China is set to significantly disrupt the global semiconductor industry, according to a recent report by GlobalData.

Despite US chip sanctions, China is developing the capacity to self-supply the bulk of the chips it needs within the next decade. This move could deprive the global supply side of hundreds of billions of dollars in China export sales. China's ambitious plan also includes a major build-out of its legacy chip production capacity.

Legacy chips, which are older generations of chips manufactured using larger nodes, are still very valuable to today's industry, particularly where cost is a concern. These chips account for 95% of total chips used in a typical internal combustion engine car and 50% of chips in an electric vehicle.

Chinese dominance

The GlobalData report suggests that China is likely to dominate the global legacy chip market in the coming years. The report also highlights the escalating US-China trade war and the rising technology nationalism as imminent challenges facing the semiconductor industry.

The prospect of an invasion of Taiwan, a key manufacturer of leading-edge non-memory semiconductors, is incentivising the diversification of semiconductor supply chains away from Taiwan.

Many Chinese and US firms are looking to improve semiconductor manufacturing capabilities domestically, while also forging business relations with potential alternatives, predominantly in South Korea, Singapore, and Japan. In the face of US sanctions, Chinese companies are circumventing these restrictions. Malaysia, for instance, has become a hub for test, assembly, and packaging, with Chinese companies using the country to bypass US trade sanctions.

Since the 1970s, the Malaysian state of Penang has flourished within the semiconductor industry, specialising in testing, assembly, and packaging, for which Malaysia now accounts for an estimated 13% of the global market. The report also points out that new chip designs are being rapidly developed as Moore's Law, the principle that the speed and capability of computers can be expected to double every two years, ends. These include stacked transistors, new 3D chipset architectures, alternative materials, photonic processors, and advanced packaging.

China's strategic moves in the semiconductor industry are poised to cause a significant shift in the global market. The country's ability to self-supply the bulk of the chips it needs and its expansion in the legacy chip market could potentially disrupt the global supply chains and reshape the semiconductor industry.