Core Viewpoint - The Chinese semiconductor industry is experiencing a unique form of "non-typical involution," characterized by structural imbalances rather than traditional overcapacity, where high-quality production is in short supply while low-level, homogeneous production intensifies market competition [1][3]. Group 1: Industry Expansion and Capacity - The semiconductor industry in China is expanding rapidly, with a projected 15% increase in chip manufacturing capacity in 2024, reaching 8.85 million wafers per month, driven by the launch of 18 new semiconductor fabs [2]. - The global capacity is also expected to grow by 6% in the same year, with domestic foundries becoming the main contributors to mature process capacity increases by 2025 [2]. Group 2: Quality vs. Quantity - Despite rapid capacity expansion, there is a mismatch in effective supply growth, leading to excessive competition in low-level segments while high-quality capacity remains severely lacking [3]. - High-end production facilities are operating at full capacity, with SMIC reporting a capacity utilization rate of 89.6% in Q1 2025, and Hua Hong Semiconductor indicating near full production for 2024 [3]. Group 3: Market Dynamics and Challenges - The semiconductor industry's involution is primarily due to severe technological homogenization, imbalanced capacity expansion, and a lack of industry chain collaboration, particularly in low-end segments like mature process chips [3][4]. - The SiC substrate market is facing a downturn, with a projected 9% revenue decline in 2024 due to weakened demand and intensified competition, prompting companies like Tiantong to pause related projects [4]. Group 4: Strategic Responses - Companies are exploring paths to break free from low-level competition by shifting focus from price wars to differentiated innovation and ecosystem collaboration [4][5]. - For instance, Rockchip is concentrating on core technologies in audio, video, and perception, aiming to build a differentiated platform for new production capabilities [5][6]. Group 5: Structural Optimization - To resolve the non-typical involution, a structural optimization across the industry is necessary, emphasizing the distinction between market competition and low-end involution [7]. - The proposed "dislocated competition" strategy suggests that state-supported "national teams" focus on high-tech challenges, while local government-backed firms target promising niche markets, allowing market-driven companies to compete in the mature process sector [7][8].

Core Insights - The Chinese semiconductor industry is experiencing a unique form of "non-typical involution," characterized by structural imbalances rather than traditional overcapacity, with a shortage of high-quality production capacity amidst excessive competition from low-level, homogeneous capacities [1][3] Industry Expansion and Capacity - According to SEMI, China's chip manufacturing capacity is expected to grow by 15% in 2024, reaching 8.85 million wafers per month, driven by the launch of 18 new semiconductor fabs [2] - TrendForce forecasts that domestic foundries will become the main contributors to mature process capacity growth by 2025, with a projected 6% increase in the capacity of the top ten global mature process foundries [2] Capacity Utilization and Quality Concerns - Despite rapid capacity expansion, effective supply growth has not kept pace, leading to competition excess primarily in low-level segments, while high-quality production remains critically insufficient [3] - Major players like SMIC and Hua Hong Semiconductor report high capacity utilization rates, indicating that qualified production lines are operating at full capacity [3] Market Dynamics and Price Pressures - The market for SiC substrates has seen a slowdown in growth due to weakened demand from the automotive and industrial sectors, resulting in a 9% year-over-year revenue decline for the global N-type SiC substrate industry in 2024 [4] - Companies like Tiantong Co. have paused projects in response to the competitive pressures in the SiC market [4] Strategic Responses to Competition - Companies are shifting from price wars to "differentiated innovation and ecological collaboration" as a strategy to overcome low-level competition [4] - Example of Rockchip shows a focus on core technological capabilities and innovation in audio, video, and perception fields, aiming to build a differentiated platform for new production capabilities [5] High-End Market Focus - Rockchip emphasizes high-end markets such as smart vehicles and humanoid robots, aiming to meet stringent requirements for safety and reliability while lowering innovation barriers for the industry [6] - The company's approach has resulted in maintaining a high net profit margin, even reaching a historical peak in Q1 of this year [6] Structural Optimization and Industry Collaboration - To address the non-typical involution, a structural optimization across the industry is necessary, focusing on distinguishing between market competition and low-end involution [7] - The proposed "dislocated competition" strategy suggests that state-supported entities should tackle high-tech challenges, while local governments can focus on regional market opportunities, allowing market-driven companies to compete in mature process markets [7][8]