On April 11, the official WeChat account of the China Semiconductor Industry Association announced that the origin of “integrated circuits” will be determined based on the four-digit tariff code change principle, meaning that the wafer fabrication site will be recognized as the origin.
This change in rules has completely rewritten the existing game rules in the industry, leading to a chaotic state where market pricing has come to a standstill.
1. Breaking Traditional Perceptions
For a long time, the semiconductor industry has had multiple standards for determining the origin of products.
Under the old rules, the core standard was “substantial transformation” as defined by the “Regulations on the Origin of Import and Export Goods of the People’s Republic of China,” which included changes in tariff codes, value-added ratios, and key processes.
Customs operations were also relatively flexible, with information declared by companies such as COD or CCO potentially affecting determinations, and some companies cleverly changing their packaging and testing locations to evade tariffs.
However, the new rules have emerged, discarding the complex previous determination methods and establishing the wafer fabrication site as the sole standard for origin determination. This means that regardless of where a chip is designed or packaged, its “origin” is solely based on the wafer fabrication stage.
For example, a chip designed by Qualcomm that is fabricated at TSMC will be considered to originate from Taiwan, while chips fabricated in the U.S. by Intel or Texas Instruments will be considered to originate from the U.S. This disruptive change in rules has caught the entire industry off guard, forcing all parties to reassess their supply chain layouts and cost structures.
2. The Collapse of the Pricing System in Huaqiangbei
The direct impact of the rule change is the collapse of the market pricing system.
“No one dares to quote prices now; goods are floating in the air, and when they land, the market price may be different,” lamented a leader of a chip customs declaration company, expressing the industry’s helplessness and confusion.
Click to see: Reports indicate that multiple chip manufacturers have suspended pricing!
Previously, the industry had a relatively lenient approach to origin determination, with most people relying solely on product labels, and due to the concentration of packaging and testing capacity in Southeast Asia, the impact of tariffs was underestimated.
Now, determining origin based on the wafer fabrication site means that chips manufactured in U.S. foundries will face high tariffs.
Products from companies like TI and Intel will see significant cost increases.
Chip distributors have revealed that many U.S. chip companies have suspended new order quotes as everyone is urgently assessing the impact of the new regulations.
The market is as if it has been paused, with both parties in transactions waiting and fearing that hasty quotes may lead to losses amid subsequent market fluctuations.
3. Ripples in the Industry Chain: Both Upstream and Downstream Affected
From the upstream perspective of the industry chain, domestic wafer foundries are presented with development opportunities.
The new regulations encourage companies to consider moving the wafer fabrication stage to within China, with local foundries like SMIC and Hua Hong Semiconductor likely to take on more international orders, enhancing their competitiveness. However, geopolitical risks are also increasing.
If Chinese foundries are placed on the U.S. Entity List, related products may be excluded from the global supply chain.
Midstream packaging and testing companies face a reevaluation of their value, as the cost advantages of their bases in Southeast Asia diminish, prompting companies to consider relocating their packaging and testing facilities closer to wafer foundries.
While mainland Chinese packaging and testing companies may take on more local wafer orders, they must also cope with the pressure of technological upgrades. Downstream design companies and end manufacturers are similarly impacted.
Chinese design firms that rely on overseas wafer fabrication will see increased costs, while local IDM model companies will gain advantages.
End manufacturers will need to trace the wafer fabrication site information of chips, and the processing trade model in bonded zones will also face restrictions, significantly increasing compliance complexity.
4. Future Outlook: Challenges and Opportunities Coexist
This adjustment of origin rules is essentially a key measure for China to promote the self-sufficiency of its semiconductor industry.
By leveraging tariff levers, it forces the localization of the industry chain, reducing dependence on advanced process chips from abroad and strengthening competitiveness in domestic mature process fields.
In the short term, compliance costs for companies will increase, and market volatility will intensify.
However, in the long run, if it can create a synergistic effect with domestic technological breakthroughs and industry chain integration, China is expected to establish a global competitive advantage in mature process fields.
Nevertheless, the realization of this goal still depends on the speed of domestic technological breakthroughs, the stability of the international supply chain, and the trajectory of U.S.-China relations.
In this wave of transformation in the semiconductor industry, although the current market is in chaos due to rule changes, it also harbors new opportunities. The Chinese semiconductor industry stands at a critical crossroads, ready to face future challenges and hopes.