D2D China: China Tour 2024

We spent the past month visiting companies in Greater China and found things to be pretty good...

Jul 29, 2024

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In which we recount our travels across China, Hong Kong and Taiwan. Despite all the negative headlines and geopolitical concerns, the companies we spoke with actually had a fairly upbeat take on business.

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China Tour July 2025

Over the past few weeks we visited nine cities in Asia, staying in seven hotels and racking up the most air miles since before the Pandemic. Our trip centered on the Yangtze delta - Ningbo to Shanghai, and the Peral River delta - Shenzhen - Hong Kong and environs. There is a lot to see in China and we only scratched the surface, but were able to meet almost two dozen companies. Below our high level findings, please drop us a line if you would like to talk in greater depth about our meetings.

We spent two weeks in China - visiting Ninbgo, Hangzhou, Shanghai and several nearby cities, and Shenzhen. This is the heart of China’s semiconductor and electronics industry, with the exception of Beijing which we did not have time to visit on this trip. We met with an even mix of hardware makers and semiconductor companies. And on the semis side we met with an equal number of design companies and companies engaged somewhere in the manufacturing chain. We did not meet with AI software companies, we are saving that for another trip, but as we will detail below AI was of course a topic on everyone’s minds.

Overall Sentiment

As we were preparing for the trip a lot of people asked us some version of “How are things in China?”, with the clear implication that they think things are not alright. The tone of recent US press coverage of China tends to be fairly pessimistic - all those reports of empty apartments and a crashing real estate market While we were visiting the news broke that 40 rural banks had failed.

And while there are many legitimate concerns about the state of China’s economy, we saw none of them. Everyone we spoke with was upbeat. Both in terms of their company’s prospects, but also personally. On past visits, we often found we were asked more questions about the best school districts and the best real estate markets in the US than about markets and business trends. This trip no one seemed interested in moving.

Of course this is highly anecdotal. Many people we know from China left a long time ago. And we were only in the areas around Shanghai and Shezhen, the two richest parts of the country.

Still, we had expected a more somber tone. Much of our writing in the past year and a half in this newsletter centered on all that doom and doom sentiment. In recent weeks, we have seen that tone start to improve, and on the ground few people had any such deep, existential questions. Instead, we found most people upbeat and fairly optimistic, looking for avenues of growth, not exits.

Automotive

The big topic for most companies is automotive. The rise of China EVs has provided a good boost to much of the industry here, offsetting cyclical downturns in other markets. That being said, most everyone we spoke with sees EVs hitting pause this year and reducing inventories of components. The US EV market seems to have stalled. And while the market in China is a bit better, there is a definite sense that there are too many OEMs competing which is making all those competitors highly conscious of their working capital requirements. A case of long-term optimism and short-term worry.

AI

Of course everyone talked a lot about AI, but almost no one had seen much impact on their business from it. To be clear, we were focussed on analog and industrial companies, and deliberately did not look to meet with processor or AI software companies on this trip. Nonetheless, even companies who we would have expected to be excited about AI were fairly non-plussed on the subject. For the most part they are not seeing AI use cases or applications which would drive the need for their parts.

Smartphones

Very mixed signals for smartphones. Our sense is that China consumer demand is bottoming out, but no one was particularly confident about that prediction. In general, we saw signs of smartphone OEMs rebuilding component inventory, but this is a long way from robust growth.

Competitive Advantage

Of course the one topic hanging over every conversation we had during the trip was the ongoing trade war. We met with a couple companies who are on or adjacent to the entity list, and everyone else worried what they had to do to avoid falling under US sanctions.

Most companies lamented that the US regulators are a major source of anxiety. In particular, they bemoaned the arbitrary nature of the rules, the criteria are not clear. This fuels speculation that the goal of the sanctions is not National Security as the US claims, but instead to cripple China’s semis companies. An old friend from Huawei told us the joke making the rounds in their circles lately is “If you are not on the US entity list, are you even really a high tech company?.”

But more than anything else, our experience highlighted the utter absurdity of the situation. There is no easy way to replace China’s role in the electronics industry. We saw this time and again with the companies we visited. This includes companies that dominate their fields like optical modules, or just the sheer depth of companies that make machine tools for electronics assembly. China is filled with well-funded, growing companies that enrich, or at least facilitate, the entire supply chain in some way. We got asked many times about the ability of other countries - the Philippines, Malaysia, Vietnam, etc. - to replace China in the supply chain. And while we are definitely seeing foreign companies ease their way out of China, the sheer depth of the supply chain there means that any some attempt to do so will take decades.

At the same time, every company we spoke with also asked about the state of the US market and ways to better tap into it. That whole rich supply chain is dependent on the US consumer. There is just no ready way to peel this apart, nor do we think most companies really want to.

The absurdity of all this was driven home by one EDA company we met. EDA software, used for developing chips, has emerged as one of the critical links in the US sanctions. While the laws are not clear (see above), most US EDA companies have started to tread very cautiously with customers in the PRC. This has driven a boom in sales of domestic EDA tools. The company we met with had secured a healthy amount of venture funding last year as a result. Their sales were growing nicely, but the one topic they most wanted to discuss was how they could expand into the US market. They already have sales to a major US chip company, and they were looking for ways to expand more in the market with largest pool of high-value customers.

At the same time, all this growth in semis companies has created problems of its own. We spoke with one RF company that had a very solid pedigree, some leading products and healthy venture backing. But when we pushed them on the fact that they have at least two dozen domestic competitors (to say nothing of four major US competitors) their answer was basically a shrug. Their goal is to keep costs low, design high quality products and hope that commercial success would be enough to eventually position them to start acquiring their local competitors. This is a great strategy, but it is one being replicated by half of their domestic competitors, while the other half are just trying to churn out the lowest priced products they can for as long as the venture funding lasts.

We also met a state-run semiconductor company. This company is part of a massive conglomerate that has businesses in a dozen other areas - transportation, food stuffs, banking, and of course real estate. They have had a small division making electronics for 20+ years, and have carved out niches in several electronics categories. They now have one of China’s largest fab capacities - all trailing edge, largely analog. When asked what their strategy is, they immediately pointed to their expansion plans. They are currently in the process of building two 12-inch wafer fabs with a staggering amount of capacity. That capacity is going to be a problem for companies like ST Micro, ADI and On, but it going to be an even bigger problem for their domestic competitors, many of whom have similar expansion plans.

The Glories of Huaqiang North Road Malls

One of the highlights for us visiting China is spending time at Shenzhen’s Huaqiang Electronics markets. This area contains multiple shopping malls sprawling over a half dozen city blocks where everything electronic is for sale - from PCs and smartphones down to individual components and repair services.

We have been visiting this market for close to 20 years and in many ways not much has changed, but we still manage to find multiple new shopping malls each time we visit. Probably the biggest change has been the diversification of the customer pool. Huaqiang started out as a clearing house for local electronics makers to source parts, then branched into wider distribution of parts and end devices. Today it is a destination for global electronics buyers that in many ways puts CES to shame in overall scale.

This was noticeable in storefront signages. Most stalls in Huaqiang have no name, or just a Chinese name. But there is a growing number of stores with signs in English, Urdu, Arabic and French - speaking to a global clientele. We saw customers from dozens of countries stopping in to buy consumer devices, networking products, fiber optic cables, printers and much more.

Still, the heart of Huaqiang is the distribution of mass market semiconductor products. Not the flashy GPUs and CPUs we spend most of our time discussing but low-priced analog or mixed signal products that appear in everything to little fanfare. It is hard to find a Qualcomm modem here, let alone an Nvidia GPU, but there are plenty of every part made by Texas Instruments, Intersil, Vishay and Renesas and all their peers.

We spoke to a handful of vendors of these parts. None of them cared about US sanctions, there parts come nowhere near the threshold of leading edge compute. They actually were not that interested in speaking with us in general, once they learned we were not there to buy a few hundred micro-controllers or a thousand feet of networking cable.

Because business is good. It is hard to comprehend just how many vendors operate here - likely tens of thousands, and none of the stalls were empty. We stopped by the management office of one of the malls, and the staff there looked harried from the rigors of keeping up with the needs of the building.