A new research report published by the DSET Economic Security Research Program—”The Great Siege: The PRC’s Comprehensive Strategy to Dominate Foundational Chips“—reveals in depth how the Chinese government is systematically building a domestic mature-node process chip (foundational chip) supply chain. This move not only poses a severe challenge to Taiwan’s critical industries but is also gradually squeezing the survival space of tech democracies’ enterprises in the global mid-to-low-end chip market.
The report cites statistical data showing that China’s market share in mature process chips reached 34% in 2023, still lower than Taiwan’s 43%, but far exceeding the United States’ 5%. Projections indicate that by 2027, China’s market share will further climb to 47%, while Taiwan will decline to 36%, and the US will remain stagnant at 4%. This trend reflects the clear reality of China’s strong rise in this field.
This report combines first-hand interview experiences with public market data to analyze China’s specific operational model for promoting foundational chip strategies. These include subsidies and policy support through local governments, selecting promising enterprises as “national champions（國家冠軍）,” and building a vertically integrated industrial ecosystem. The report terms this composite policy framework as the “Pseudo-IDM Model,” which mimics the operational logic of Integrated Device Manufacturers (IDM).
Under this state-led system, China uses end products to drive domestic demand, linking design, manufacturing, materials, packaging, and other segments, with national champions from different fields working collaboratively while setting market access barriers for foreign products. This strategy not only allows China to dump its end products globally but also enables these supported “national champion” enterprises to gradually expand their international influence across various industrial chain segments. Ultimately, tech democracies will face the predicament of supply chains being completely surrounded by low-cost Chinese chips, materials, and components in critical areas, posing a serious threat to national security and economic autonomy.
China’s “Pseudo-IDM” Model: Low-Cost Competition Reshaping Supply Chain Landscape
The first part of the report points out that China is systematically squeezing international competitors out of the mature process chip market through a massive and exclusive national subsidy system. Although this development poses significant risks to global supply chains, past US export controls and industrial policies have generally ignored this severe reality. The DSET report specifically issues warnings about this.
Under China’s national system, enterprises selected as “national champions” often do not prioritize short-term profitability. For the government, the primary tasks of these enterprises are “rapid capacity expansion” and “increasing global market share.” Currently, mainstream technology nodes for international mature process chips include 28nm, 40nm, and 130nm, a significant proportion of which are already manufactured by China.
Former US Assistant Secretary of Commerce Nazak Nikakhtar has pointed out that foundational chips account for approximately 95% of global application scenarios, and up to 99.5% of equipment involved in US defense critical combat capabilities still rely on mature process technology, demonstrating its strategic importance. The key to China’s rising chip market share lies in successfully combining its dominant position in end-product markets—such as displays, communication equipment, and gradually expanding to electric vehicles and renewable energy—and developing multiple cutting-edge technologies. This domestic demand-driven effect enables local chip companies to grow rapidly and develop the capability to enter overseas markets.
The report further indicates that the “Pseudo-IDM Model” integrates central resources with industrial clusters promoted by local governments, mimicking the operational logic of traditional Integrated Device Manufacturers (IDM) to achieve vertical integration of the domestic chip supply chain. With end-product enterprises as the leaders, China has created a top-down national champion system that not only supports the domestic market but also gradually penetrates various segments of the global supply chain. When international competitors are forced to exit the market under the pressure of subsidy-driven low-price competition, China seizes the opportunity to establish market dominance, forming a “new chokepoint” for the global technology system.
Therefore, the DSET report emphasizes that analyzing China’s subsidy strategy should not focus solely on chip manufacturing but should extend to the entire supply chain. The report details representative Chinese national champion enterprises in various segments, many of which have already been placed on the US Entity List for their involvement in China’s military modernization. Based on this, DSET calls for Taiwan and the United States to reassess the structural vulnerabilities of global supply chains and establish joint countermeasures to address the national security and economic risks posed by China’s systematic industrial deployment.
“Pseudo-IDM” in Practice: How China Creates New Technology Chokepoints with National Resources
The second part of the report uses wafer manufacturing, silicon wafer materials, and compound semiconductors as case studies to concretely analyze the actual operational mechanisms of China’s “Pseudo-IDM Model.”
First, the report points out that Hefei ChangXin Memory Technologies (長鑫存儲, CXMT) has rapidly emerged as China’s third-largest wafer foundry under the long-term and stable policy support from the Hefei municipal government. Chinese local governments use multiple approaches including financing assistance, infrastructure support, and procurement incentives to not only strengthen local manufacturing capabilities but also successfully embed domestically produced wafers into export-oriented end applications, including displays, driver ICs, and the increasingly expanding electric vehicle market (see figure below). This demonstrates China’s highly coordinated local and central resources driving industrial vertical integration.
In the silicon wafer sector, the report compares three Chinese manufacturers: National Silicon（滬硅產業）, MTCN Technology（中晶科技）, and Wafer Works Shanghai（上海合晶）. National Silicon, as an officially designated “national champion,” continues to receive capital injections despite long-term losses, enabling it to undertake forward-looking expansion and technology investments.
In contrast, MTCN Technology and Wafer Works, which come from private backgrounds, find it difficult to obtain similar support and establish a firm foothold in the Chinese market, regardless of whether their capital comes from within China or Taiwan, as long as they are not incorporated into the state-led industrial system. This “champion logic” similarly limits the market space for enterprises from other countries, further consolidating China’s dominant position in its own supply chain.
In the compound semiconductor field, Chinese enterprise SICC（天岳先進） employs a low-price competition strategy to gradually erode the global market share of the US leading manufacturer Wolfspeed. Even though the US CHIPS Act provides subsidies and infrastructure investment opportunities for domestic enterprises, its funding scale and policy coherence still fall short compared to the national resources integrated by China’s “Pseudo-IDM Model.”
Overall, these cases illustrate that China’s “Pseudo-IDM Model” not only forms systematic advantages in terms of policy and capital scale but also gradually establishes dominance in the supply of mature processes and mid-to-low-end chips in the global market. The report emphasizes that if this trend is not addressed, foundational semiconductor enterprises in democratic countries will face the risk of continued marginalization.
Dual-Track Strategy: Strengthening Export Controls and Establishing Market Denial Strategies
The report concludes with specific policy recommendations for the US government, pointing out that current export control measures are insufficient to effectively address China’s concrete and systematic industrial strategy. To this end, DSET recommends two main directions: expanding export control targets and formulating market denial strategies.
First, regarding export controls (Category A recommendations), DSET advocates for including photoresists and laser light sources in a new technology list (A-1). These two items are indispensable critical materials for mature processes, and domestic Chinese manufacturers still cannot mass-produce products that meet international quality standards.
The report also recommends that the US should accelerate the systematic inclusion of China’s “national champion” enterprises in the Entity List (A-2). Such targeted export controls and sanctions would not only help weaken the operational efficiency of China’s “Pseudo-IDM Model” but also shake the confidence of private investors, thereby reducing the substantive effects brought by government policy interventions.
Second, regarding market denial strategies (Category B recommendations), DSET recommends that the US government prioritize establishing supply chain transparency mechanisms. By coordinating the International Harmonized Tariff System (HTS), it can more accurately reveal the global dependence on Chinese foundational chips. Simultaneously, it recommends that the US Securities and Exchange Commission (SEC) adjust reporting requirements (B-1) to require enterprises to disclose the proportion and connections of Chinese-sourced chips used in their products. This would help raise enterprise risk awareness and prompt the market to independently adjust procurement strategies.
Furthermore, the report recommends prioritizing phased exclusion policies for Chinese chips in defense, critical infrastructure, and all chip products with network connectivity functionality (B-2), and further excluding Chinese suppliers involved in “military-civil fusion” from the international market to prevent their further penetration into strategic industries. Overall, DSET emphasizes that only by combining export controls with institutional market exclusion mechanisms can China’s “Pseudo-IDM” be effectively addressed, protecting the supply chain security and strategic autonomy of tech democracies.
From Silicon Catalyst to Strategic Alliance: Taiwan-US Cooperation Reshaping Democratic Manufacturing Strength
DSET CEO and Director for Economic Security Dr. Jeremy Chih-Cheng Chang concludes in the report that if tariffs are like the indiscriminate strategic bombing campaigns of World War II, then a focused strategy against sector-specific national champions within the PRC’s Pseudo-IDM model is more akin to precision Tomahawk strikes on terrorist cells.
He emphasizes that this report aims to deepen the international community’s understanding of China’s industrial strategy and provide feasible response options to effectively curb China’s ambition to achieve global dominance through foundational chips.
Dr. Chang warns that if policies in various countries continue to pay insufficient attention to the mature process field, the consequences will not only be severe challenges for Taiwan’s semiconductor industry but also pose long-term threats to global semiconductor supply chain security.
DSET points out that while the US’s past focus on export controls for high-end AI chips has indeed had critical effects, it should simultaneously incorporate the mature process field into future strategic vision. Otherwise, China may break through the gaps in current policies, rapidly expand in this field, and further consolidate its influence in the global technological system.
Dr. Chang emphasizes that looking back at 20th-century history, the reason the United States was able to prevail in major conflicts with authoritarian regimes was precisely because of its solid manufacturing strength as the “arsenal of democracy.” Today, in increasingly intense strategic competition with China, if the United States cannot rebuild a robust industrial foundation in critical fields, it may be surrounded or even replaced by China’s industrial expansion.
He further points out that Taiwan, as a key US ally, possesses a world-leading, highly efficient semiconductor manufacturing ecosystem, making it the “Silicon Catalyst” for promoting US re-industrialization. He calls for Taiwan and the US to deepen cooperation, leverage their complementary advantages, allow Taiwan to play a key role in reshaping US manufacturing strength, and jointly strengthen both parties’ long-term national security and economic resilience.