A “China shock” is coming for the chip industry as the country’s aggressive expansion in older semiconductors and niche substrates drives prices down to previously unthinkable levels.
Marco, a sales director for a German chip equipment maker in Asia, has already experienced some of that shock himself when he saw what some Chinese suppliers were charging for silicon carbide (SiC) wafers.
“Just two years ago, a mainstream six-inch SiC wafer from global leader Wolfspeed was USD 1,500, but Chinese suppliers’ offerings now can be as low as USD 500 a piece or lower,” Marco, who asked that his real name not be used due to the sensitive nature of the topic, told Nikkei Asia. “It was hard to imagine how this could work.”
SiC substrates are a critical material for making high-voltage power semiconductors used in aerospace, electric vehicles, turbines and data center infrastructure.
In addition to the price, Marco said he was also taken aback by how rapidly these Chinese suppliers had emerged and by their aggressiveness in grabbing global market share.
That rapid rise is a result of China ramping up efforts to build a domestic supply chain in areas not yet targeted by US export curbs, namely compound semiconductors like SiC and less advanced but still vital chips used in a range of applications.
Guangzhou Summit Crystal Semiconductor sells six-inch SiC substrates for as low as USD 500, while TankeBlue, a key supplier to Infineon Technologies, offers them at around USD 800 apiece, according to interviews with multiple industry executives. And these are just two of the dozens of little-known Chinese companies now competing in this segment.
Wolfspeed was the undisputed leader in the SiC wafer market until just three years ago, when intensifying Chinese competition began to take its toll. Shares of Wolfspeed were trading at less than USD 6 in February, down more than 96% from their peak in 2021, when the world experienced an unprecedented chip shortage.
CEO Gregg Lowe, who had led the chipmaker for seven years, left late last year amid the company’s deteriorating financial performance. Other SiC wafer makers such as Rohm of Japan have reported consecutive quarterly net losses since the middle of 2024.
SiC wafers are a prime example of how China leverages state-backed subsidies to rapidly capture market share and challenge industry leaders in critical electronic components. Because most production equipment for these semiconductors falls outside the scope of US export controls, China has been able to make rapid advancements, with at least RMB 688 billion (USD 96.3 billion) in national chip funding commitments since 2014.
“It’s a bloody price war for SiC now. China not only has more than enough SiCs, but it also created a complete homegrown ecosystem for equipment and materials,” said an executive with a Taiwanese compound chip equipment maker. “They don’t need the likes of Applied Materials to help them build compound semiconductors.”
Another imminent concern for the industry is China’s expansion in “mature” semiconductor nodes—typically 28-nanometer and older technologies—used in everything from phones and home appliances to cars and defense equipment.
China’s mature chip capacity will account for about 28% of the global market by 2025, according to IDC estimates, and industry association SEMI says that figure could grow to 39% by 2027.
The semiconductor industry must brace for the same kind of “China shock” that the solar power industry experienced, according to Charles Shi, a chip analyst with asset management company Needham.
“We are already seeing some initial signs of the China shock,” Shi said. “As China gradually brings fabs online over the coming years, it will likely become more visible and create a greater sense of urgency among policymakers in the US, Europe, and Japan, the three regions that have the historical strength in analog, auto and industrial semiconductors, which depend on mature nodes.”
Galen Zeng, IDC semiconductor analyst, warned of oversupply.
“There is already oversupply in several types of mature chips, and China’s economy hasn’t fully bounced back yet,” Zeng told Nikkei Asia. “China’s capacity expansion is only slowing slightly, and we expect Chinese players to ramp up more aggressively than their global peers over the next few years, driven by China’s localization push.”
Semiconductor Manufacturing International Corporation (SMIC) is emblematic of China’s growing competitiveness in mature chips. SMIC’s revenue hit a record of more than USD 8 billion in 2024, driven by a rapid shift toward local chip production, according to co-CEO Zhao Haijun. That is more than double the figure in 2018, before US-China chip war took off.
SMIC is now the world’s third largest contract chipmaker by revenue after Taiwan Semiconductor Manufacturing Company (TSMC) and Samsung Electronics, and its market capitalization has surpassed those of several European, US, and Taiwanese rivals. Its annual capital expenditures have soared to over USD 7 billion in the past two years, compared with about USD 1.8 billion in 2018, and it has built additional plants in Shanghai, Beijing, and Shenzhen.
Zhao said his company has moved from the “verification” stage to the “volume production” phase for automotive grade semiconductors, which require more durability than consumer electronics-grade chips.
“In terms of some mature chips for sensors, microcontrollers, and display driver chips, China’s SMIC has very competitive prices and service,” an executive at a chip developer that is a client of both TSMC and SMIC told Nikkei. “In TSMC, all the best teams go to support cutting-edge chip customers, but at SMIC, you can get the best teams supporting your mature chip products.”
SMIC is not only benefiting from Chinese clients’ demand for local production either, according to Scott Huang, president of chip testing solution provider CHPT. “Now you can see that even some foreign chipmakers serving the Chinese market are turning to Chinese contract chipmakers for capacity because it’s cheaper than doing it in-house.”
But even SMIC is not immune from the industry’s big worry: overcapacity.
Exacerbating the situation is the flood of Chinese electronics and automotive companies rushing into the chipmaking game. Gree Electric Appliances, Guangzhou Automobile Group, China FAW Group, Oppo, Meituan, and ZTE are all taking stakes in emerging domestic chipmakers backed by local governments, including those of Chongqing, Shanghai, Shenzhen, Guangzhou, Qingdao, and Ningbo. These governments are strong backers of little-known chipmakers such as XLMEC, Shanghai Dingtai Jiangxin Technology, Runpeng Semiconductor Shenzhen, and WY Semi, which are working on mature chips for connected devices, cars and other applications.
Automaker BYD has been building its own plants for chips used in vehicles and consumer electronics, and also took over plants of companies that had gone out of business. Huawei Technologies, with strong support from the Shenzhen local government and others, is behind chipmakers such as PengXinWei, Swaysure Technology, and SiEn (QingDao) Integrated Circuits, Nikkei Asia earlier reported.
Zhao, SMIC’s co-CEO, said he expects stronger competition from the second half of this year as more capacity from these new players comes online despite an uncertain demand outlook. “The trend for the price is unclear for the second half, but it will not go up,” Zhao said.
Mature chips have also become a political issue. In the waning days of the Joe Biden administration, the US initiated an unprecedented probe into China’s less advanced chips and compound semiconductors. Washington acknowledged, however, that it has little insight into the flow of such chips and how many devices sold in the US use China-made mature chips. Nevertheless, it aims to phase out all Chinese semiconductors from government projects by 2027.
While US export controls have curbed China’s advances in cutting-edge chips, they have at the same time accelerated the country’s development of less advanced but still vital components and chips.
China launched the third phase of its China Integrated Circuit Industry Investment Fund—known as the Big Fund—in 2024 to further boost its chip industry, including the materials and equipment segments, in the face of a tightening US clampdown. Combined with the first two phases, introduced in 2014 and 2019, this brings the total amount of the fund’s support to about RMB 688 billion.
The nation’s 14th five-year plan unveiled in 2021, in addition to promoting SiC and gallium nitride (GaN), included moves to upgrade China’s mature chip and memory technologies, sparking concerns about global oversupply in all of these segments.
Support for 28-nm chip production and its related ecosystem increased particularly after SMIC was placed on a trade blacklist in late 2020. Measures included a ten-year corporate income tax exemption for eligible chipmakers and tax deductions for R&D expenses. Beijing also outlined plans to build national laboratories, science projects, and educational programs in the fields of artificial intelligence, quantum computing, semiconductors, and critical components.
“When the governments start getting involved, then the criteria of success also changes,” said Andy Tsay, business and analytics professor at the Leavey School of Business at Santa Clara University. “The money that’s going into it is more than just the business expense, and China is doing it, too. They are trying to strengthen their domestic industry.”
Such efforts are paying off, though not as quickly as Beijing might hope. China’s share of locally produced chips rose from around 15% before the Covid-19 pandemic to more than 20% by 2024, according to data from TechInsights, leaving the country a long way from true self-reliance. Even at the projected annual growth rate of 12.3% from 2023 to 2028, locally made chips would only account for about 26% of its overall market.
“It is essentially impossible for China to make significant strides to become self-sufficient for its IC (integrated circuit) needs—both memory and non-memory—within the next five years and probably not even within the next ten years,” said Brian Matas, a market research analyst with TechInsights.
But the market is already being impacted by China’s localization push.
Doris Hsu, chairperson of GlobalWafers, the world’s third largest supplier of base material for computer chips, said the slowdown of electric vehicle demand and intensified Chinese competition has made the SiC market very challenging.
“The internal competition in China is too intense. There are too many [Chinese] companies swiftly expanding their capacity … and as a result you can buy silicon carbide so easily everywhere,” Hsu told Nikkei Asia.
With falling prices, growing supply and soft demand, “in the end, it’s very difficult for everyone to have a proper profitability,” she added.
Marco, the chip equipment executive, said China’s initial strategy is to use extremely low prices to grab market share.
More extreme measures include purchasing production machines capable of making relatively advanced 8-inch SiC wafers, even if the company is not yet able to make these wafers at an acceptable quality. The company then cuts the wafers down to 6 inches, keeping the best part of the materials, two industry executives told Nikkei Asia.
Because defects in an SiC wafer tend to diffuse toward its edges, the central area of an eight-inch wafer can sometimes provide a six-inch section of usable substrate that is of higher quality than can be produced directly on six-inch equipment.
While this approach may not be the most economical, it does help Chinese makers bridge the gap in quality until they are able to get their production capabilities up to global standards.
“Sometimes I wonder how that could be sustainable, but it seems it’s a very cruel knockout match,” Marco said. “We expect many Chinese players as well as foreign players will get hurt. Many of them already have, and eventually many will have to exit these bloody games.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.