The European Commission has expressed concerns that European chipmakers may lose significant market share in China as Beijing ramps up investment in the semiconductor industry to achieve self-sufficiency in critical technologies. This warning comes amidst China’s aggressive push to bolster its domestic semiconductor sector.
European companies such as the Netherlands-based NXP Semiconductors NV and Germany’s Infineon Technologies AG, along with Japan’s Renesas Electronics Corp., could be adversely affected by China’s efforts to nurture its own semiconductor industry. These companies produce microcontrollers (MCUs) and other essential chips for sectors like automotive, industrial applications, and consumer electronics. While they don’t manufacture the industry’s most advanced semiconductors, such as those used in Apple’s iPhones, their products are critical to many key economic areas.
According to a report from the European Commission, China is already employing discriminatory standards, local content requirements, and other non-tariff barriers to encourage the growth of its domestic MCU companies. These measures are particularly effective in leveraging China’s vast electric vehicle (EV) market, potentially disadvantaging European and Japanese chip suppliers.
Microcontrollers are small computers on a single chip that typically control a single function within electronic devices, such as activating airbags in cars or regulating water temperature in washing machines. China currently accounts for 30% of global MCU demand, highlighting the significance of the Chinese market for these components.
Bloomberg News earlier reported that the Chinese government has urged EV manufacturers, including BYD Co. and Geely Automobile Holdings Ltd., to significantly increase their purchases from local auto chipmakers. This directive is part of a broader strategy to reduce reliance on Western imports and strengthen China’s domestic semiconductor industry.
European chipmakers might also feel the impact of China’s substantial investments in manufacturing capacity for analog, discrete, mixed-signal, and power semiconductors. China plans to spend over $100 billion on new chip plants to produce semiconductors for a wide range of applications, from home appliances to smartphones.
China’s increased spending on domestic semiconductor capacity follows the imposition of US controls on Chinese companies’ ability to purchase high-end chips and the equipment needed to produce them. Although the focus is on legacy chips—less advanced but still in high demand due to growing EV and renewable energy markets—China’s investment is substantial.
The Semiconductor Equipment and Materials International (SEMI) trade group forecasts that China will have 41 new chip fabrication plants (fabs) operational between 2023 and 2027, the highest number of any region globally. This includes 34 fabs for 300-millimeter wafers and seven for 200-millimeter wafers. Larger wafers allow for higher chip production rates, contributing to China’s growing semiconductor manufacturing capacity.
Chinese President Xi Jinping recently emphasized the need for increased innovation in semiconductors, pointing to China’s ongoing technological confrontation with the US. This call to action underscores the strategic importance China places on developing its semiconductor industry.
Washington has expressed concerns that Chinese chipmakers could flood the global market with their products, similar to what has happened in the solar and steel industries. These concerns have been shared with European counterparts, reflecting broader geopolitical tensions over technology and trade.
The European Union is currently reviewing the extent to which its businesses rely on mature or lower-end chips from China. However, the latest EU analysis suggests that fears of Chinese chips systematically flooding the global market are less likely to materialize. High domestic demand in China is expected to absorb any additional production capacity until at least 2030. This conclusion is partly based on data from Dutch equipment maker ASML Holding NV, which indicates that Chinese foundries typically produce chips exclusively for companies based in China.
European officials also noted that Chinese chipmakers might reduce their production capacity as they engage in price wars with domestic competitors due to potential oversupply.