With Advanced Nodes Blocked, China Opens a Detour: Seizing Control of the $56 Billion Semiconductor Market’s “Midsection”

China’s volume-driven offensive squeezes Taiwan’s industry, with a reversal in mature-node foundry market share projected by 2027
China expands global market dominance through corporate restructuring and control of legacy supply chains
An additional $69–72 billion in state support and 28nm technology localization accelerate qualitative growth

Blocked from entering advanced semiconductor processes below 14 nanometers (nm) by stringent U.S. sanctions, China is regrouping by concentrating its firepower on the “legacy” semiconductor market. Rather than attempting to break through the barriers of leading-edge fabrication, Beijing has pivoted toward commanding the global supply chain’s “midsection” by pouring astronomical capital into mature nodes of 28nm and above—processes that underpin virtually all industrial sectors. After closing in on entrenched leader Taiwan through aggressive low-price volume strategies, China is now seeking to move beyond quantitative expansion toward qualitative upgrading, backed by additional state stimulus exceeding $69 billion and accelerated technology localization.

Taiwan Losing Ground Under China’s Price Offensive, Market Share Reversal Seen Within Years

According to the semiconductor industry on January 6, as U.S.-led restrictions on advanced chips persist, China is reshaping the competitive landscape by consolidating its dominance in mature-node processes—the backbone of industrial semiconductors. As a result, Taiwanese companies that have led the $56.3 billion legacy semiconductor market are being forced to overhaul their survival strategies amid China’s relentless advance.

Few cases illustrate this shift more starkly than Taiwan-based Powerchip Technology. Reuters recently highlighted the company as a symbol of an industry where yesterday’s partner has become today’s rival. In 2015, Powerchip partnered with China’s Hefei city to establish foundry Nexchip, then viewed as a strategic foothold into China’s promising market. Less than a decade later, Nexchip has transformed into a formidable competitor. It became Anhui Province’s first mass producer at 12-inch fabs and has since risen to global No.1 in LCD driver IC foundry services and No.3 overall in China’s foundry market. Ultimately, Powerchip has been pushed to the brink of abandoning what was once its cash-cow display IC business under the weight of Nexchip’s aggressive low-price assault.

China is now flooding mature nodes above 28nm with state subsidies to encroach on the market. Alongside Nexchip, companies such as SMIC and Hua Hong Semiconductor are threatening Taiwanese players including Powerchip, UMC, and VIS through deep discounts and rapid capacity expansion. Taiwanese industry sources told Reuters that Chinese firms, blocked from advanced nodes, are redirecting state-backed capital into legacy semiconductors and engaging in near-dumping price competition.

The scale of this offensive is evident in the data. According to Taiwan-based TrendForce, Taiwan held a 43% share of global mature-node foundry capacity in 2024, ahead of China’s 34%. However, China’s breakneck expansion is expected to propel it past Taiwan by 2027. SEMI data further show that of 97 new semiconductor fabs worldwide scheduled to begin operations between 2023 and 2025, 57—well over half—are located in China, underscoring the country’s overwhelming investment momentum.

Compounding the pressure is China’s preferential treatment for domestic suppliers. Anonymous Taiwanese chip designers told Reuters that Chinese customers, particularly in consumer-related sectors such as display panels, are increasingly demanding manufacturing through Chinese foundries to comply with localization mandates. State-owned giants such as China Mobile and China Telecom are especially strict about the use of domestically produced components. Faced with shrinking room to operate, Taiwanese firms have opted for strategic exits and transformations. UMC has diversified its portfolio by partnering with Intel on advanced process development, while Powerchip Chairman Frank Huang has warned that continued participation in China-bound chip businesses leaves no path to survival. As a countermeasure, he announced plans to scale back display driver IC production and pivot toward technologies such as 3D DRAM.

China Tightens Supply-Chain Fortress Through Restructuring, Already Holding the Real Economy in Its Grip

China is reinforcing its legacy semiconductor competitiveness not only through capacity expansion but also via corporate restructuring aimed at efficiency gains. According to the South China Morning Post on January 3, Hua Hong acquired a 97.5% stake in its affiliate HLMC for $1.16 billion, expanding its footprint. Through the acquisition, Hua Hong absorbed HLMC’s 65nm, 55nm, and 40nm logic and specialty process portfolio and instantly secured monthly capacity of 38,000 12-inch wafers. Separately, the company plans to raise up to an additional $2.18 billion to further upgrade and expand its mature-node capabilities.

SMIC has taken a similar path. On December 29, it acquired the remaining 49% stake in its mature-node hub subsidiary, SMIC North, for $5.7 billion, making it a wholly owned unit. The move reflects a strategy of reallocating resources toward mature processes to consolidate market control under continued restrictions on advanced nodes.

Meanwhile, Western perceptions that “legacy chips are safe” are shifting. The U.S. Trade Representative has defined China’s expansion in mature nodes as a supply-chain and price-distortion issue and has formally launched a Section 301 investigation encompassing downstream products. A U.S. Bureau of Industry and Security survey estimates that more than two-thirds of respondent companies’ products already contain chips manufactured at China-based foundries, signaling a high level of dependency within global supply chains.

China’s leverage has already materialized as real-economy risk. Honda Motor recently extended the suspension of operations at three Chinese plants by two weeks, pushing the restart date to January 19 due to chip shortages. Industry sources attribute the disruption to the Nexperia episode. After the Dutch government tightened oversight of Nexperia on security grounds on September 30 last year, China retaliated by restricting exports of the chips. Although Beijing partially eased the restrictions for civilian use following the U.S.–China leaders’ meeting on October 30, supply bottlenecks during the interim disrupted automotive production. The episode demonstrated how China can wield essential legacy component supply chains as a negotiating lever in global markets.

Fortifying the Midsection With Capital: $69–72 Billion Loaded for Qualitative Leap

China’s semiconductor drive has now entered a second phase powered by massive capital injections. Bloomberg reports that Beijing is reviewing an additional policy package worth $28–69 billion, including subsidies and financial support for the semiconductor industry. At the upper end, this would rival the scale of the U.S. CHIPS Act and mark the largest single-nation semiconductor support package on record. Markets see this as evidence that China has redefined semiconductors from a cyclical stimulus tool into a long-term national strategic industry. Even as the U.S. recently approved exports of Nvidia’s H200 chips to China, Beijing is pursuing a dual-track strategy: legally securing overseas advanced chips while simultaneously nurturing its domestic semiconductor ecosystem.

Park Cho-hwa, an analyst at Daishin Securities, noted that China has little choice but to focus on areas where localization is realistically achievable, rather than on advanced nodes where the technology gap remains difficult to close. He added that policy funds are likely to flow toward semiconductor equipment and application-specific chips for autonomous driving and industrial use, rather than cutting-edge processes. Indeed, the current investment plan is being discussed as a comprehensive package spanning AI data centers, power infrastructure, and networks, with immediate and visible benefits expected to accrue to general-purpose and legacy semiconductors.

China’s strategy is evolving beyond low-cost mass production toward localization and upgrading of “mid-tier” technologies in the 28–40nm range. According to Taiwan’s Digitimes on January 5, Nexchip has launched its Phase IV project in Hefei’s Xinzhai High-Tech Zone, investing $5.1 billion. The expansion centers on 12-inch wafers and mature processes and will add monthly capacity of 55,000 wafers once completed.

The goal is to shift Nexchip’s core processes from 55–150nm to higher value-added 28nm nodes to capture demand from AI smartphones and smart vehicles. Industry sources note that rising mobile computing and AI workloads are already causing supply bottlenecks at the 28nm level across computing and storage applications. Demand for specialty processes such as security-focused CIS and automotive OLED driver chips is also growing, positioning Nexchip to capitalize on these niches. The company has further moved to internalize photomask production for processes above 28nm, reducing external dependencies.

This investment sends a critical signal to global semiconductor markets. While China still trails the U.S. in sub-5nm leading-edge nodes, it is seeking to dominate the 20–40nm band that serves as an essential input for electronics worldwide, leveraging sheer production scale. Amid geopolitical risks, China’s push to secure a reliable domestic manufacturing base is taking concrete shape at the 28nm node. Experts warn that this trend presents both opportunity and risk for South Korea’s semiconductor industry: direct impacts on advanced memory segments such as HBM may remain limited, but in legacy nodes and equipment markets, China’s price pressure and supply-chain realignment will be unavoidable.