Implications of US semiconductor export controls for China

In sizing the macro impact of recent US semiconductor export controls on China, we estimate a near-term drag of around 5bps from 2023 GDP levels. Over the medium term (2024-2026), the impact of controls rises to up to a cumulative 0.8% hit to GDP levels. These estimates are notably smaller than those associated with China’s zero-Covid policy or the ongoing property sector correction.

What you will learn:

• The backloaded nature of the drag on growth is intuitive, given the drawdown of stockpiles, the expiration of current waivers that will reintroduce restrictions on China’s key chip suppliers, and the growing share of industrial inputs attributed to restricted microchips as the technology frontier advances.
• Recent moves by the US (and reportedly Japan and the Netherlands) mark a departure from the previous preference of leaning on firm-specific restrictions, designed to undermine China’s ability to advance in semiconductors with critical applications.
• This technological decoupling also reflects China’s ambitions at semiconductor self-sufficiency. But a review of both micro (company-level) and government spending plans suggests investments will fall short of offsetting the medium-term drag on the Chinese economy from chip sanctions.