REPORT: China’s Mature Node Overcapacity

Published in the French Institute of International Relations (Ifri)

Your author returns from a start-of-law-school-induced hiatus to share the first of three projects I’ve had in the works for a while. Today’s is my second piece with the French Institute for International Relations (Institut français des relations internationales) on China’s mature-node semiconductor overcapacity. The full briefing is available on Ifri’s website, here.

China is decoupling from, not flooding, the global mature-node semiconductor market. As China increasingly pursues industrial policies encouraging domestic chip production, its own growing chip demand will prevent a direct flood of cheap Chinese chips on foreign shores. However, as Beijing achieves its goal of decreasing the reliance of domestic downstream manufacturers on foreign chips, European and American mature-node semiconductor companies will feel the ripple effects of an increasingly “involuted” (内卷) Chinese chip ecosystem.

Key Takeaways:

• Chinese mature-node chip production is increasingly decoupled, with 80% of sales now focusing on the domestic PRC market. Meanwhile, connected devices and the Internet of Things (IoT) are the fastest-growing demand drivers in the PRC for domestically produced chips.

• Chinese chipmakers spend less on average than their global counterparts on manufacturing capacity but above the global average on research. This suggests that under a tight economy, the PRC government and chipmakers have prioritized technological catch-up over manufacturing capacity expansion.

• The growth in domestic Chinese mature-node chip demand is likely to keep a moderate pace with the growth in Chinese chip production capacity. These dual trends make unlikely a direct flood of cheap Chinese mature-node chips into Western markets, but as China increasingly fulfills its own demand, global prices may fall from gluts of Western chips crowded out of the PRC.

• Chinese chip demand will increasingly be met by domestic supply, crowding out foreign mature-node chipmakers that rely on the PRC market for revenue. Trade actions on downstream products incorporating Chinese mature-node chips may buffet market distortions, but such remedial policy measures require further study.

Read the full briefing here.