.
Third: Multi-Dimensional Filtering and Searching:
In the ETF section of the China Galaxy Securities APP, filter based on multiple dimensions such as industry, track, and rankings.
Conclusion
The adjustment of China’s semiconductor ‘origin’ rules is not only a precise response to the tariff game but also a key move to reshape the global industrial chain, demonstrating China’s strategic shift from passive defense to active breakthrough.