China’s response key to Russia’s semiconductor supply

The impact of the latest round of sanctions on Russian semiconductor imports will depend on whether the international community can pressure China — the country's largest supplier — into also complying.

Russia imported $439.84mn worth of diodes, transistors and other semiconductor devices in 2020, along with $1.25bn of electronic integrated circuits (IC), customs data from the United Nations Comtrade database show. That was a fraction of the $440.4bn in global semiconductor sales in 2020, which rose to $555.9bn in 2021, according to the World Semiconductor Trade Statistics (WSTS) organisation.

Around a quarter of Russia's semiconductor imports are subject to the sanctions, equivalent to $470mn, the ministry of economic development said over the weekend of February 26-27, adding that the country would look to Asia-Pacific countries to fill the supply shortfall.

China supplies the majority of Russian imports of semiconductors and consumer electronics devices. Russia imported $248.57mn of the $439.84mn in components from China in 2020, as well as $246.34mn of the $1.25bn in ICs. The US was its second-largest supplier, accounting for a combined $64.6mn, the data show. Other suppliers include Japan, South Korea, Malaysia and the Philippines.

In announcing new sanctions on Russia in response to its invasion of Ukraine, Washington said last week that it would "cut off more than half of Russia's high-tech imports", including semiconductors. US-based Intel confirmed yesterday that it has "suspended all shipments to customers in both Russia and Belarus".

While Taiwan, South Korea and Japan have since announced that their chipmakers will implement the sanctions, Chinese technology companies such as semiconductor manufacturer SMIC, smartphone maker Xiaomi and computer firm Lenovo have yet to comment publicly on their intentions.

Chinese foreign ministry spokesperson Wang Wenbin said on March 1 that China remained opposed to the sanctions and would "continue to carry out normal trade co-operation" with Russia. But Chinese companies with a presence in Europe and the US could face large fines and other penalties. Under the US sanctions, any goods produced outside the US that use US equipment, software or blueprints are prohibited from being exported to Russia.

China's semiconductor industry has lagged behind the US, Taiwan and South Korea in developing the most advanced chip designs, so it remains dependent on US technologies. Washington's restrictions on exporting high-tech components to China in its trade war with Beijing in recent years have already had an impact on companies such as Xiaomi and electronics manufacturer Huawei. That could exert pressure on Chinese firms to comply to avoid further constraints on their own activity.

And even if China does continue to supply chips to Russia, it will be unable to fill the shortfall in the advanced semiconductors that only Taiwan and the US can produce. That has implications for its production of military equipment, as well as automotive manufacturing and other industrial applications.

Semiconductor demand from Ukraine is likely to be disrupted as the conflict continues. Semiconductors are the largest single export item from China and the Philippines into Ukraine, according to ratings and analytics firm Moody's. Cars and trucks are the largest source of exports from Japan, South Korea and Thailand to Ukraine, while broadcasting equipment is the largest source of Hong Kong's exports into the country, as well as India's second-largest export product.

Ukraine imported $265.01mn of diodes, transistors and other devices from China in 2020 — more than Russia's imports of $248.57mn, although Ukraine's IC imports from China were far smaller at $46mn. Ukraine imported a total of $314.99mn of diodes, transistors and other semiconductor devices from around the world in 2020 and $170.53mn of ICs, according to Comtrade data.

By Nicole Willing

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