The Geopolitics of Chips: How China Reshaped the Global Market in 2024

2024 was a pivotal year for the Chinese semiconductor market, highlighting a complex interplay between geoeconomic dynamics and geopolitical tensions, particularly with the United States. China responded to increasing US restrictions with a dual strategy: massive chip stockpiling and aggressive investment in domestic production.

Stockpiling Strategy and Responses to Sanctions

US sanctions, aimed at curbing China's progress in artificial intelligence, had a partially counterproductive effect. China increased its annual chip imports by 10.4%, reaching $385 billion. This increase was driven by the strategic need to stockpile supplies in anticipation of stricter future restrictions. Chinese companies rushed to secure chips to ensure a stable supply, demonstrating how sanctions, instead of blocking trade flow, initially stimulated a buying frenzy.

This behavior had a significant geoeconomic impact, benefiting global chip manufacturers. Companies like Applied Materials, Lam Research, KLA, Tokyo Electron, and ASML saw a rise in revenue from Chinese companies, which continued to purchase non-restricted equipment, such as older deep ultraviolet (DUV) lithography systems.

Record Spending and the Push for Self-Sufficiency

In parallel, China launched an unprecedented investment offensive to achieve self-sufficiency. In 2024, China became the global leader in spending on microchip manufacturing equipment, surpassing the combined spending of the United States, Taiwan, and South Korea. This demonstrates a clear geoeconomic choice: to massively redirect capital towards developing a domestic supply chain, reducing dependency on foreign suppliers, and mitigating the risks of sanctions.

The expansion of US restrictions effectively accelerated this process. Chinese manufacturers shifted their focus from pursuing advanced technologies (such as 7nm chips or smaller, which are nearly impossible to produce without ASML's EUV equipment) to increasing the production capacity of less advanced chips, which are essential for strategic sectors like automotive and household appliances. Approximately 70% of Chinese plants are already equipped with locally produced equipment, albeit with gaps in quality and reliability. The goal is not just to compete with the West on cutting-edge chips but to ensure internal economic security.

Internal Volatility and Market Consolidation

Despite massive investments, the domestic Chinese market showed strong volatility. The boom of 2021-2022, fueled by capital and high salaries, gave way to a rapid decline. In 2024, 14,648 chip companies closed down, a sign of intense internal competition and a consolidating market. This phenomenon also reflects that, in a context of geoeconomic tensions, only the most solid companies with government backing can survive.

An Interconnected and Vulnerable Global Supply Chain

The global semiconductor industry is a prime example of how geoeconomic interconnectedness makes decoupling extremely complex. The fabrication of chips relies on a highly specialized and transnational supply chain involving key nations such as Taiwan, South Korea, the United States, Japan, and China.

Many segments of this chain are dominated by a few players. A prominent example is photolithography equipment, where the Dutch company ASML holds a near-monopoly on EUV systems, which are essential for the most advanced chips. The top three photolithography suppliers (ASML, Nikon, Canon) account for virtually the entire market share. Furthermore, 80% of global foundry production is located in Asia, with Taiwan hosting the giant TSMC, which is responsible for 20% of the world's production capacity and is the absolute leader in cutting-edge technology.

The United States, while excelling in chip design with companies like Qualcomm and Nvidia, has limited production capacity and is heavily dependent on Asian foundries like TSMC. The US share of global production fell from 37% in 1990 to 12% in 2020, highlighting growing vulnerability. This complex network of interdependencies also creates crucial "choke points," where control over a single component or production phase can have global repercussions. No single region can control all phases of cutting-edge semiconductor production.

Future Outlook: Between Autonomy and Cooperation

Looking ahead, the geoeconomic dynamic between China and the United States will continue to define the global semiconductor market. China's goal of achieving self-sufficiency appears to be a long-term one, but its massive investments and accelerated development of domestic equipment indicate a clear desire to reduce its dependence on the West. However, total autonomy remains a complex challenge, especially for the most advanced chips.

Meanwhile, global technology companies, such as the Semiconductor Industry Association (SIA), are pushing for a more cooperative approach. They fear that the escalation of restrictions could harm not only Chinese innovation but also the leadership and competitiveness of the United States itself in the sector. The challenge for the coming years will be to find a balance between national security and free trade in a world where technology has become a crucial geopolitical battleground.