[Correspondent Diary] China Semiconductor Chip Firms Face Crackdown After Ignoring Li Keqiang's Warning

China Reiterates Strict Punishment for Market Disruption Acts like Hoarding
Red Alert for Chinese Economy, Urgent Measures to Control Manufacturing Prices

[Asia Economy Beijing=Special Correspondent Jo Young-shin] Despite Premier Li Keqiang's stern warning against hoarding, three distributors of automotive semiconductor chips who took excessive profits have been severely punished. Automotive semiconductor chips are a representative item where supply cannot keep up with demand. With the Producer Price Index (PPI) soaring and manufacturing prices in crisis, it is expected that Chinese authorities will further strengthen crackdowns on hoarding of raw materials and parts.

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The State Administration for Market Regulation of China (hereinafter referred to as the Administration) imposed fines of 2.5 million yuan (approximately 450 million KRW) on three semiconductor chip distributors: Shanghai Cheter Electronics, Shanghai Qingsheng Industrial, and Shenzhen Weichang Technology Co., Ltd. The Administration had announced earlier last month that it was investigating distributors who arbitrarily raised prices of automotive semiconductor chips.

The companies caught this time were reported to have taken profits up to 40 times the normal amount. The Administration explained that chips priced at 10 yuan each were distributed at up to 400 yuan. The appropriate profit margin for distributors of automotive semiconductors is generally known to be 7 to 10%. The Administration explained that parts suppliers, pressed by delivery deadlines, had no choice but to accept their unreasonable demands.

For regular automobiles, more than 200 semiconductor chips are required, and electric vehicles contain more than 500 semiconductor chips, so the shortage of semiconductor chips is causing adverse effects on China's automobile industry, the Administration expressed concern.

In addition to automotive semiconductor chips, the Administration announced it will strengthen monitoring of bulk products such as coal, crude oil, and grains. With international raw material prices soaring, China's PPI is rising sharply every month. The rise in PPI means an increase in manufacturing costs, which drives up export prices. Rising export prices lead to higher consumer prices, causing price instability. The rise in China's manufacturing prices results in global price instability.

In fact, China's PPI, which showed negative growth last year due to the impact of COVID-19, turned positive with a 0.3% increase in January this year. Since then, it has surged monthly: 1.7% in February, 4.4% in March, 6.8% in April, 9% in May, 8.8% in June, 9% in July, and 9.5% in August. On the other hand, the Purchasing Managers' Index (PMI), which can gauge future economic prospects, fell below the critical threshold of 50. The August PMI announced by Chinese financial information provider Caixin was recorded at 49.2. This is the first time PMI has fallen below 50 since April last year. The manufacturing PMI announced by the National Bureau of Statistics of China for August was 50.1, the lowest level since February last year.

The Administration stated that as prices of bulk products rise sharply, small and medium-sized manufacturing enterprises are facing difficulties, and it will strictly deal with illegal activities that disrupt market order such as hoarding.