EL SEGUNDO, CA – China’s semiconductor industry is expected to contract in 2009, the first time a significant decline has occurred since iSuppli Corp. began gathering statistics on the market – and perhaps for the first time in the history of the nation’s chip business, the firm says.

China’s semiconductor market is expected to decline 5.8% year-over-year to $72 billion in 2009, says iSuppli. The only previous decline iSuppli recorded was in 2008, when revenue decreased a scant 0.1%, essentially a flat year.

“Such a downturn is remarkable for a region long regarded as a vigorous and reliable growth driver for the global semiconductor market,” said Kevin Wang, senior manager of China research at iSuppli. “Even during the disastrous 2001, when global semiconductor revenue plunged by 28.6%, China’s industry managed to surge by 24.4%. With global semiconductor revenue expected to decline by 9.4% in 2009, and with consumer confidence at risk of falling further, China’s semiconductor outlook could dim even more than iSuppli presently forecasts.”

Despite this, iSuppli predicts growth will rebound 9% in 2010, followed by an 11% increase in 2011.

“China’s economy has been increasingly affected by the financial crisis in developed countries since the third quarter of 2008,” Wang said. “Many small consumer electronics factories in Guangdong province closed because of lower sales orders and cash flow problems. Market conditions became even more negative in the fourth quarter of 2008. Most small firms saw their business decline by more than 40%, especially at low-tech, labor-intensive and export-oriented companies.”

To stimulate the economy, the Chinese government cut interest rates four times within two months, beginning in October. Moreover, a stimulus package estimated at around $570 billion will be implemented during the next two years. The government’s Home Appliances for Rural Areas project is an example of just one measure intended to stimulate domestic demand.

Meanwhile, the central government is in the process of making major structural changes in its industrial and commercial sectors through new corporate income tax and labor laws, plus the updated No. 18 Document of the State Council. The No. 18 Document has focused on building China’s high-tech electronics industries since 2000, especially semiconductors and IT. The government plans to further expand support for domestic high-tech and high value-added industries. These new policies will greatly affect future foreign direct investment in China, says iSuppli.

Moreover, the Chinese government will continue implementing an increasing number of national technical standards. In doing so, the central authorities hope to protect the country’s economic stability and national security. Domestic standards also are intended to help shield Chinese companies from their more established international competitors.