Unprecedented forecast of China’s chipmaking capacity raises concerns for global players

Despite US sanctions, China’s semiconductor industry appears all set to expand at a robust pace. A recent Bloomberg report citing Barclays research emphasized this, as it projected chipmaking capacity in China would double and exceed market expectations in five years.

The chip ban, while impactful, has spurred greater involvement from local companies in China’s semiconductor sector. Contrary to mainstream industry perceptions, the number of local chip manufacturers and fabrication plants in China is significantly higher than reported, according to the Bloomberg report.

This stresses the underappreciation of Chinese local players in the global semiconductor industry. Perhaps more importantly, this raises several concerns for foreign competition.

Concerns to rise when exports begin

Analysts point out that China’s development of its local supply chain is not surprising, as the demand within the country itself is huge. What could potentially become a major concern for international players is whether they can export because China is known to beat competition by undercutting prices.

“The challenge will come if China’s capacity increases at a higher rate and impacts the business of other companies worldwide,” said Pareekh Jain, CEO of EIIRTrend & Pareekh Consulting. “What China has done in other industries is, if they can scale, they will undercut the prices. So, the question is whether they can export. This is not much of a risk right now because China has huge internal demand. They might not get into the export market right now, but there are some risks of overcapacity and price undercutting.”

Jain highlights that the current emphasis in semiconductor manufacturing, especially for new entrants, is on continuing with older technology. This approach prioritizes execution and quality maintenance over innovation, a common strategy in the early stages of entering the semiconductor sector.

Potential to impact the global supply chain

Manish Rawat, semiconductor analyst at TechInsights, pointed out that China’s intense focus on being technologically self-sufficient could have a significant impact on the global semiconductor market.

“The global supply of chips will become more intense due to the increasing output, which will boost manufacturer competitiveness,” Rawat said. “China’s progress might result in technological and innovative breakthroughs that have a favorable effect on the global semiconductor market. In terms of geopolitics, this action is meant to lessen China’s dependency on foreign technology, which may change ties with conventional semiconductor suppliers.”

China’s increasing ability to produce chips may also force the restructuring of the world’s semiconductor supply chains, which would impact manufacturing strategies elsewhere.

“But questions about the dependability and quality of semiconductors manufactured in China still exist, which has led to more investigation and risk analysis,” Rawat added. “As Chinese companies grow to be significant players in the global semiconductor market, intellectual property protection becomes a crucial problem that calls for a careful balance between collaboration and protecting rights in order to create a sustainable sector.”

What global enterprises can expect

Companies worldwide may take note as China’s rapid surge in semiconductor production predicts a significant change in chip production, especially as the focus suggests a commitment to AI, machine learning, and high-performance computing. However, factors like legal frameworks and intellectual property issues may have an impact on global acceptance.

“Dependability concerns develop, pushing firms to analyze Chinese manufacturers’ quality assurance systems, stressing collaboration with reliable partners and adherence to industry norms,” Rawat said. “Also, companies must evaluate how trade conflicts and export limitations impair chipset dependability due to geopolitical concerns that affect supply chain security. Finally, in order to ensure smooth transitions, possible integration issues require thorough assessments and resource allocation.”

In addition, the expansion of China in the semiconductor industry could create chances for diversification, allowing companies to improve resilience while upholding quality standards.

“A strategic plan comprising comprehensive risk-benefit analyses is essential for making well-informed decisions in an ever-changing world,” Rawat added.