China is moving to dominate the global market for polysilicon, a key material used in chips, by flooding the industry with cheap, subsidised product to drive producers in other countries out of business.
This is according to a report by the Information Technology and Innovation Foundation (ITIF), a think tank based in Washington D.C. It warns that Beijing is providing “significant support” to its own polysilicon industry in an effort to establish loca businesses as the dominant global suppliers.
This has already led to one US supplier filing for bankruptcy, and others will follow unless countermeasures are taken, the report claims.
Polysilicon is the main substrate material used to produce the wafers that are used in nearly every semiconductor fabrication plant worldwide.
According to ITIF, manufacturers of the material rely on the sale of solar-grade (less refined) polysilicon used in solar panels in order to maintain an economy of scale required to enable their production of semiconductor-grade (more refined) polysilicon.
However, Chinese manufacturers with financial support from Beijing have ramped up production of the less refined material, establishing them as the dominant global suppliers of solar-grade gear, threatening the financial viability of polysilicon makers in the US and elsewhere.
Similar warnings were made last year about China flooding the market with cheap chips. The country’s output of commodity devices from mature silicon production processes was expected to more than double within the next five to seven years, it was reported, which would lead to semiconductor firms in other countries ceasing to make them.
ITIF says in its report that China’s manufacturers have continued to expand, despite operating at a loss. They have grown through facilities in Africa, India, and the Middle East, while Beijing simultaneously blocks American polysilicon exports to China.
China is understood to have an 89 percent share of the global production of solar-grade polysilicon, and the top six manufacturers by volume, such as Tongwei and GCL Technology, are all based in the Middle Kingdom.
ITIF claims that Beijing provides its domestic firms with a range of support that allows them to expand production capacity even while selling at below market price, often trading at a loss in exchange for increasing their market share.
This has reached the point where even domestic producers are suffering from overcapacity, and have started up negotiations to create a $7 billion fund to acquire and shut down roughly one-third of the country’s production capacity to ease the glut.
This was reported by Bloomberg last month, which said that China had a total of 3.23 million tons of polysilicon output capacity by the end of 2024, representing about twice the projected demand for 2025.
Fair market price for polysilicon is about $24 per kg, as estimated by the US National Renewable Energy Laboratory, but Chinese producers are selling at approximately $5 per kg, about $1 below the production cost.
ITIF claims this is the reason why Wolfspeed, the leading US silicon carbide producer, was forced to shut down two of its facilities and then file for bankruptcy in June.
It cautions that unless Beijing’s strategy is countered, other companies in America and partner nations will follow, leaving the semiconductor industry dependent on Chinese suppliers for this key material.
The US Department of Commerce has already launched an investigation into polysilicon and derivative products, ITIF says, and the report offers recommendations for the agency to follow.
First up is to prohibit the import of any Chinese-origin or Chinese-linked polysilicon or derivative products. Another is to expand US-based production of polysilicon and silicon carbide, using sources of financial support such as the CHIPS Act and the Defense Production Act, to ensure commercial and military customers continue to have access to supplies.
Without prompt US government action, chipmakers will find themselves reliant on China for their materials, effectively nullifying the gains made to Uncle Sam’s supply chain resiliency from the CHIPS and Science Act, the report warns.
However, given the Trump administration’s hyperbolic claims about unfair trade practices by other countries, including its closest allies and partners, any such protestations coming out of the US should perhaps be taken with a pinch of salt. ®
