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Chinese customs officials arrested a woman last week for attempting to smuggle hundreds of semiconductor chips into Zhuhai, China from Macau under a fake pregnancy bump.
Border officials said on Thursday the woman was arrested on Nov. 25 carrying 202 processors and nine smartphones under a large pregnancy prosthetic, Bloomberg reported. She initially aroused suspicion after claiming to be “about five or six months pregnant but had a big belly that looked like she was in the third trimester.”
The combination of high domestic demand and an extremely constricted supply of semiconductors has created a bustling underground market for microchips in China, where second-hand or out-of-date chips can fetch 500 times their original cost.
Semiconductor chips have been in acute shortage in China since 2020 when a global scarcity of chips caused by COVID-19 supply chain disruptions upended every aspect of the Chinese tech industry. The shortage has worsened since October 2022, when the U.S. imposed sweeping curbs on the export of semiconductors made with U.S. technology. The export curbs were designed to cut off China’s supply of critical technology that it may have been using for advanced computing and weapons manufacturing.
While China’s secondary chip market existed before the semiconductor crunch, it has ballooned in recent months as more people have sensed an opportunity to profit. “Everyone’s a speculator,” an unauthorized broker of semiconductor chips told Bloomberg.
Kneecapping China’s industry
China consumes more than three-quarters of the world’s semiconductors but produces only about 15% of global output. With the decline in the trade of semiconductor chips, this imbalance is most noticeable in China’s car industry.
As car manufacturers attempt to pivot from internal combustion to electric engines, substandard chips are infiltrating the supply chain, putting quality and safety at risk. According to one unauthorized broker who spoke to Bloomberg, the “conventional system whereby auto suppliers place an order through an authorized agent and wait for distribution from an original chipmaker no longer works.”
With China’s semiconductor crisis only looking to worsen in the coming year, the U.S. chip ban is being described as a “massive escalation” in the trade and geopolitical tensions between the U.S. and China, according to Bill Bishop, a seasoned China analyst and author of the Sinocism newsletter.
Research analyst firm GlobalData said the U.S. chip ban “transcends the semiconductor industry” and was about nothing less than the leadership of the world economy. “This is about [artificial intelligence] dominance,” said Josep Bori, the firm’s thematic research director.
China, which has called the American decision to tighten export controls a violation of international trade rules that will “isolate and backfire” on the U.S., may now be looking at take charge of Taiwan’s booming semiconductor industry.
“You can argue that by depriving the Chinese of access to semiconductors, we up the risk that they seize Taiwan,” Hedge fund Citadel CEO Ken Griffin said in a recent interview.
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