Chinese chip juggernaut on its way?

What if the semiconductor market becomes like the market for electric vehicles?

The non-China semiconductor world has been used to operating in a highly competitive global marketplace: no-one lasts long in semiconductors if they are afraid of competition. But historically that competition has been largely fair: the chips which offered the highest value won the sockets, regardless of where they were made. Nothing extrinsic tipped the scale far in favour of one country’s chips over another’s. As a result, a diverse global market was equally open to suppliers from the North America, Europe, Japan, South Korea, Taiwan and elsewhere.

The playing field, however, is becoming increasingly fragmented and unfair, thanks to a combination of tariffs, export controls, and state subsidies. According to an Omdia report, semiconductor supply chains are now going through a ‘great decoupling’ caused by trade restrictions imposed by the US and China, including US controls on the export of chipmaking equipment and high-end chips. According to Omdia, one of the main challenges of the decoupling for semiconductor manufacturers is:

‘Managing potential overcapacity as regions duplicate capabilities.’

A report by the UK’s Centre for Emerging Technology and Security explains the US effort to shut out China from the leading-edge semiconductor market has led China to push aggressively for national self-reliance, not only in semiconductor chips but across the supply chain, including materials and fabrication equipment. And the US Center for Strategic and International Studies has reported that China’s Ministry of Industry and Information Technology told Chinese telecoms network operators in 2024 that they must remove all foreign semiconductors from their networks by 2027.

So how does this make the chip market potentially similar to the EV market? Non-Chinese car manufacturers’ profitability has crashed in recent years because of the intense price competition from Chinese EV manufacturers, which have gained a reputation among consumers for making attractive products at extremely low prices. The entire business model of Europe’s car industry has seemed to be under threat.

The intense threat results from the Chinese government’s lavish subsidies to the EV industry, combined with regional authorities’ determination to keep struggling local EV manufacturers afloat with subsidised loans. This has led to huge overcapacity. In a bid to shift surplus inventory, Chinese EV manufacturers have aggressively marketed their cars outside China. In regions such as Europe, this wave of low-cost competition has threatened to ruin local manufacturers.

Could the same dynamic be about to play out in semiconductors? The pre-conditions appear to be similar: according to FTI Consulting, China’s ‘Big Fund’ subsidies to the chip industry have totalled $94bn to date. China has been particularly successful in the design and fabrication of mature-node chips and commodity devices: according to the CSIS’s analysis, Chinese capacity at mature nodes increased four times faster than global demand in the years 2014–2025, and now accounts for about half of global capacity.

It’s clear from the examples of solar panels, drones, and now EVs that, at the very highest level, the Chinese authorities are at peace with the idea of low-cost Chinese products killing indigenous industries in the rest of the world.

The vast subsidies poured into the Chinese semiconductor sector, and the huge size of the Chinese market, protected as it is by ‘Made in China’ mandates, mean that Chinese manufacturers of mature-node semiconductors can expect to enjoy a massive cost advantage over non-Chinese manufacturers. In addition, the subsidies – a cause of market distortion – are likely to mean that, as Omdia warns, there will be over-capacity in the future.

At that point, it should not be a surprise if Chinese semiconductor manufacturers dumped products on North American, European and Asian markets at extremely low prices.

If and when this happens, semiconductor industry marketers should not be surprised, and not be unprepared. The playbook for confronting ultra-cheap Chinese competition in mature-node chips might not be needed right now – but the wise marketer will have it ready for when it is.