After more than a decade in the business, Hu, a representative of a distributor selling foreign-made silicon wafers in China, said he has been shaken by a recent trend: the rapid rise over the past two years of Chinese manufacturers offering the products at just half the price of leading Japanese rivals.
“It’s astonishing that normally, globally, people sell 12-inch silicon wafers for at least USD 60–80 each, but in China, they are offering some for USD 40 each and or even below USD 40,” said Hu, who asked to be identified only by his surname, as he was discussing sensitive price information. “That selling price is already lower than most global leading silicon wafer makers’ production costs of more than USD 50.”
The price war is not the only factor hitting foreign players in China. Many Chinese electronics manufacturers are encouraging their chip suppliers to adopt more domestically produced silicon wafer materials, sources familiar with the matter told Nikkei Asia. For example, Chinese display champion BOE Technology Group, the world’s biggest screen maker, has asked its suppliers of display driver chips to use locally made silicon wafers in chip production, the people said. Driver chips are used in screens and motors to facilitate signal communications.
BOE did not respond to Nikkei Asia‘s request to comment.
Government agencies have also urged the country’s top chipmakers such as Semiconductor Manufacturing International Corporation (SMIC), Hua Hong Semiconductor, ChangXin Memory Technologies, and Yangtze Memory Technologies to use local-made silicon wafers as much as possible, they said.
“When verification was completed in the past year or two, the majority of local chipmakers largely switched to producing chips on domestically made silicon wafers. The shift is quite significant,” said one executive with direct knowledge of the situation.
“Regardless if you are a Chinese supplier of driver chips or not, if you want China’s business, it is strongly ‘encouraged’ to use Chinese-made wafers,” an executive with a display and semiconductor equipment manufacturer told Nikkei Asia. “This is also the way China’s self-sufficiency policy can sustain itself.”
Silicon wafers are the base on which the majority of chips are fabricated. Their production has long been dominated by a handful of global leaders: Shin-Etsu Chemical and Sumco of Japan, Taiwan’s GlobalWafers, Siltronic of Germany, and SK Siltron of South Korea.
The US crackdown on Huawei Technologies and SMIC, the poster children of China’s semiconductor development, prompted Beijing to accelerate efforts to localize every segment in the chip supply chain. Developing its own silicon wafer makers is a key step in that process. Goldman Sachs estimates that Chinese suppliers could meet around 45% of domestic demand for 12-inch silicon wafers by 2025, rising to more than 50% by 2027.
David Dai, a veteran semiconductor analyst at Bernstein Research, said China’s pace of achieving self-sufficiency in silicon wafers is picking up faster than many outsiders had expected, especially for more mature, or older generation, chips.
“Global market leaders’ share in China is bound to decline. The country’s self-sufficiency in 12-inch wafers has already reached more than 50% when looking only at supplies to local Chinese chipmakers and excluding foreign chipmakers, such as Samsung, TSMC, or SK Hynix, that operate plants in China,” Dai said. “For eight-inch wafers, self-sufficiency rates are already 80%. In memory chipmaking cases, the percentage is even higher.”
Broadly speaking, bigger wafers are more advanced and offer greater production efficiency than smaller ones.
Many global wafer makers are still cushioned by long-term contracts signed during the unprecedented chip shortage several years ago, when they could command a fairly high price. Current spot prices, however, have already dipped due to weak macroeconomic demand.
“The actual price could drop a lot when all the long-term contracts end, and they could be on the edge of a battle for survival,” Dai said.
Spot prices for 12-inch wafers are now about USD 50–60, though some long-term contracts still in effect are priced at more than USD 80–90, industry executives with direct knowledge of sale prices told Nikkei.
China’s 14th five-year plan identifies silicon wafers as a key priority for strengthening self-sufficiency, with the government offering extensive incentives for their production. For instance, import taxes are waived on cleanroom construction materials and production equipment for manufacturing eight-inch and larger wafers, according to official documents.
Generous state support and policy directives to boost local adoption have enabled emerging wafer makers to prioritize market share over profits, at least for now, even amid fierce internal competition. A similar strategy helped China become the global leader in industries such as LED, LCD displays, and solar panels: first ramping up production capacity, then focusing on market share growth, and ultimately consolidating to determine which players survive.
At the same time, China is rapidly ramping up production capacity for mature chips, which are critical for everything from electronics and home appliances to cars and defense systems.
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This shift is putting pressure on global chipmakers to adopt cheaper silicon wafers in order to cut costs. Taiwan’s No. 2 contract chipmaker United Microelectronics Corporation (UMC), a key maker of mature chips, recently sent a letter to all suppliers asking them to reduce prices by 15% starting in 2026, according to the document seen by Nikkei.
“These smaller chipmakers need to consider China’s offerings because they lower the cost and increase your chances of competing with Chinese chip rivals,” a chip industry executive told Nikkei. “That is why some smaller chipmakers have negotiated lower wafer prices with existing suppliers. Otherwise, they would need to turn to Chinese sources of silicon wafer base materials.”
Xi’an Eswin Material Technology, the wafer-making arm of Eswin Technology, is one of the most notable newcomers among China’s wafer makers. In 2019, Wang Dongsheng, who founded and transformed BOE into a key display supplier for Apple and Huawei, joined Eswin Technology, reshaping the company and setting long-term strategies that included bolstering its wafer manufacturing business. It is now China’s largest domestic wafer producer, though it has not yet turned a profit. The company plans to list on Shanghai’s STAR Market, often seen as China’s equivalent of the US Nasdaq, this year.
Eswin said in its prospectus that it controlled about 7% of global capacity for 12-inch silicon wafers as of the end of last year and is the “leading wafer supplier” for most new chip plants in China. In total, China now accounts for around 15% of global production capacity, Bernstein’s Dai estimated. But by 2026, that figure could rise to one-third, with Eswin alone capturing more than a 10% share globally, according to the company.
The company counts China’s top chipmakers like SMIC and Hua Hong as key clients, and also serves international players such as UMC, GlobalFoundries, and Powerchip, all makers of mature chips. Eswin logged a net loss of RMB 737.6 million (USD 103.2 million) in 2024, on revenue of RMB 2.12 billion (USD 296.8 million), an increase in the latter of 43.9% compared to RMB 1.47 billion (USD 205.8 million) in 2023.
Eswin says wafer-making requires significant investment and typically takes several years to reach the breakeven point. The company also acknowledged geopolitical risks and says it is striving to use as many locally sourced raw materials and manufacturing equipment as possible.
Other notable Chinese silicon wafer makers include National Silicon Industry Group, which holds more than 6% of the global market, Zhonghuan Advanced, and Hangzhou Lion Microelectronics. National Silicon Industry Group and Hangzhou Lion, like Eswin, reported net losses in 2024. Zhonghuan Advanced is not a publicly traded company.
Clark Tseng, senior director of market intelligence at Semiconductor Equipment and Materials International (SEMI), said Chinese chipmakers have strong incentives to use more local materials suppliers like wafers. It is believed that non-Chinese chipmakers purchasing these wafers generally use them for test runs, rather than for mass production, he added, but that could soon change.
“It is only a matter of time before Chinese wafer suppliers catch up with global rivals … and they have many Chinese customers to hone their capabilities,” Tseng said.
The chip analyst said smaller wafer suppliers may feel the pressure from Chinese competition sooner than the global top three players. “If Chinese chip suppliers can provide a large volume with a certain quality in a particular segment, then the existing suppliers must move up their value chain, developing higher-end solutions to stay in the competition,” he said.
Gokul Hariharan, co-head of Asia Pacific technology, media and telecom equity research with JP Morgan, said the trend of Chinese semiconductor companies trying to use more local wafers as they expand capacity is set to continue.
But this does not mean Chinese wafer makers are quickly penetrating the global market, he added. While newcomers can compete relatively easily in wafers used for older chipmaking processes, when it comes to cutting-edge chips, the expertise required is very different. “It’s not an apples-to-apples comparison,” the chip industry veteran said.
Bernstein’s Dai sounded more downbeat about the global market outlook amid an intensifying competitive environment. “The only way to avoid being edged out as competition intensifies is to focus on the most advanced wafers, differentiate and pursue new technologies or applications that can drive fresh demand for silicon.”
For Hu, the silicon wafer distributor representative shaken by Chinese price-cutting, China’s business environment is already ruthless. “Most players sell products as long as it generates free cash flow, not based on production cost,” he said. “They have their own rules of the jungle. To be honest, an elimination race may be coming, and everyone needs to fasten their seat belts.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.