[Authors: Aoxiang Wang, Valentina Cheng, Advisor : Chiara Hu
Advanced semiconductors, whose production concentrates in South Korea and Taiwan, have recently been in the focus of international attention because of their use in sectors like artificial intelligence and supercomputing. In recent months, attention has shifted to another form of semiconductor: the so-called “mature” chips, fabricated using less advanced processes, between 28 and 180 nanometers, which supply a vast number of industries such as automotive, consumer electronics, and medical devices. China, in order to fulfil its technological self-sufficiency in the race against the US, has massively scaled up its investments in this segment.
To reach its ambitions, the Chinese government introduced the “Big Fund”, a $47.5 billion initiative to amply boost the chip industry in the country, looked upon as a way to cut its dependency on Western technology under its Made in China 2025 strategy. A lion’s share of that already went to mature chip makers like SMIC, Hua Hong, and Nexchip. Chinese producers currently sell their semiconductors at a cheaper price than their Taiwanese and Korean competitors, because heavy state support lets them have thinner margins in their pursuit of conquering global market shares.
Despite the benefits, there are also risks associated with China’s strategy for mature chips. These products are more standardised, so they run a very high risk of oversupply. A saturated market would lower the profit margins and make these firms less competitive on the world market. Firms such as SMIC and Hua Hong have already begun implementing price-cutting strategies, which may pressure other peers such as GlobalFoundries and Samsung to equally lower their mark-up. By 2027, China’s mature chip production capacity will account for 33% of the global total.
Indeed, China’s rapid expansion into the chips industry has rung alarm bells in the West. The US has since 2022 been quickly scaling up its domestic semiconductor production under the so-called “CHIPS Act”, with 75% of the incentives allocated for advanced chips and only limited funding for mature chip production. Protectionist measures have been on par with incentives: in 2024, the US imposed tariffs on Chinese semiconductors. However, those measures, purposely did not target mature chips, de facto allowing (and incentivizing) the incoming dominance of those chips flooding the global market. At the moment, the prospect of targeting the mature segment is being considered by the US.
Equally woken up to the importance of semiconductors, the European Union has introduced the “European Chips Act”, which hopes to see its global market share doubled (reaching 20%) by 2030.
China’s increasing capacity to produce mature chips could have global implications, not only economic but also geopolitical. China is consolidating its self-sufficiency, reducing dependence on chip imports, and strengthening its influence on the global technology industry.
Since Beijing’s goal is not just to export but also to meet domestic demand in strategic sectors, such as power electronics for electric vehicles, this could trigger a cycle of internal demand leading to long-term growth in China’s semiconductor market and increasing the West’s reliance on Chinese technology.
The incoming Trump presidency can also signify important changes for the industry. His first term was notably characterised by a resolute stance to go after Chinese conglomerates Huawei and ZTE, as well as SMIC – among other protectionist measures effectively leading to the outbreak of the trade war – while also implementing policies limiting the access to US education and job market to Chinese students and professionals. Zhu Jing, the deputy secretary-general of the Beijing Semiconductor Industry Association, stated that Chinese companies should react by increasing their effort in attracting overseas talent and seeking foreign cooperation.
From the Western perspective, Chinese overcapacity can represent a strategic risk in the long term. If China can produce more chips than its domestic market demands, the surpluses could be released onto the global market at competitive prices, damaging Western producers and strategic sectors highly dependent on the semiconductors’ global value chain.
The competition in the semiconductor industry is thus just one piece of the large-scale competition between China and Western countries, primarily the US, whose outcome will highly impact, if not determine, the power relations between them.
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