The Economic Security Research at the Research Institute for Democracy, Society, and Emerging Technology (DSET) held a report launch event on July 21st, releasing the latest English reports “Let a Hundred Flowers Blossom: Local Competition and the Rise of Chinese Semiconductor Capacity” and “The Great Siege: The PRC’s Comprehensive Strategy to Dominate Foundational Chips,” analyzing China’s strategy to dominate global foundational semiconductors and its threats to global supply chains and national security.
DSET points out that the PRC, through massive subsidies for foundational semiconductor production using mature-node technologies, has substantially squeezed the survival space of Taiwanese manufacturers. If democratic allies do not take countermeasures, global supply chains will become even more dependent on the PRC’s state-driven industrial model. DSET has shared these report findings with Washington policy circles and think tanks, calling on democratic allies: rather than unilateral U.S. tariff measures, tech democracies including the U.S., Europe, South Korea, and Japan should establish joint supply chain agreements through combined tariffs, investment restrictions on the PRC, R&D cooperation and supply coordination within democratic allies to effectively counter the national security impact of the PRC’s capacity expansion.
This report launch was hosted by DSET CEO Dr. Jeremy Chih-cheng Chang, with presentations by the two report authors—DSET Non-resident Fellow in the U.S. Ho Ming-yen and DSET adjunct policy analyst Wang Tsai-yi—sharing report findings, and inviting Academia Sinica Institute of Sociology Research Fellow Dr. Wu Jieh-min and Wealth Magazine Deputy Editor-in-Chief Lin Hong-ta to attend and comment on the report content.
DSET: Taiwan’s Foundational Chip Market Share Will Be Replaced by the PRC
Dr. Chang explained that the international community has generally noticed that the “China Shock” in manufacturing over the past decade differs from previous waves. The PRC continues to advance in high-end manufacturing, particularly dominating global markets in electric vehicles, solar energy, panels, and batteries. Compared to low-margin light industry, the PRC’s vigorous development of high-end manufacturing technology not only captures more profits but also affects supply chain patterns in military-industrial fields, causing security concerns for democratic economies.
DSET’s “Great Siege” report cites TrendForce, pointing out that in 2023, the PRC’s market share in foundational chips reached 34%, still lower than Taiwan’s 43% but far higher than the U.S.’s 5%. Projections show that by 2027, the PRC’s market share will further climb to 47%, while Taiwan will decline to 36%, meaning the PRC will officially replace Taiwan as the world’s largest foundational chip producer, with the U.S. continuing to stagnate at 4%. This will make global industries, including defense systems, further dependent on the PRC’s supply chains, creating enormous threats to democratic allies.
Regarding current countermeasures by democratic allies, Dr. Chang explained that against the backdrop of Trump’s global tariff negotiations, the U.S. has two ongoing semiconductor investigations: one is the Section 301 investigation into the PRC’s foundational chip subsidies launched by the Biden administration in late 2024 and continued by the Trump administration; the other is the Section 232 investigation launched by the Trump administration in April 2025, examining the national security impact of global chip equipment, components, and related downstream products on the United States, with Taiwan products also within the investigation scope. Europe launched an industry investigation into the PRC’s foundational chips in 2024, considering joint action with allies.
However, Dr. Chang emphasized that current measures are still insufficient to counter the PRC’s industrial expansion, and even the potential Section 232 tariffs the Trump administration might impose on Taiwan semiconductors could make the situation worse.
Dr. Chang stressed that DSET’s purpose in publishing these two reports is to provide more detailed analysis to offer democratic allies more precise countermeasures—the “Great Siege” report identifies the global impact of the PRC’s industrial policies, while the “Let a Hundred Flowers Blossom” report analyzes the operational mechanisms of the PRC’s industrial policies as a basis for judging future trends.
“Let a Hundred Flowers Blossom”: The PRC’s Local Competition Ignores Industry Profits but Brings Technological Innovation
“Let a Hundred Flowers Blossom” report author and DSET Non-resident Fellow Ho Ming-yen explained at the launch that PRC officials often cite “letting a hundred flowers blossom” to promote the PRC’s technology policy development goals, so DSET named the report after this slogan, using the latest longitudinal data on the PRC’s wafer output and official subsidies to analyze the PRC’s rapid semiconductor capacity expansion and its development path in rising international markets.
Ho Ming-yen first cited this week’s Bloomberg report in his presentation, which pointed out that Xi Jinping rarely questioned whether all regions of the PRC must develop emerging industries like AI and new energy vehicles, highlighting the PRC’s overcapacity problem. Ho Ming-yen pointed out that overcapacity is not the desired outcome of the central government, but a direct product of the PRC’s political-economic incentive mechanisms and local GDP competition. The “Let a Hundred Flowers Blossom” report also reflects this problem, analyzing that the PRC’s semiconductor rise is mainly due to local government discretionary subsidies, local venture capital, equity guidance funds, and infrastructure support, particularly local governments’ pioneering of government venture capital models. To solve such problems, Ho Ming-yen expects future industry consolidation led by the central government in the PRC.
Ho Ming-yen pointed out that the PRC’s central government hopes to coordinate national resources and set unified national development goals while utilizing regional differences and flexibility to cultivate nationally competitive leading enterprises across supply chain segments. At the same time, local governments tend to build complete localized supply chains covering chip design, manufacturing, to final consumer products, with policy goals to surpass other regions’ development progress.
Regarding the actual effects of these policies, Ho Ming-yen analyzed that despite the PRC’s unprecedented support for the semiconductor industry, these resources are dispersed among different enterprises across various regions and industry categories. This dispersed resource allocation model causes mismatches between government subsidies and productive enterprises, actually allowing many uncompetitive enterprises to survive due to policy subsidies.
Ho Ming-yen also believes that although this model cannot achieve the most efficient resource utilization, this distinctly PRC decentralized institutional arrangement preserves market competition mechanisms. Local governments insist on using “output/sales volume” and “national market share” as main policy goals while ignoring industry profits, leading to many high-profile failure cases. However, truly efficient enterprises are still incentivized to continuously innovate and reduce costs under intense competition, ultimately successfully entering global markets and improving competitive positions.
Regarding these report findings, Academia Sinica Institute of Sociology Research Fellow Dr. Wu Jieh-min commented that this report confirms an empirical rule: “don’t produce anything the PRC is producing.” He said this sounds unreasonable but directly points to the core problem: the PRC is deliberately creating global overcapacity, triggering a “second round China Shock.” This wave of shock differs from the PRC’s past monopolization of steel, high-speed rail, and electric vehicles because the semiconductor industry has higher technical complexity and greater capital expenditure requirements.
Additionally, Dr. Wu pointed out the “from subsidies to investment” financial manipulation mentioned in the report, and local governments from provincial to municipal to sub-municipal levels developing a model to cultivate “Pseudo-IDM” national champion enterprises, indeed highlighting the core of the PRC’s chip strategy. He described this as “using decentralized development models to achieve centralized ambitions,” which is incomparable to other countries.
Ho Ming-yen responded that high-tech industries face many policy regulations, and for the PRC, how to “innovate” under such sanctions is the PRC’s decentralized strategic direction. He also pointed out that “from subsidies to investment” refers to the PRC government beginning to directly invest in enterprises and acquire equity rather than simply providing free subsidies; this shift from direct fiscal subsidies to equity investments became significant around 2014-2015. These local government fund managers usually come from professional venture capital (VC) companies in financially developed cities like Shenzhen and Shanghai, conducting due diligence and being responsible for investment results, showing that in high-tech industries, the PRC has developed more market or incentive-oriented models.
“The Great Siege”: The PRC Dominates Supply Chains Through Cultivating “National Champions”
DSET Economic Security Research adjunct policy analyst Wang Tsai-yi pointed out that the PRC cultivates “national champion” enterprises in various semiconductor industry segments and constructs a vertically integrated industrial ecosystem. She shared the main findings of “The Great Siege” report at the launch, calling this combined policy framework the “Pseudo-IDM Model,” meaning the PRC emulates the operational logic of Integrated Device Manufacturers (IDMs), using end products to drive domestic demand under a whole-nation system, connecting design, manufacturing, materials, and packaging departments while setting market access barriers for foreign products. This strategy not only enables the PRC’s end products to dump globally but also allows these supported “national champions” to gradually expand their international influence across industry chain segments.
Echoing the “Let a Hundred Flowers Blossom” report findings, local competition-driven capacity expansion also leads to price declines. Under falling prices, enterprises continue expanding production and building factories, most notably in foundational chip fields, with multiple government-supported enterprises commonly existing simultaneously in the same industry. Wang Tsai-yi used enterprise case analysis results from “The Great Siege” report to point out that PRC company SiCrystal adopts low-price competition strategies in compound semiconductors, gradually eroding U.S. leading manufacturer Wolfspeed’s global market share. Even though the U.S. CHIPS Act provides subsidies and infrastructure investment opportunities for domestic enterprises, its funding scale and policy coherence still cannot match the PRC. Due to extreme unfair competition pressure on U.S. manufacturers, recent market performance has been poor.
Wealth Magazine Deputy Editor-in-Chief Lin Hong-ta commented that PRC enterprises, with government support, tend to pursue market share rather than profits because they don’t need to be accountable to investors. Even companies not operating in the PRC are impacted because the semiconductor industry is highly globalized with extremely low tariffs, allowing PRC enterprises’ products to easily enter international markets even without pursuing profits, creating price competition pressure for semiconductor companies globally. The Big Fund also has indicative signaling significance for markets—supported companies won’t easily go bankrupt, attracting massive private capital and creating snowball effects, enabling these companies to obtain huge investments early on.
Wang Tsai-yi responded that alignment between PRC local governments and central policies is also a key factor. Under the PRC’s “decentralized competition but centralized ambitions” system, local governments must respond to central macro-strategies to succeed. Hefei’s success in cultivating industry leaders like Nexchip foundry and ChangXin Memory and building ecosystems around them stems from consistently staying synchronized with hot industries the central government expects to develop.
The PRC’s Semiconductor Policy Trends Toward Recentralization
The “Let a Hundred Flowers Blossom” report emphasizes that tech democracies like the U.S., Japan, and Europe must understand the underlying decentralized institutional structure to respond to the PRC’s continuously improving technical levels and production capabilities in chips, rather than oversimplifying the PRC’s capacity expansion as deliberately directed central government policy intentions. In fact, the PRC’s capacity expansion comes from multiple competing entities, including national foundry leaders like SMIC and Huahong Semiconductor, as well as local manufacturers supported by local governments.
However, from the central government’s perspective, this development logic is not ideal. Local competition makes it difficult for the PRC’s industrial policy resources to concentrate on truly efficient and globally competitive national enterprises. To adjust this situation, the central government has recently launched multiple industrial policy reforms, including authorizing Huawei to coordinate building a vertically integrated supply chain aimed at domestic self-reliance, composed of multiple “national champion enterprises.”
Additionally, the third phase of the National Big Fund has significantly reduced local government participation, retaining only Beijing, Shanghai, and Guangdong local government equity. In other critical industrial technology fields like semiconductor equipment, the central government has also launched consolidation plans aiming to integrate approximately 200 current national equipment suppliers to around 10.
According to People’s Daily reports, President Xi Jinping questioned the current industrial development path encouraging local competition at this July’s central work meeting, indicating that decentralized institutional industrial policies’ inability to concentrate resources may not be favored by the PRC’s current political leadership. Ho Ming-yen concluded the PRC’s semiconductor industry policy development path: if the PRC’s future semiconductor industry policies over-rely on centralized decision-making, whether the central government can make correct judgments in complex hardware supply chains remains highly uncertain. One major challenge the PRC currently faces is how to promote central centralization while preserving the flexible innovation mechanisms stimulated by local competition.
Precise Controls and Joint Agreements: Collectively Addressing the “PRC Problem” in Chips
From overcapacity and price declines to the PRC’s industrial policies and unfair trade, this has formed a common “PRC problem” faced by international markets. Ho Ming-yen believes that responding to the PRC’s “hundred flowers blooming” industrial policy model should use international multilateral cooperation as the core strategic direction, proposing several specific policy recommendations:
First is precise export control strategy. Ho Ming-yen stated that in the short to medium term, since the PRC’s domestic manufacturing equipment and materials market share remains low, if tech democracies expand export restrictions on equipment and materials needed for the PRC’s mature-node processes (such as 14-65nm), this could substantially interfere with its capacity expansion. Additionally, if the U.S. unilaterally expands controls on EDA tools, it could limit cooperation opportunities between PRC chip design companies and Taiwan, South Korea, and other Western foundries in 3-28nm processes. However, for already-sanctioned companies like HiSilicon and Cambricon, the marginal effects of such export controls are relatively limited.
Second is multinational supply chain joint agreements. Ho Ming-yen believes that despite the U.S. investigating the PRC’s unfair trade practices in foundational chip markets, European IDMs continue expanding investments in the PRC and signing joint venture or supply agreements with PRC enterprises, creating policy goal gaps. For this, like-minded countries including the U.S., Europe, Taiwan, and South Korea should coordinate to establish multinational supply chain joint agreements, which could include: formulating joint tariffs and outbound investment restriction measures; establishing free trade mechanisms within democratic supply chain systems; coordinating capacity and advanced/specialty process R&D planning; ensuring strategic applications in military, telecommunications, and space are prioritized by trusted foundries; promoting process R&D for specific applications to help foundational chip suppliers improve product differentiation capabilities in logic and analog chip markets.
The U.S. government is currently conducting Section 232 investigations into semiconductor imports, which may result in U.S. tariffs on semiconductor-related products from Taiwan. In response, Dr. Chang pointed out that according to analysis and recommendations in the “Let a Hundred Flowers Blossom” report, before considering tariff measures, the U.S. government should prioritize thinking about how to deepen U.S.-Taiwan semiconductor industry cooperation, which is the fundamental solution for effectively addressing the “PRC problem.”
