Paul Triolo, Senior Associate and Trustee Chair at the Center for Strategic and International Studies (CSIS), has expressed concern over a potential overcapacity in the mature-node semiconductors industry. This is due to China's subsidies, which could potentially lead to price wars, security risks, and industry dependency with China leveraging the market strategically. Triolo made these comments in a blog post for CSIS on April 24.
"Understanding what is driving the expansion of China's foundry capacity is critical to getting at the issue of whether overcapacity is likely to happen in mature semiconductor production," said Triolo, Senior Associate (Non-resident), Trustee Chair in Chinese Business and Economics. "A number of factors at play highlight the difficulty of a situation where Chinese companies, either foundries or IDMs, could “flood the market” and drive down prices, disrupting markets."
Semiconductors are materials that possess properties between insulators and conductors. They are primarily composed of silicon, according to Investopedia. Semiconductors play a crucial role in smartphones, appliances, medical hardware, military technology and equipment. The semiconductor industry, focused on making products smaller, faster, and cheaper, is critical for global economies. Taiwan and South Korea are heavily dependent on this industry.
According to Triolo, China has provided subsidies to companies for the production of "mature-node fabs," or "mature-node semiconductors." The U.S. fears this could lead to "overcapacity." Mature-node fabs are "produced at nodes at the 28 nanometers (nm) level or above," which the U.S. uses as a benchmark to determine if companies are using semiconductors originating from China. The term "mature semiconductors" can refer to a wide array of chip types and applications ranging from logic and power to radio frequency and mixed analog-digital semiconductors. In China, specialized foundries focus on mature node production operating on thin profit margins while tailoring production to match customer demand – an approach that mitigates the risk of overcapacity.
Triolo stated that Chinese firms continue to dominate the production of mature node semiconductors and their growth is expected alongside that of other countries including the United States, Japan, Taiwan, South Korea, and Europe. He believes the concerns of overcapacity are "exaggerated or misunderstood." Chinese firms are expanding capacity to meet domestic demand, a contrast to industries like photovoltaics (PVs) which target export markets. Demand in China is expected to rise through 2030. Triolo also noted that the issue of dependence is closely tied to overcapacity concerns, as U.S. officials worry that overcapacity could lead to greater dependence and hence vulnerability of companies to disruptions in mature node supply chains.
The House Select Committee on the Chinese Communist Party (CCP) expressed its concern in a January 5 letter to U.S. commerce secretary Gina Raimondo and trade representative Katherine Tai, stating: "We are concerned that [China] is on track to flood the US and global markets with foundational semiconductors." The committee suggested that China might be attempting to ramp up production of semiconductors in general, thereby gaining leverage over global markets. "If the United States becomes dependent on the People's Republic of China (PRC) for foundational chips, our military and economic well-being may run the risk of being overly reliant on the CCP," the letter stated.
Paul Triolo holds a non-residential position as Senior Associate in the Trustee Chair in Chinese Business and Economics at CSIS, according to their official website.
