The Chip Industry's Crucial Moment: When China Goes Beyond Being a Buyer to Setting the Rules
Hello everyone, I'm your financial journalist. Today, we're not talking about some boring policy document; instead, we're discussing an earthquake that's happening within the global semiconductor industry.
On September 15th, China's Ministry of Industry and Information Technology and the National Development and Reform Commission jointly released the "15th Five-Year Plan" for the development of the electronic information manufacturing sector. On the same day, South Korean media outlet The Central Daily quoted a statement from a CEO of a South Korean semiconductor company, which could be described as the most profound industry prediction of the year:
> "The risk used to be that we couldn't sell our products to China; now the risk is that China might no longer need to buy our products."
This might sound like a complaint, but if you break down the logic behind it, you realize it's a sign of a structural panic. In the past, China was the big, wealthy buyer, and companies from South Korea, Japan, and the United States made money by selling equipment, materials, and chips to China. But things have changed. China is no longer just a buyer; it's becoming a manufacturer and substitute for the entire supply chain.
Today, I'll break down the key points of this news into five parts in plain language, so you can understand where this "chip war" has reached and why this time it's different.
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South Korea's Dilemma: The More You Sell, the Tighter Your Strangulation
Why are the South Koreans so anxious? Because they've found themselves in a vicious cycle. In the past, South Korea had significant influence in the semiconductor industry, especially in memory chips and upstream materials. However, the situation has changed: South Korean companies are heavily dependent on China as their market, but China is rapidly gaining control over the core raw materials and technologies on which they rely.
The news highlights some striking figures: South Korea's dependence on China for six key IC (Integrated Circuit) raw materials has increased overall, with a dependency on gallium reaching 98%. It's like South Korean chefs (semiconductor companies) making money by serving food to Chinese customers (the Chinese market), but they're getting almost all the salt, sugar, and oil (essential raw materials) from China. Now, China has not only learned how to cook but has also started growing its own ingredients and producing its own salt.
What's even more concerning for South Korean experts is that China's technological advancement isn't linear (e.g., improving by 10% annually); it's exponential and could happen suddenly. The idea that South Korea leads China by 3-5 years is outdated. With its massive factories and production lines, China has a natural laboratory for testing new technologies. As long as Chinese factories are willing to provide opportunities for domestic equipment and materials to be validated, the pace of technological advancement can be astonishing.
Therefore, the South Koreans' fear is that if China achieves full autonomy across the entire supply chain, companies that sell equipment and materials will lose their business.
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The United States' Comprehensive Measures: From Selling Chips to Blocking Cloud Services
While South Korea is anxious, the United States is taking drastic steps to prevent Chinese progress. In recent years, the U.S. has mainly relied on sales bans to curb China's chip development. However, the news shows that U.S. regulations are becoming more sophisticated and aggressive, even extending to cloud services:
1. Enhanced Hardware Restrictions: The U.S. Department of Commerce (BIS) has not only restricted advanced chips but also included software tools (EDA) and special materials (such as diamonds and gallium oxide) used in chip manufacturing under its control. Even the American equipment used by Samsung and SK Hynix in Chinese factories is now subject to case-by-case approval, with no exemptions.
2. Cloud Computing Restrictions: This is the latest and most stringent move. Previously, Chinese companies couldn't buy NVIDIA's top-tier AI chips but could use computing power by renting servers in overseas data centers. Now, the U.S. Congress is pushing the Remote Access Security Act, and the BIS is preparing new rules to block such rentals. In other words, the U.S. is not only preventing the sale of technology but also forbidding the use of that technology remotely.
3. Allies Following Suit: Japan and South Korea are also stepping up. Japan has strict approval processes for advanced packaging equipment, and South Korea has classified high-performance AI chips as strategic items, even amending its Espionage Act to elevate the chip industry to a national security level.
U.S. Commerce Secretary Lutnick has stated that restrictions are unlikely to be eased in the short term. This means that "decoupling" or "breaking the chain" in high-end areas is no longer a threat but a reality.
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China's Comprehensive Counterattack: From Single-Point Breakthroughs to a Complete Ecosystem
Facing these external restrictions, China hasn't just sat idly by; it has launched a comprehensive strategy. The core of the "15th Five-Year Plan" is "comprehensive supply chain development."
In the past, China might have focused on a single aspect, such as lithography machines or memory chips. But now, the strategy has shifted to a "full-chain approach":
- Improving Mature Processes: Although China faces limitations in the most advanced processes (3nm, 2nm), it aims to excel in mature processes (28nm, 14nm) used in automotive, home appliances, and industrial control. TrendForce predicts that by 2030, China will hold more than half of the global capacity for mature processes.
- Autonomizing Key Materials: Jiangsu Pacific Quartz's high-purity quartz sand has been certified, and Yaoxin Microelectronics has made breakthroughs with silicon carbide devices—these are essential for chip manufacturing.
- End-User Driven Upstream Development: Previously, chip manufacturers sought equipment from suppliers; now, terminal brands like Xiaomi are directly using chips from ChangXin Memory. Consumer demand drives the market, and this collaborative validation from equipment to materials and from design to end-users creates an ecological advantage that money can't buy.
The logic is simple: Only with production lines can data be collected, which drives innovation, enabling mass production, and only with end-users can a complete ecosystem be formed. China's vast domestic market is the best incubator for domestic chips.
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The Reality: Bright Prospects, but Still Significant Challenges
We can't be overly optimistic. The news also points out the current reality:
Positive Developments:
- Increasing Domesticization: The domestication rate of equipment for mature processes in domestic wafer factories has risen from 35% in 2024 to 55% in 2025.
- Rise of Memory Chips: ChangXin Memory's DRAM revenue share is expected to rise from 4% to 10%, ranking fourth globally.
- Double Export Growth: In the first eight months of 2026, China's IC exports exceeded $250 billion, doubling year-over-year.
- Investment Optimism: Goldman Sachs predicts that China's IC investment will reach $82 billion by 2030.
Challenges:
- Lithography Machines: Domestication of lithography equipment is below 1%. Although the goal is to deliver 5 domestic DUV (Deep Ultraviolet) lithography machines by 2026, this is still a far cry from ASML's 130 machines delivered last year.
- High-End Gaps: There are still gaps in measurement, testing, and coating processes.
- Talent Shortage: There's a severe shortage of high-end engineers and interdisciplinary specialists. High salaries can't attract experienced professionals, as experience takes time to build.
- Export Focus on Lower-End Products: The doubling of exports is mainly due to mature processes and memory chips; the proportion of high-end logic chips in exports remains low.
In summary, China has achieved scale in quantity, but it's still held back at the highest quality levels.
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The Future of this Competition: A Complex Interdependence
Looking at the bigger picture, the global semiconductor industry is forming a complex interdependence:
- The United States: It's most stringent in restricting advanced processes but can't block its own cloud computing vulnerabilities and relies heavily on Asian manufacturing capabilities.
- Japan: Politically, it cooperates with U.S. regulations, but economically, it can't do without China's market. China's anti-dumping tariffs on Japanese dichlorosilane show that economic sanctions are effective.
- Europe: It's slow to legislate but is taking aggressive actions (e.g., the Netherlands' intervention with ASML), and its weak industry forces it to cooperate with Chinese foundries like SMIC and Huahong to mitigate risks.
- South Korea: It's most anxious because its business model (selling materials/equipment to China) is being disrupted by domestic substitution.
- China: It's no longer passive; it's actively building its own ecosystem. It verifies technologies through its domestic market, generates cash flow from exporting mature products, and uses that cash to fund high-end research and development.
Conclusion:
While the South Korean CEO's statement that China might no longer need to buy South Korean products might be an exaggeration (China still needs to import some high-end equipment and materials), the goal of achieving full domestic autonomy across the supply chain is inevitable.
This war is no longer about simple buying and selling; it's about an ecological confrontation. The U.S. tries to cut off China's technological sources, while China aims to build an independent technological ecosystem through market and manufacturing power.
For ordinary people, this means:
- More Domestic Chips: Domestic chips will become more common in phones, cars, and home appliances.
- Increased Industry Volatility: Geopolitical factors will lead to more dramatic stock price and performance fluctuations in the semiconductor industry.
- Long-Term Benefits for Chinese Tech Companies: Although there will be short-term challenges, Chinese tech companies with autonomous capabilities will gain more market space and pricing power.
In one sentence: The tighter the restrictions, the faster the substitution. China's transition to self-sufficiency in the chip industry is coming, though it may be painful, but it's inevitable.