DSET CEO Jeremy Chih‑Cheng Chang was invited by China Trends, the quarterly publication of the leading European geopolitical think tank Institut Montaigne, to contribute to its 24th special issue, “Semiconductors: China’s Industrial Policy Steamroller in Motion.” In this issue, he publishes a dedicated essay, “Semiconductors and Microelectronics: The Making of the ‘Second China Shock’”, which examines the latest developments in China’s semiconductor industrial policy and their deeper impact on the structure of global technological competition.
The edited volume focuses on China’s push to localize semiconductor production. It demonstrates how Beijing, through a state-led market model, powerful demand-side interventions, and ambitious 2030 capacity targets, is leveraging U.S. export controls as a catalyst to accelerate domestic innovation and consolidate its dominance in mature-node manufacturing. The analysis also underscores that many of China’s leading experts do not view overcapacity as a weakness, but rather as an effective strategic instrument.
In his essay, Chang warns that the global semiconductor market is now experiencing a “Second China Shock.” China is deploying a hybrid “market-driven, state-led” industrial strategy to speed the development of an autonomous semiconductor ecosystem. Through fierce competition among local governments and enterprises, a group of “champion” firms has been selected and rapidly scaled with the full support of state–venture-capital-style equity investment. At the same time, Beijing is utilizing spillover strategies linked to excess capacity and the recentring of supply chains to quickly expand its structural influence within the global semiconductor division of labor.
Chang highlights that the rapid expansion of China’s semiconductor sector is propelled by a highly decentralized and intensely competitive local incentive mechanism. Although the central government sets national strategic direction, the actual promotion of the industry is driven in diverse ways by provincial and municipal authorities. To seize policy opportunities and attract semiconductor investment, local governments across China have poured substantial resources into building integrated supply chains, while simultaneously competing on land allocation, subsidies, financing tools, and talent recruitment. This “let a hundred flowers bloom” model of competition-driven upgrading has produced a hyper-competitive ecosystem where speed, scale, and quantifiable performance serve as core metrics.
However, Chang notes that this decentralized competition has also resulted in fragmented industrial structures and the global diffusion of China’s overcapacity. As capacity expansion and technological deployment mature, Beijing has begun promoting consolidation and recentralization. In response to export controls and the global reorganization of supply chains, China’s central authorities are strengthening top-level design and encouraging capital, technology, and production capacity to concentrate in a small number of strategically important leading firms. The objective is to build a nationwide “pseudo-IDM model” that enhances technological autonomy and supply-chain control while seeking global leadership across all strategic manufacturing sectors.
Chang concludes that, faced with this “Second China Shock,” democratic countries with free-market economies must adopt a far more proactive policy mix. This includes targeted unilateral regulatory tools, deeper multilateral cooperation, and cross-regional co-production incentives among allies. Such an agenda is essential to reduce systemic exposure to China’s vertically integrated model and to ensure that future technological competition is not defined by authoritarian systems.
