Chip sales were down everywhere in 2023 because of a weak global economy, but China's chip imports show that its economy might be in trouble.

The country's failure to import top-notch silicon is a big reason for its shrinking chip imports.

In 2022, the value of chip imports to China was $413 billion, and in 2023 the country only imported chips worth a total of $349 billion, a 15.4 per cent drop in value.

That is not that shocking given that TSMC, usually seen as one of the best fabbing firms in the world, saw its sales fall by 4.5 per cent. But a 15.4 per cent drop in shipments is much more serious, and shows China has special problems other than lower demand across the world.

China's ongoing economic problems, such as its high deflation could play a part. Deflation is when money goes up in value, the opposite of inflation, when money loses value. As inflation has been a big problem for countries such as the US and UK, deflation might sound better, but economically it can be bad.

A deflationary economy makes consumers not want to spend, since money is going up in value, meaning buyers can buy more if they wait. In other words, deflation lowers demand for products like chips.

But shipment volume only went down by 10.8 per cent compared to the 15.4 per cent drop in value, meaning the chips that China didn't buy in 2023 were very valuable.

This likely reflects US sanctions on China, which stop it from buying high-end graphics cards, especially from Nvidia. The H100, H200, GH200, and the RTX 4090 are banned from shipping to China, and they're some of Nvidia's best GPUs.

The changing target for US sanctions could also make exporters and importers more nervous, as it's hard to know if more sanctions could suddenly ruin plans and business deals.