China's grey market for chips in the post

China’s grey market for semiconductors—which came into the limelight during the Covid-era chip shortages—could well be under the microscope amid the chip technology export curbs imposed by the United States and its allies. A Bloomberg story takes a sneak peek at how the underground chip market in China threw a lifeline to automakers scrambling for MCUs and other semiconductor devices during the pandemic.

The story chronicles how the semiconductor grey market operates in China with various middlemen providing both secondhand and out-of-date chips. These middlemen often operate through registered companies, which pay taxes, and thus have a legal cover. However, some brokers are involved in questionable practices of chip hoarding and price gouging, thus violating Chinese regulations.

Then there are backdoor chip sales from authorized agents, who place surplus orders to sell additional chip stocks for handsome profits. The Bloomberg story narrates a case of how the SUV maker Li Auto in Beijing paid the equivalent of US$500 for a chip used in electronic braking systems that cost nearly US$1 before the Covid pandemic.

Advancements in LED Drivers for Next-Generation Automotive Exterior Lighting09.18.2023

Reducing the Production Cost of Integrated Circuits in the Integration Era09.14.2023

Democratizing Edge AI and ML with a No Code Approach09.12.2023

While China’s grey market for chips has mostly been seen as a get-go venue for automakers, it’s likely to come under the radar when the new chip technology export regulations and restrictions take hold against China’s technology sector. Will the underground market in China be able to sell chips catering to artificial intelligence (AI) and high-performance compute (HPC) designs? Will freelance brokers in China’s semiconductor grey market be able to disrupt the supply chain restrictions for high-end chips?

Here, unlike automotive designs, old and out-of-date chips might not have much value. The U.S. curbs are also likely to have built-in mechanisms to counter grey market activities. Meanwhile, the underground chip market will continue to serve the vast automotive market in China, including nearly 200 electric vehicle (EV) companies.

Related Content

China Struggles to Crack Chip ManufacturingThe billion dollar problem: chip counterfeitingShades of gray in China’s ‘black’ handset market