How China s chip expansion is squeezing global rivals

Market Analysis

US export controls on advanced semiconductors four years ago forced a strategic rethink in Beijing. The restrictions, aimed at curbing Chinas access to the most cuttingedge chips used in artificial intelligence, data centers and defence systems, accelerated a longstanding goal: to build a domestic semiconductor ecosystem that can reduce reliance on foreign suppliers.

That ambition is now being funded at scale. Since the Made in China 2025 blueprint first set the objective of greater selfreliance, Chinese authorities and statebacked investors have poured hundreds of billions of dollars into semiconductor manufacturing, tooling and research. The result has been a rapid expansion in production capacity across a range of process nodes especially in socalled legacy chips that power mass market electronics, industrial machinery and many enterprise systems.

SMIC (Semiconductor Manufacturing International Corporation), the centerpiece of Chinas foundry strategy, reported record revenues of about $9.3 billion last year. Mainland rival HuaHong Semiconductor has also been operating above nameplate capacity, telling investors it ran at roughly 106% utilization in the fourth quarter of 2025 as demand outstripped supply. Those figures underline how government support plus strong domestic demand are helping Chinese foundries scale quickly.

Industry analysts caution that China still trails at the absolute cutting edge of semiconductor manufacturing. Leadingedge nodes used in toptier AI accelerators and the most advanced chips remain dominated by firms and equipment suppliers outside China. But Chinese players have made meaningful gains where it matters most for the global economy: in the production of mature, goodenough chips that are embedded in cars, communications gear, consumer electronics and enterprise servers. A recent Rhodium Group study estimates China now accounts for roughly 30% of the global market for these legacy semiconductors.

That shift has two practical effects. First, it reduces Chinas vulnerability to future export controls by creating more domestic sourcing options. Second, it places competitive pressure on nonChinese suppliers who have historically controlled many lowerend and midrange manufacturing lines. For global customers and component buyers, the expanding availability of locally produced chips can lower costs and shorten supply chains but it also changes bargaining dynamics and market share calculations for foundries and equipment makers in Taiwan, South Korea, Europe and the United States.

Geopolitics will continue to shape the sector. Policymakers in Washington and allied capitals remain focused on preventing the transfer of the most advanced chipmaking knowhow and tools to China, citing national security risks. At the same time, industrial policymakers in Beijing are using subsidies, state investment and preferential policies to accelerate catchup. The result is an increasingly bifurcated industry: a highend segment where access is tightly controlled, and a broad mid to lowend universe where China is rapidly scaling capacity.

For international investors and supplychain planners, the practical takeaway is that Chinas semiconductor push is changing where and how many chips are made, even if the absolute performance frontier is still concentrated outside the mainland. Companies exposed to legacy chip demand stand to face stiffer competition from Chinese foundries, while firms focused on the extreme leading edge may remain insulated at least until equipment and IP restrictions shift.

Overall, Chinas focus on goodenough semiconductor production is a quietly consequential development. Its not a sudden leap to the bleeding edge, but it is a structural move that reshapes global markets, supply chains and strategic calculations across the technology sector.